As
filed with the U.S. Securities and Exchange Commission on April 30,
2010
Registration
No. 333-__________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
Colorado
|
XSUNX, INC.
|
84-134159
|
(State or Other Jurisdiction of Incorporation or
Organization)
|
(Exact Name of Registrant as Specified in its
Charter)
|
(I.R.S. Employer Identification No.)
|
|
|
Tom
Djokovich
|
65
Enterprise
|
|
65
Enterprise
|
Aliso
Viejo, California 92656
|
|
Aliso
Viejo, California 92656
|
(949) 330-8060
|
3081
|
(949) 330-8060
|
(Address
and Telephone Number
of
Principal Executive Office)
|
(Primary Standard Industrial
Classification Code Number)
|
(Name, Address and Telephone Number of
Agent
for Service)
|
With
copies to:
Clayton
E. Parker, Esq.
John D.
Owens III, Esq.
K&L
Gates, LLP
200 S.
Biscayne Boulevard, Suite 3900
Miami,
Florida 33131
Telephone:
(305) 539-3300
Facsimile:
(305) 358-7095
Approximate
date of commencement of proposed sale to the public:
As soon as practicable after this
registration statement becomes effective
.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
|
CALCULATION
OF REGISTRATION FEE
|
|
Title
Of Each Class
Of
Securities To Be Registered
|
|
Amount
To
Be
Registered
(1)
|
|
|
Proposed
Maximum
Offering
Price
Per
Share
(2)
|
|
|
Maximum
Aggregate
Offering
Price
(2)
|
|
|
Amount
Of
Registration Fee
|
|
Common
Stock, no par value per share
|
|
|
27,500,000
|
|
|
$
|
0.14
|
|
|
$
|
3,850,000
|
|
|
$
|
274.50
|
|
TOTAL
|
|
|
27,500,000
|
|
|
$
|
0.14
|
|
|
$
|
3,850,000
|
|
|
$
|
274.50
|
|
(1)
|
The
shares of our common stock being registered hereunder are being registered
for sale by the selling stockholder named in the
prospectus.
|
(2)
|
Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933. For the purposes of this
table, we have used the average of the high and low prices as of
April 27, 2010.
|
The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT
TO COMPLETION, DATED APRIL 30, 2010.
The
information in this Prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the U.S.
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
XSUNX,
INC.
27,500,000
Shares of Common
Stock
This
prospectus (“
Prospectus
”) relates
to the sale of up to
27,500,000
shares of the common stock, no par value per share, of XsunX, Inc.
(referred to herein as the “
Company
”, “
XsunX
”, or “
we
”, “
us
”, or “
our
”) by the “selling
stockholder”, Lincoln Park Capital Fund, LLC. Please refer to
“Selling Stockholder” beginning on page 11.
The
Company is not selling any shares of common stock in this offering and therefore
will not receive any proceeds from this offering. All costs associated with this
registration will be borne by the Company.
Shares of
common stock are being offered for sale by the selling stockholder at prices
established on the Over-the-Counter Bulletin Board (the “
OTCBB
”) during the
term of this offering. On April 21, 2010, the last reported sale
price of our common stock was $0.15 per share. Our common stock is
quoted on the OTCBB under the symbol “XSNX”. These prices will
fluctuate based on the demand for the shares of our common stock and other
factors.
Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under the applicable state law or that an exemption from
registration is available.
These securities are speculative and
involve a high degree of risk.
Please refer to “Risk Factors”
beginning on page 4 for a discussion of these risks.
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
selling stockholder is an “underwriter” within the meaning of the Securities Act
of 1933, as amended.
The date
of this Prospectus is ___________, ______
TABLE
OF CONTENTS
PROSPECTUS SUMMARY
|
2
|
|
3
|
RISK
FACTORS
|
4
|
FORWARD-LOOKING
STATEMENTS
|
10
|
SELLING
STOCKHOLDER
|
11
|
USE
OF PROCEEDS
|
14
|
PLAN
OF DISTRIBUTION
|
15
|
DESCRIPTION
OF CAPITAL STOCK
|
16
|
DESCRIPTION
|
17
|
MANAGEMENT
|
24
|
PRINCIPAL
STOCKHOLDERS
|
32
|
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS
|
33
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|
|
RESULTS
OF OPERATIONS
|
37
|
LEGAL
MATTERS
|
42
|
EXPERTS
|
43
|
AVAILABLE
INFORMATION
|
43
|
FINANCIAL STATEMENTS OF XSUNX, INC.
|
44
|
PART
II
|
|
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
|
II
- 1
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
II -
1
|
RECENT
SALES OF UNREGISTERED SECURITIES
|
II -
3
|
EXHIBITS
|
II -
6
|
UNDERTAKINGS
|
II -
7
|
SIGNATURES
|
II
-
8
|
PROSPECTUS
SUMMARY
The
following is only a summary of the information, financial statements and the
notes thereto included in this prospectus (the “
Prospectus
”). You
should read the entire Prospectus carefully, including “Risk Factors” and our
financial statements and the notes thereto before making any investment
decision.
Business
Overview
XsunX,
Inc. is a Colorado corporation formerly known as Sun River Mining Inc. (referred
to herein as the “
Company
”, “
XsunX
”, or “
we
”, “
us
” or “
our
”). The
Company was originally incorporated on February 25, 1997. In the fiscal year
ended September 30, 2009, we modified our previous business plans which were to
directly establish a solar module manufacturing infrastructure. We
have re-focused our operations on the development of a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for us to
establish a competitive advantage within the solar industry. Our current efforts
are focused on developing the combination of highly developed thin film solar
processes with state-of-the-art mature magnetic media thin film manufacturing
technologies derived from the hard disc drive (HDD) industry in an effort to
improve manufacturing output, increase cell efficiency and production yields,
and lower costs for the production of high efficiency Copper Indium Gallium (di)
Selenide (CIGS) thin film solar cells.
It is our
belief that by leveraging the manufacturing processes from the HDD industry and
adapting them to thin-film CIGS solar technologies, we can reduce the cost per
watt for solar power to well below $1 per watt, thereby making solar power a
viable alternative in the energy field. Furthermore, it is our belief
that our expertise, experience and the proprietary technology we are developing
in this area will allow us to seek joint ventures with larger companies thereby
generating revenue streams through licensing fees and manufacturing
royalties.
Re-Focused Plan of
Operations
In late
2008, we began investigating the viability of small area CIGS thin film solar
manufacturing technology that would employ the use of high rate thin film
manufacturing techniques successfully used within the magnetic media industry to
produce hard disc drives (HDD). For decades, the HDD industry has had
to continually improve manufacturing output, and production yields, to lower the
costs for the production of high efficiency magnetic media. In January 2009, we
began working directly with the HDD industry to validate the possibility of
transitioning this manufacturing technology to the thin film photovoltaic (TFPV)
industry and more specifically for the manufacture of CIGS solar
cells.
In
February, 2009, with Intevac, Inc., a leading provider of
magnetic media deposition equipment to the hard disk drive (HDD) industry, we
began to collaborate in the development of techniques and equipment for the
production of commercially marketable processes and equipment for the
manufacture of CIGS thin-film solar cells on small area wafers similar in
size to traditional crystalline silicon wafers of approximately 5”
squares. Through the successful combination of cross-industry
specialties, we plan to develop a new breed of thin film photovoltaic (TFPV)
manufacturing techniques to produce CIGS based thin-film solar
cells.
About CIGS Thin Film Solar
Devices
Copper
Indium Gallium (di) Selenide (CIGS) exceeds all other thin film solar cell
performance to date delivering nearly 20% conversions in laboratory
environments. The Nation Renewable Energy Laboratories (NREL) believes that CIGS
solar module efficiencies could easily match silicon performance while costing
less to produce. It is this high efficiency low cost potential for CIGS, and its
wide array of uses and applications, that provides the basis to drive the cost
of energy production for alternative sources to unprecedented new lows. For this
reason NREL views CIGS as a significant solar technology and supports continuous
development and research efforts related to CIGS thin films. We have
found interest in our CIGS program at NREL and are working with NREL in an
effort to establish a Cooperative Research and Development Agreement to
assist in the future commercialization process.
We
believe that through the successful combination of small area processing
techniques with the high rate processing techniques developed within the hard
disc media industry, overall factory yields (total watts of production per day)
can be increased thereby resulting in lower production costs while still
delivering the full energy and low cost potential that CIGS based devices can
offer.
About
Us
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. Our website can be accessed at
www.xsunx.com
.
The
Offering
This
Prospectus relates to the sale of up to 27,500,000 shares of the common stock,
no par value per share, of XsunX, Inc. by certain persons who are stockholders
of the Company. The selling stockholder is
Lincoln Park Capital Fund, LLC
(“
LPC
”).
On March 30, 2010, we entered into a
purchase agreement (the “
Purchase Agreement
”)
with LPC, whereby LPC agreed to purchase up to an aggregate of $5,000,000 of our
common stock (the “
Purchase
Shares
”). Pursuant to the terms of the Purchase Agreement, LPC
purchased an initial amount of $500,000 of Purchase Shares (5,000,000 Purchase
Shares) from us, and in consideration for LPC entering into the Purchase
Agreement we agreed to the issuance of up to 2,500,000 shares of common stock
(the “Commitment Shares”) to LPC of which 1,250,000 have been issued to
LPC. Further, subject to our satisfaction of certain conditions, such
as the effectiveness of a registration statement covering the shares under the
Purchase Agreement, LPC agreed to buy more of the Purchase Shares at
our direction, at any time, in any amount up to $50,000 at a
specified purchase price per share. Also, pursuant to the terms of
the Purchase Agreement, after the SEC has declared effective the registration
statement, we will have the right, over a 25-month period, to sell the remaining
Purchase Shares to LPC in amounts up to $500,000 per sale, subject to certain
conditions as set forth in the Purchase Agreement, up to the aggregate
commitment of $5,000,000.
Please
refer to “Selling Stockholder” beginning on page 11.
The
Company is not selling any shares of common stock in this offering and therefore
will not receive any proceeds from this offering. However, may receive up to
$5,000,000 from LPC in connection with the initial sale of the Purchase Shares
under the Purchase Agreement . Any proceeds from LPC that we receive under the
Purchase Agreement will be used for working capital and general corporate
purposes. All costs associated with this registration will be borne by the
Company.
Shares of
common stock are being offered for sale by the selling stockholder at prices
established on the Over-the-Counter Bulletin Board (the “
OTCBB
”) during the
term of this offering. On April 21, 2010, the last reported sale
price of our common stock was $0.15 per share. Our common stock is
quoted on the OTCBB under the symbol “XSNX.OB”. These prices will
fluctuate based on the demand for the shares of our common stock.
Common
Stock Offered
|
27,500,000
shares by the selling stockholder
|
Offering
Price
|
Market
price
|
Common
Stock Currently Outstanding
|
208,484,641
shares as of April 29, 2010
|
Use
of Proceeds
|
We
will not receive any proceeds of the shares offered by the selling
stockholders. See “Use of Proceeds” on page 14
herein.
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk. See “Risk
Factors” on page 4 herein.
|
Over-the-Counter
Bulletin Board Symbol
|
XSNX.OB
|
RISK
FACTORS
We
are subject to various risks that may materially harm our business, financial
condition and results of operations. An investor should carefully consider the
risks and uncertainties described below and the other information in this filing
before deciding to purchase our common stock. If any of these risks or
uncertainties actually occurs, our business, financial condition or operating
results could be materially harmed. In that case, the trading price of our
common stock could decline or we may be forced to cease operations.
RISKS
RELATED TO OUR BUSINESS
We
have a limited operating history with significant losses and expect losses to
continue for the foreseeable future, as such we expect that we will need to
obtain additional financing to continue to operate our business, including
capital expenditures to complete the development of marketable thin film
manufacturing technologies, and financing may be unavailable or available only
on disadvantageous terms which could cause the Company to curtail its business
operations and delay the execution of its business plan.
We are a
development stage company and, to date, have not generated any significant
revenues. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the U.S., which
contemplate our continuation as a going concern. Net loss for the years ended
September 30, 2009 and 2008 was $10,634,133 and $4,058,952, respectively. Net
cash used for operations was $2,862,327 and $2,695,476 for the years
ended September 30, 2009 and 2008, respectively. From inception through
September 30, 2009, we had an accumulated deficit of $31,709,202. Our
revenues have not been sufficient to sustain our operations and we expect that
our revenues will not be sufficient to sustain our operations for the
foreseeable future. As such, we expect that we will continue to need
significant financing to operate our business. Furthermore, there can be no
assurance that additional financing will be available or that the terms of such
additional financing, if available, will be acceptable to us. If additional
financing is not available or not available on terms acceptable to us, our
ability to fund our operations, complete the development of marketable
technologies, develop a sales network, maintain our research and development
efforts or otherwise respond to competitive pressures may be significantly
impaired. We could also be forced to curtail our business operations, reduce our
investments, decrease or eliminate capital expenditures and delay the execution
of our business plan, including, without limitation, all aspects of our
operations, which would have a material adverse affect on our
business. The items discussed above raise substantial doubt about our
ability to continue as a going concern. 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, whether our products will
achieve market acceptance and whether we obtain additional financing. We may not
achieve our business objectives and the failure to achieve such goals would have
a materially adverse impact on us.
We
may be required to raise additional financing by issuing new securities with
terms or rights superior to those of our shares of common stock, which could
adversely affect the market price of our shares of common stock and our
business.
We will
require additional financing to fund future operations, including expansion in
current and new markets, development and acquisition, capital costs and the
costs of any necessary implementation of technological innovations or
alternative technologies. We may not be able to obtain financing on favorable
terms, if at all. If we raise additional funds by issuing equity securities, the
percentage ownership of our current stockholders will be reduced, and the
holders of the new equity securities may have rights superior to those of the
holders of shares of common stock, which could adversely affect the market price
and the voting power of shares of our common stock. If we raise additional funds
by issuing debt securities, the holders of these debt securities would similarly
have some rights senior to those of the holders of shares of common stock, and
the terms of these debt securities could impose restrictions on operations and
create a significant interest expense for us which could have a materially
adverse affect on our business.
Particularly,
we may direct LPC to purchase up to an additional $4,500,000 worth of shares of
our common stock over a 25 month period generally in amounts of up to $50,000
every 2 business days. However, LPC shall not have the right nor 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 $0.08. Assuming a
purchase price of $0.15 per share (the closing sale price of the common stock on
April 21, 2010) and the purchase by LPC of the 25,000,000 Purchase Shares being
registered hereunder, proceeds to us would only be $3,750,000.
The
extent that we rely on LPC 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 such as through the sale of our products. If
obtaining sufficient funding from LPC were to prove unavailable or prohibitively
dilutive and if we are unable to sell enough of our products, we may need to
secure another source of funding in order to satisfy our working capital
needs. Even if we sell all $5,000,000 worth of common stock under the
Purchase Agreement to LPC, 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.
If
future products based on technologies we are developing 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 which will have a materially adverse affect on our
business.
There can
be no assurance that our 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 development has
been completed which could have an adverse affect on our business.
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 which could have an adverse affect on our
business.
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 thin film
manufacturing technologies and products could impede our ability to complete the
development of our products and have a material adverse affect on our
business.
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. A loss of any of our third party relationships for any reason could
cause us to experience difficulties in implementing our business strategy. There
can be no assurance that we could establish other relationships of adequate
expertise in a timely manner or at all.
We
may suffer the loss of key personnel or may be unable to attract and retain
qualified personnel to maintain and expand our business which could have a
material adverse affect on 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.
We
may not be successful in protecting our intellectual property and proprietary
rights and may be required to expend significant amounts of money and time in
attempting to protect these rights. If we are unable to protect our intellectual
property and proprietary rights, our competitive position in the market could
suffer.
Our
intellectual property consists of patents, trade secrets, and trade dress. Our
success depends in part on our ability to obtain patents and maintain adequate
protection of our other intellectual property for our technologies and products
in the U.S. and in other countries. The laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the U.S., and
many companies have encountered significant problems in protecting their
proprietary rights in these foreign countries. These problems may be caused by,
among other factors, a lack of rules and methods for defending intellectual
property rights.
Our
future commercial success requires us not to infringe on patents and proprietary
rights of third parties, or breach any licenses or other agreements that we have
entered into with respect to our technologies, products and businesses. The
enforceability of patent positions cannot be predicted with certainty. We intend
to apply for patents covering both our technologies and our products, if any, as
we deem appropriate. Patents, if issued, may be challenged, invalidated or
circumvented. There can be no assurance that no other relevant patents have been
issued that could block our ability to obtain patents or to operate as we would
like. Others may develop similar technologies or may duplicate technologies
developed by us.
We are
not currently a party to any litigation with respect to any of our patent
positions or trade secrets. However, if we become involved in litigation or
interference proceedings declared by the United States Patent and Trademark
Office, or other intellectual property proceedings outside of the U.S., we might
have to spend significant amounts of money to defend our intellectual property
rights. If any of our competitors file patent applications or obtain patents
that claim inventions or other rights also claimed by us, we may have to
participate in interference proceedings declared by the relevant patent
regulatory agency to determine priority of invention and our right to a patent
of these inventions in the U.S. Even if the outcome is favorable, such
proceedings might result in substantial costs to us, including, significant
legal fees and other expenses, diversion of management time and disruption of
our business. Even if successful on priority grounds, an interference proceeding
may result in loss of claims based on patentability grounds raised in the
interference proceeding. Uncertainties resulting from initiation and
continuation of any patent or related litigation also might harm our ability to
continue our research or to bring products to market.
An
adverse ruling arising out of any intellectual property dispute, including an
adverse decision as to the priority of our inventions would undercut or
invalidate our intellectual property position. An adverse ruling also could
subject us to significant liability for damages, prevent us from using certain
processes or products, or require us to enter into royalty or licensing
agreements with third parties. Furthermore, necessary licenses may not be
available to us on satisfactory terms, or at all.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information and such disclosure could hurt
our competitive position in the market.
To
protect our proprietary technologies and processes, we rely on trade secret
protection as well as on formal legal devices such as patents. Although we have
taken security measures to protect our trade secrets and other proprietary
information, these measures may not provide adequate protection for such
information. Our policy is to execute confidentiality and proprietary
information agreements with each of our employees and consultants upon the
commencement of an employment or consulting arrangement with us. These
agreements generally require that all confidential information developed by the
individual or made known to the individual by us during the course of the
individual’s relationship with us be kept confidential and not be disclosed to
third parties. These agreements also generally provide that technology conceived
by the individual in the course of rendering services to us shall be our
exclusive property. Even though these agreements are in place there can be no
assurances that that trade secrets and proprietary information will not be
disclosed, that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets, or that we can fully protect our trade secrets and proprietary
information. Violations by others of our confidentiality agreements and the loss
of employees who have specialized knowledge and expertise could harm our
competitive position and cause our sales and operating results to decline as a
result of increased competition. Costly and time-consuming litigation might be
necessary to enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection might adversely affect our
ability to continue our research or bring products to market.
Downturns
in general economic conditions could adversely affect our
profitability.
Downturns
in general economic conditions can cause fluctuations in demand for our
products, product prices, volumes and margins. Future economic conditions may
not be favorable to our industry. A decline in the demand for our products or a
shift to lower-margin products due to deteriorating economic conditions could
adversely affect sales of our intended products and our profitability and could
also result in impairments of certain of our assets.
Our
common stock is considered a “penny stock” and as a result, related
broker-dealer requirements may hamper its trading and liquidity.
Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act. These include but are not limited to the
following: (i) the common stock trades at a price less than $5.00 per
share; (ii) the common stock is not traded on a “recognized” national
exchange; (iii) the common stock is not quoted on the NASDAQ Stock Market,
or (iv) the common stock is issued by a company with average revenues of
less than $6.0 million for the past three (3) years. The principal result
or effect of being designated a “penny stock” is that securities broker-dealers
cannot recommend our common stock to investors, thus hampering its
liquidity.
Section 15(g)
and Rule 15g-2 require broker-dealers dealing in penny stocks to provide
potential investors with documentation disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the documents before
effecting any transaction in a penny stock for the investor’s account. Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any of our shares.
Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock
to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis
on which the broker-dealer made the determination in (ii) above; and
(iv) receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor’s financial situation,
investment experience and investment objectives.
The
trading market in our common stock is limited and may cause volatility in the
market price which may adversely affect stockholders’ ability to
trade.
Our
common stock is currently traded on a limited basis on the OTCBB. The OTCBB is
an inter-dealer, over-the-counter market that provides significantly less
liquidity than the NASDAQ Stock Market and the other national markets. Quotes
for stocks included on the OTCBB are not listed in the financial sections of
newspapers as are those for the NASDAQ Stock Market. Therefore, prices for
securities traded solely on the OTCBB may be difficult to obtain.
The
quotation of our common stock on the OTCBB does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies like us. Thus,
the market price for our common stock is subject to volatility and holders of
common stock may be unable to resell their shares at or near their original
purchase price or at any price. In the absence of an active trading
market:
|
·
|
investors
may have difficulty buying and selling or obtaining market
quotations;
|
|
·
|
market
visibility for our common stock may be limited;
and
|
|
·
|
a
lack of visibility for our common stock may have a depressive effect on
the market for our common stock.
|
Due to
the low price of the securities, many brokerage firms may not be willing to
effect transactions in the securities. Even if a purchaser finds a broker
willing to effect a transaction in these securities, the combination of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such securities as collateral for any loans. Such
restrictions could have a materially adverse affect on our
business.
We
may have difficulty raising necessary capital to fund operations as a result of
market price volatility for our shares of common 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 recent
years, the securities markets in the U.S. have experienced a high level of price
and volume volatility, and the market price of securities of many companies have
experienced wide fluctuations that have not necessarily been related to the
operations, performances, underlying asset values or prospects of such
companies. For these reasons, our shares of common stock can also be expected to
be subject to volatility resulting from purely market forces over which we will
have no control. If our business development plans are successful, we may
require additional financing to continue to develop and exploit existing and new
technologies and to expand into new markets. The exploitation of our
technologies may, therefore, be dependent upon our ability to obtain financing
through debt and equity or other means.
RISKS
RELATED TO THIS OFFERING
The
sale
of our common stock to LPC may
cause dilution and the sale of the shares of common stock acquired by LPC could
cause the price of our common stock to decline.
In
connection with entering into the Purchase Agreement, we authorized the sale to
LPC of up to 25,000,000 shares of our common stock of which LPC has already
purchased 5,000,000 shares, and the issuance of up to 2,500,000 shares of common
stock as a commitment fee of which 1,250,000 shares have been issued to
LPC. The number of shares ultimately offered for sale by LPC under
this Prospectus is dependent upon the number of shares purchased by LPC under
the agreement. The purchase price for the common stock to be sold to LPC
pursuant to the Purchase Agreement will fluctuate based on the price of our
common stock. All 27,500,000 shares registered 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 25 months from the date of this
Prospectus. Depending upon market liquidity at the time, a sale of
shares under this offering at any given time could cause the trading price of
our common stock to decline. We can elect to direct purchases in our
sole discretion but no sales may occur if the price of our common
stock is below $0.08 and therefore, LPC may ultimately purchase all, some or
none of the remaining 20,000,000 Purchase Shares registered in this offering
(Such
20,000,000 Purchase Shares not including the 1,250,000 pro rata Commitment
Shares that may be issued under the Purchase Agreement, as described in “Selling
Stockholder” on page 11.)
After
it has acquired such shares, it may sell all, some or none of such shares.
Therefore, sales to LPC 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 LPC and the
agreement may be terminated by us at any time at our discretion without any cost
to us.
The
price you pay in this offering will fluctuate and may be higher or lower than
the prices paid by other people participating in this offering.
The price
in this offering will fluctuate based on the prevailing market price of our
common stock on the OTCBB. Accordingly, the price you pay in this
offering may be higher or lower than the prices paid by other people
participating in this offering.
The market price of our common stock
is highly volatile
.
The
market price of our common stock has been and is expected to continue to be
highly volatile. Factors, including announcements of technological innovations
by us or other companies, regulatory matters, new or existing products or
procedures, concerns about our financial position, operating results,
litigation, government regulation, developments or disputes relating to
agreements, patents or proprietary rights, may have a significant impact on the
market price of our common stock. In addition, potential dilutive
effects of future sales of shares of common stock by stockholders
and by the Company,
including the selling stockholder pursuant to this Prospectus, and subsequent
sale of common stock by the holders of warrants and options could have an
adverse effect on the market price of our shares.
FORWARD-LOOKING
STATEMENTS
Information
included or incorporated by reference in this Prospectus may contain
forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which 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. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words “may”, “should”, “expect”, “anticipate”, “estimate”, “believe”,
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
This
Prospectus contains forward-looking statements, including 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. These statements may be
found under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Description of 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 Prospectus will in fact occur.
SELLING
STOCKHOLDER
The
following table presents information regarding our selling stockholder, Lincoln
Park Capital, LLC (“
LPC
”), who intends to
sell up to 27,500,000 shares of our common stock. The following table
presents information regarding the selling stockholder. Neither the
selling stockholder nor any of its affiliates has held a position or
office, or had any other material relationship, with us at any
time.
Selling Stockholder
|
|
Shares
Beneficially
Owned
Before
Offering
|
|
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
Before
Offering
|
|
|
Shares
to be Sold in the Offering
Assuming
The Company Issues The
Maximum
Number of Shares
Under
the Purchase Agreement
|
|
|
Percentage
of
Outstanding
Shares
Beneficially
Owned After
Offering
|
|
Lincoln
Park Capital Fund, LLC (1)
|
|
6,250,000(2)
|
|
|
0.03%(2)
|
|
|
27,500,000
|
|
|
0.00%(2)
|
|
(1)
|
Josh
Scheinfeld and Jonathan Cope, the principals of LPC, are deemed to be
beneficial owners of all of the shares of common stock owned by LPC.
Messrs. Scheinfeld and Cope have shared voting and disposition power over
the shares being offered under this
Prospectus.
|
(2)
|
6,250,000
shares of our common stock have been previously acquired by LPC under the
Purchase Agreement, consisting of 5,000,000 shares purchased by LPC and
1,250,000 shares we issued to LPC as a commitment fee. We may
at our discretion elect to issue to LPC up to an additional 21,250,000
shares of our common stock and such shares are not included in determining
the percentage of shares beneficially owned before the
offering.
|
Transaction
with LPC
On March 30, 2010 (the “
Closing Date
”), we
entered into the Purchase Agreement with LPC, whereby LPC agreed to purchase up
to an aggregate of $5,000,000 of our common stock (the “
Purchase
Shares
”). Pursuant to the terms of the Purchase Agreement, on
the Closing Date, LPC purchased an initial amount of $500,000 of Purchase Shares
(5,000,000 Purchase Shares) from the Company. Further, subject to the Company’s
satisfaction of certain conditions, such as the effectiveness of a registration
statement in connection with this Prospectus (the “
Registration
Statement
”) covering the Purchase Shares and Commitment Shares (as
defined below), LPC agreed to buy more of the Purchase Shares at our direction,
at any time, in any amount up to $50,000 at the Purchase Price per share on the
Purchase Date, as such terms are defined by the Purchase
Agreement. Also, pursuant to the terms of the Purchase Agreement,
after the U.S. Securities and Exchange Commission (the “
SEC
”) has declared
effective the Registration Statement, we will have the right, over a 25-month
period, to sell the remaining Purchase Shares to LPC in amounts up to $500,000
per sale, subject to certain conditions as set forth in the Purchase Agreement,
up to the aggregate commitment of $5,000,000.
The Purchase Agreement does not set any
upper limits with respect to the price that LPC may pay to purchase the Purchase
Shares. The purchase price of the remaining $4,500,000 of Purchase Shares will
be based on the prevailing market prices of our common stock at the time of such
purchases without any fixed discount, and we will control the timing and amount
of any sales of Purchase Shares to LPC. Pursuant to the terms of the
Purchase Agreement, LPC shall not have the right or the obligation to purchase
any Purchase Shares on any business day that the price of common stock is below
$0.08.
Pursuant to the terms of the Purchase
Agreement, we issued to LPC 1,250,000 shares of our common stock as a commitment
fee in consideration of LPC entering into the Purchase Agreement, and the
Company agreed to issue an equivalent amount of shares of common stock pro rata
as LPC purchases the remaining $4,500,000 (such shares, collectively, the “
Commitment Shares
”).
The Purchase Agreement may be terminated by us at any time at our discretion
without any cost to the Company. Except for a limitation on variable
priced financings, there are no negative covenants, restrictions on future
fundings, penalties or liquidated damages in the Purchase
Agreement. The proceeds received by us under the Purchase Agreement
are expected to be used in the development of thin film manufacturing equipment
and technologies, general and administrative costs, and general working
capital.
Also on the Closing Date, we entered
into a registration rights agreement with LPC (the “
Registration Rights
Agreement
”) whereby we agreed to file the Registration Statement with the
SEC within 25 business days of the Closing Date.
Events
of Default
Generally,
LPC may terminate the Purchase Agreement without any liability or payment to us
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 LPC 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 Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the NYSE AMEX;
• the
transfer agent’s failure for five (5) business days to issue to LPC shares of
our common stock which LPC 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; or
• a
material adverse change in our business.
Our
Termination Rights Under the Purchase Agreement
We have
the unconditional right at any time for any reason to give notice to LPC
terminating the Purchase Agreement without any cost to us.
No
Short-Selling or Hedging by LPC
LPC 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 Purchase Agreement on Our Stockholders
All
27,500,000 shares registered 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 25 months from the date of this
Prospectus. The sale by LPC 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. LPC may
ultimately purchase all, some or none of the remaining 20,000,000 Purchase
Shares registered in this offering
; such
20,000,000 Purchase Shares exclusive of 1,250,000 pro rata Commitment Shares
that may be issued under the Purchase Agreement
. After
it has acquired such shares, it may sell all, some or none of such
shares. Therefore, sales to LPC by us under the 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 LPC and the agreement may be terminated by us at any time at our
discretion without any cost to us.
In
connection with entering into the Purchase Agreement, we authorized the sale to
LPC of up to 25,000,000 shares of our common stock exclusive of the 1,250,000
Commitment Shares issued and the 1,250,000 Commitment Shares that may be issued
and are part of this offering.
We will sell no more
than 25,000,000 shares to LPC under the Purchase Agreement all of which are
included in this offering. We have the right to terminate the
agreement without any payment or liability to LPC at any time, including in the
event that all $5,000,000 is sold to LPC under the Purchase Agreement.
The number
of shares ultimately offered for sale by LPC under this Prospectus is dependent
upon the number of shares purchased by LPC under the Purchase
Agreement. The following table sets forth the amount of proceeds we
would receive from LPC from the sale of shares at varying purchase
prices:
Assumed
Average
Purchase
Price
|
|
|
Number
of Shares
to
be Issued if Full
Purchase
|
|
|
Percentage
of
Outstanding
Shares After
Giving
Effect to the
Issuance
to LPC
(1)
|
|
|
Proceeds
from the Sale of
Shares
to
LPC Under the
Purchase
Agreement
|
|
$
0.084
(2)
|
|
|
25,444,444
|
|
|
10.88%
|
|
|
$2,100,000
|
|
$
0.10
|
|
|
25,555,556
|
|
|
10.92%
|
|
|
$2,500,000
|
|
$
0.15
3
|
|
|
25,902,778
|
|
|
11.05%
|
|
|
$3,750,000
|
|
$
0.20
|
|
|
26,250,000
|
|
|
11.18%
|
|
|
$5,000,000
|
|
$
0.30
|
|
|
17,916,667
|
|
|
7.91%
|
|
|
$5,000,000
|
|
$
0.40
|
|
|
13,750,000
|
|
|
6.19%
|
|
|
$5,000,000
|
|
$
0.50
|
|
|
11,250,000
|
|
|
5.12%
|
|
|
$5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(1) The
denominator is based on 208,484,641shares outstanding as of April 29, 2010,
which includes the 6,250,000 shares previously issued to LPC, and the number of
shares set forth in the adjacent column which includes the commitment fee issued
pro rata as up to $4,500,000 of our stock is purchased by LPC. 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) Under
the Purchase Agreement the Company may not sell and LPC cannot purchase any
shares in the event the price of our stock below $0.08.
(3) Closing
sale price of our shares on April 21, 2010.
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 shareholder. We will receive no
proceeds from the sale of shares of common stock in this
offering. However, we may receive proceeds up to $5,000,000 from LPC
in connection with the initial sale of the Purchase Shares under the Purchase
Agreement. As of April 29, 2010, we have received $500,000 from LPC under the
Purchase Agreement. Any proceeds from LPC that we receive under the
Purchase Agreement will be used for our working capital and general corporate
purposes.
PLAN
OF DISTRIBUTION
The common stock offered by this
Prospectus is being offered by LPC, the selling shareholder
.
The common stock
may be sold or distributed from time to time by the selling stockholder 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 shareholder 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.
LPC is an “underwriter” within the
meaning of the Securities Act of 1933, as amended (“
Securities
Act
”).
Neither we nor LPC can presently
estimate the amount of compensation that any agent will receive. We
know of no existing arrangements between LPC, any other shareholder,
broker, dealer, underwriter, or agent relating to the sale or distribution of
the shares of common stock 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 shareholder, and any other
required information.
We will pay all of the expenses
incident to the registration, offering, and sale of the shares of common stock
to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify LPC 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.
LPC and its 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 LPC 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 Securities Exchange
Act of 1934, as amended. With certain exceptions, Regulation M
precludes the selling shareholder, 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
LPC.
DESCRIPTION
OF CAPITAL STOCK
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 29, 2010, 208,484,641 shares of common stock are issued and outstanding
and held by approximately 288 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 (the “
Board
”), 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
We are
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. The preferred shares are entitled to a preference
over holders of our common stock equal to the par value of the shares of
Preferred Stock held, plus any unpaid dividends declared. As of April
29, 2010, no shares of Preferred Stock had been issued.
Dividends
We have
not declared or paid any cash dividends on our common stock and do not
anticipate paying dividends for the foreseeable future.
DESCRIPTION
OF BUSINESS
Company
history
We are a
Colorado corporation formerly known as Sun River Mining Inc. The
Company was originally incorporated in Colorado on February 25, 1997. Effective
September 24, 2003, we completed a Plan of Reorganization and Asset Purchase
Agreement (the “Plan”).
Pursuant
to the Plan, we 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.
Business
overview
In the
fiscal year ended September 30, 2009, we modified our previous business plans
which were to directly establish a solar module manufacturing infrastructure. We
have re-focused our operations on the development of a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for us to
establish a competitive advantage within the solar industry. Our current efforts
are focused on developing the combination of highly developed thin film solar
processes with state-of-the-art mature magnetic media thin film manufacturing
technologies derived from the hard disc drive (HDD) industry in an effort to
improve manufacturing output, increase cell efficiency and production yields,
and lower costs for the production of high efficiency Copper Indium Gallium (di)
Selenide (CIGS) thin film solar cells.
It is our
belief that by leveraging the manufacturing processes from the HDD industry and
adapting them to thin-film CIGS solar technologies, we can reduce the cost per
watt for solar power to well below $1 per watt, thereby making solar power a
viable alternative in the energy field. Furthermore, it is our belief
that our expertise, experience and the proprietary technology we are developing
in this area will allow us to seek joint ventures with larger companies thereby
generating revenue streams through licensing fees and manufacturing
royalties.
Re-focused plan of
operations
In late
2008, we began investigating the viability of small area CIGS thin film solar
manufacturing technology that would employ the use of high rate thin film
manufacturing techniques successfully used within the magnetic media industry to
produce hard disc drives (HDD). For decades, the HDD industry has had
to continually improve manufacturing output, and production yields, to lower the
costs for the production of high efficiency magnetic media. In January 2009, we
began working directly with the HDD industry to validate the possibility of
transitioning this manufacturing technology to the thin film photovoltaic (TFPV)
industry and more specifically for the manufacture of CIGS solar
cells.
In
February, 2009, with Intevac, Inc., a leading provider of
magnetic media deposition equipment to the hard disk drive (HDD) industry, we
began to collaborate in the development of techniques and equipment for the
production of commercially marketable processes and equipment for the
manufacture of CIGS thin-film solar cells on small area wafers similar in
size to traditional crystalline silicon wafers of approximately 5”
squares. Through the successful combination of cross-industry
specialties, we plan to develop a new breed of thin film photovoltaic (TFPV)
manufacturing techniques to produce CIGS based thin-film solar
cells.
About CIGS thin film solar
devices
Copper
Indium Gallium (di) Selenide (CIGS) exceeds all other thin film solar cell
performance to date delivering nearly 20% conversions in laboratory
environments. The Nation Renewable Energy Laboratories (NREL) believes that CIGS
solar module efficiencies could easily match silicon performance while costing
less to produce. It is this high efficiency low cost potential for CIGS, and its
wide array of uses and applications, that provides the basis to drive the cost
of energy production for alternative sources to unprecedented new lows. For this
reason NREL views CIGS as a significant solar technology and supports continuous
development and research efforts related to CIGS thin films. We have
found interest in our CIGS program at NREL and are working with NREL in an
effort to establish a Cooperative Research and Development Agreement to
assist in the commercialization process.
We
believe that through the successful combination of small area processing
techniques with the high rate processing techniques developed within the hard
disc media industry, overall factory yields (total watts of production per day)
can be increased thereby resulting in lower production costs while still
delivering the full energy and low cost potential that CIGS based devices can
offer.
For the
fiscal year ending September 30, 2010, we developed a plan of operations based
upon three significant management implementations which began in the 2009 fiscal
year. The first is cost-cutting measures, including the closure of
the proposed Oregon solar module manufacturing facility which was under
assembly, layoff of staff employed under efforts to establish the Oregon
facility, and an across the board reduction to salaries, with the intended goal
of reducing operating expenses not directly related to the development of new
technologies under our revised plans. The second was a modified sales
strategy. Rather than operate under a direct manufacturing business
model, we plan to develop joint-ventures with pre-existing semi-conductor
companies that management believes may be capable and prepared to invest in the
green energy market. Lastly, we have re-focused operations on the
development of a cross-industry thin film solar manufacturing concept that we
believe provides an opportunity for us to establish a competitive advantage
within the industry. In furtherance of these efforts we have begun the
development of a hybrid manufacturing system combining certain technologies
derived from the magnetic media manufacturing industry with manufacturing
techniques for thin film solar to produce high efficiency Copper Indium Gallium
(di) Selenide (CIGS) thin film solar cells.
Our
current Plan of Operations, based upon the aforementioned activities, commits
$1.65 million for general, administrative and working capital under a phase one
plan necessary to prove and prepare the commercial viability of the new thin
film CIGS manufacturing systems we are developing. Once we have completed our
initial development efforts and proven the commercial viability of these new
manufacturing technologies we plan to launch the second phase of our business
plan by establishing a pilot production system for marketing and sales efforts,
continued process improvement, and general business development efforts related
to the commercialization of our proposed new CIGS manufacturing
technology.
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.
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.
CIGS: Current Manufacturing
Limitations
Current
techniques for the production of CIGS thin films do not leverage stationary
small area, high rate, production technologies which allow for the precise
control of thin film properties. Development and production of CIGS, and many
other thin films like amorphous silicon (a-Si), have focused on the use of large
area substrates or continuous moving roll-to-roll deposition methods often in
excess of one meter wide or square. While CIGS holds the record for best thin
film cell performance at nearly 20% in smaller area devices, scaling these
laboratory results to large area devices have proved costly and difficult,
resulting in much lower product efficiencies.
A number
of manufacturers of CIGS today use large area or continuously moving roll-to-
roll substrates in an effort to mass produce solar absorbing material and then
cut these larger areas of solar absorbing material up into smaller wafer sized
pieces for use in solar module assemblies. They sacrifice quality for quantity
and the net results are products that deliver only fractions of the CIGS
potential. Others employ manufacturing techniques that to date have yet to
deliver the potential for low cost and high efficiency CIGS solar cells.
Typically most commercially produced CIGS solar cells provide between 8% to 10%
conversion efficiencies which leaves virtually 100% of the potential
efficiencies untapped.
Rapid small area processing vs. large
panel processing
Traditional
economies-of-scale theory dictates that large panel processing decreases costs.
Large volumes or output are achieved with each batch or panel that comes off a
line. This is particularly true for amorphous silicon (a-Si) where 10
to 50 one meter or larger square panels can be simultaneously
processed is a single large batch system. However, the goal of
discreet or single cell processing is to achieve similar production volumes but
through speed and the simultaneous use of multiple small area deposition
zones. We believe that the benefits of rapid single cell processing
over large panel processing include.
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·
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Factory Floor
Print:
Large format panels require floor space and while
real estate is less expensive than in the past the cost can still be
significant. In contrast single cell processing can be
conducted in a facility that is significantly
smaller. Additionally much of the cost of a large facility is
the recurring monthly utility bill which amplifies the
problem. The cost of a large facility becomes even larger if
clean rooms are required.
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Product
Acceptability:
CIGS is deposited in a substrate
configuration and must have a top glass cover to achieve UL, IEC, and TUV
certifications. The top glass cover helps to provide durability
necessary to provide a 20-30 year lifetime typical for the solar
industry. The single cells that are strung together can use a
single tempered top glass cover and a thin moisture barrier
back sheet (similar to a silicon solar cell panel). Not only is
handling of the back sheet easier in production the resulting solar module
can be up to ~1/2 the weight of thin films that utilize a glass cover for
both sides of the solar module.
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·
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Scrap:
With large format
processing, if there is a problem during processing the entire panel is
scrapped leading to significant loss of production potential. As a result
scraping is a significant problem for large format monolithically
integrated solar panels. For a single cell with an area of approximately
twenty five square inches (for the 125mm pseudo square), a
processing problem results in scraping only about 1.45 Watts of
product.
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·
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Breakage:
Silicon
solar cells are very thin and fragile. This leads to losses resulting from
breakage during manufacture and assembly. Our proposed CIGS cell
deposition is done on stainless steel wafers. Stainless does
not break.
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·
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Large
Defects:
A large defect for large area deposition
anywhere on the panel will require the entire panel to be scrapped because
that defect will ‘drag’ the rest of the panel to virtually zero
output. For single cell production the cell that encountered
the defect can simply be removed during cell testing and performance
sorting.
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·
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Small Defects or Composition
Variation:
For a large area substrate, statistically
there are more small area defects and compositional variations. These
defects and compositional variations can cause slightly different
performance from cell to cell across the large format monolithically
integrated panel. The result is the entire panel is ‘drug’ down
to the lowest current cell. For single cell processing, each
cell is tested and binned (or sorted) according to efficiency and current
prior to assembly thereby resulting in a more efficient use of a factories
potential production capacities.
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·
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Process
Control:
While all of the above are significant factors
to consider when comparing large area to small area production, large area
process control quite possibly could be the biggest differentiating
feature between large monolithically integrated panels. Control
of the manufacturing process over a large area, even with well controlled
process such as sputtering has shown significant
challenges.
|
CIGS Experience
Our staff
experience includes nearly 15 years of thin film and CIGS experience in
successful technology development, equipment design, and production of several
million square feet CIGS products in a commercial production
setting. Our Chief Technology Officer has worked side by side with
leading researchers at NREL and in fact shares an R&D 100 award with NREL
staff for efforts related to CIGS technology development.
Our
resident XsunX thin film CIGS technologists and manufacturing experts are
working jointly with a leading producer of manufacturing equipment utilized in
the hard disc market to create a unique process of coupling small area
deposition (approximately 5X5 inch squares), material control, and material
transport technologies from the disk drive industry for use in the production of
thin film CIGS solar cells. We are combining the expertise and years of
technological improvements derived from the sophisticated hard disc drive
manufacturing industry with XsunX staff experience in the thin film
industry.
CIGS: Strategy and
Differentiation
The XsunX
approach is to capitalize on past commercialization experience of CIGS and to
combine this experience with smaller area deposition within high rate hard disk
drive (HDD) equipment. It is anticipated that the combination of these two
principals will lead to solar conversion efficiency approaching that achieved in
laboratories as well as achieving high yield and high throughput, similar to the
HDD industry.
We are adapting sophisticated high rate
production tools from the disk drive industry with process knowledge from the
CIGS and thin film industry. By maintaining a relatively small
deposition area, we believe reduces a significant challenge that has faced the
CIGS industry in the past: maintaining cell performance while scaling
production.
We believe that key advantages to the
adaptation of high rate HDD technologies to CIGS thin film manufacture
include:
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§
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The
Ability to leverage previous Commercialization Experience Developed for
CIGS Thin Films and the HDD
Industry
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•
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Not
starting from “Scratch”
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•
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Lower
cost re-tooling of existing systems
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•
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Maximizing:
|
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ü
|
Pre-existing
Equipment Designs to Speed
Development
|
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ü
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Proven
High Rate Hard Disk Drive Mass Material and Process Control
Techniques
|
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ü
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Small
Area Process Controls to Improve Thin Film
Quality
|
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ü
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Reducing
Time to Market Through the Use of Development Systems Sized to Match
Commercial Production Systems – No Need to Scale System Architecture to
Achieve Commercial Production
|
Applications for thin film CIGS solar
cells
We
believe that high efficiency flexible CIGS solar cells provide an immense
opportunity for use in multiple market segments. The modular format of single
thin film CIGS solar cells offers an opportunity to become the solar building
blocks for a wide variety of applications including:
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§
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Replacing Existing Silicon
Wafers
: A virtual drop in replacement for expensive and
unpredictable silicon wafer costs. We believe this is a vast market
opportunity to replace aging technology.
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§
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Utility Scale Solar
Fields
: Due to the modular building block aspect of using wafers
solar module size and power output can be tailored to deliver the needs of
any size solar farm or application. The constraints of monolithic thin
film technology no longer limit panel size.
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§
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BIPV Products
: High
performance thin film flexible CIGS wafers can be designed into an array
of building products including roofing materials, building facades, and
glass.
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§
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Residential Markets
:
Unlike lower performance thin film solutions, high performance CIGS
modules deliver the energy density necessary to make residential
applications economical.
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§
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Consumer Products
: A
growing array of consumer products from hand held devices to vehicles and
gadgets of all types have begun to integrate solar. Thin film CIGS wafers
can be sized to meet the needs of these rapidly growing market
segments.
|
Research
and development
During the fiscal year ended September
30, 2009, we spent $358,884 on research and development activities. During the
year ended September 30, 2008, the Company recovered $40,590 previously spent on
research and development activities.
Sales
and marketing
We have
developed and have begun to implement a plan to offer technology licenses for
joint venture manufacturing opportunities for regional well funded,
manufacturing partners in a number of industry sectors. To date we have focused
primarily on semiconductor and solar companies. Although we focused
on the development of solar technology and products, we are not a systems or a
machine manufacturer. Our plan is to license technology we develop that provides
for a complete front end CIGS solar cell manufacturing process, and if required
by the licensee, a back end process to convert the CIGS solar cells into solar
modules. We have and intend to continue to develop relationships with equipment
manufacturers that can build systems to our specifications thereby allowing us
to offer turn-key manufacturing solutions to enable our joint venture companies
to manufacturer CIGS small area cells quickly and inexpensively.
We
anticipate that at the conclusion of the development of our CIGS technology,
that we will generate revenue from an array of services and license fees from
manufacturers that utilize our technologies. These revenue fees may include
inception license fees and royalty streams based upon the efficiencies of our
unique CIGS technology, guidance for the conversion of new or existing
facilities, production line equipment and systems design and markups, training
and implementation, as well as R&D support, and product reliability
expertise.
Intellectual
property
We plan
to market license opportunities for our technology and not directly manufacture
the solar technologies and related products that may employ the use of our thin
film technologies. This business model requires that we develop and maintain
intellectual property that includes both patented and proprietary technologies.
We have licensed certain patented and patent pending technologies, and we are
developing with the intent to file for patent protection certain other thin film
manufacturing technologies. The following is an outline of certain patents and
technologies we have acquired, licensed, or are developing:
In
September 2003, we were 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. We are not currently contemplating the use of these patents in the
development of our proposed new thin film CIGS manufacturing
technology.
In May
2008, we licensed certain patented and patent-pending technologies from
MVSystems, Inc. providing us a worldwide, non-exclusive, royalty-free,
irrevocable, fully-paid up right and license, with the right to sublicense the
following patents and patent application and any reissues, re-examinations,
divisionals, continuations and extensions thereof: (a) U.S. Patent No. 6,488,777
B2; (b) U.S. Patent No. 6,258,408 B1; and (c) U.S. Patent App. No. 10/905,545
(Pub. No. US 2005/0150542 A1) (together, the “Patents”). The license
limits us to the use of the Patents for the development by XsunX of
commercial-grade (
i.e.
., web width 30 cm or more and nominal output exceeding 1 megawatt/year based on
1 shift operation) solar cells, photovoltaic technologies, solar cell panels and
methods of manufacture. The license grants us exclusive ownership of any
improvements made by us to the licensed patents. In April 2009 the Company
received notice from MVSystems that U.S. Patent App. No. 10/905,545 (Pub. No. US
2005/0150542 A1) application referenced above had been rejected by the US Patent
Office for various deficiencies. In August 2009 MVSystems notified the Company
that it had amended its application and re-filed the amended patent application
with the U.S Patent Office. On January 22, 2010, the Company received
notification from MVSystems that the above referenced patent application had
again been rejected by the Untied States Patent Office and that MVSystems had
elected to abandon the above referenced patent application. By prior agreement,
the Company has assumed all rights of MVS to prosecute or maintain the
referenced patent application, and the Company continues to hold related
contractual rights and claims against MVSystems, Inc. We are not currently
contemplating the use of these patents, or patent applications, in the
development of our proposed new thin film CIGS manufacturing
technology.
In the
fiscal year ended September 30, 2009, we began the development of process
technology and engineering efforts to adapt certain manufacturing technologies
and systems utilized in the production of magnetic media for use to manufacture
discreet (individual) thin film solar cells. As we continue to develop these new
technologies, we may actively seek patent protection for certain aspects related
to methods and apparatus we develop. We can give no assurance that any such
patent(s) will be granted for any process and manufacturing technology that we
may develop individually or in conjunction with third parties.
We rely
on trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. We have not been subject to any intellectual property
claims.
Government
Contracts
We do not
have any government contracts at this time.
Competitive
Conditions
A number
of thin film 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 technologies developed that may be
developed by us, and they may also achieve manufacturing costs per watt lower
than cost per watt to manufacture technologies developed by us.
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 seven 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
Our
operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. Compliance with these
regulations by us has required that we retain the use of consulting firms to
assist in the engineering and design of systems related to equipment operations,
management of industrial gas storage and delivery systems, and occupancy fire
and safety construction standards to deal with emergency conditions. We do not
anticipate that these costs will have a material effect on the our operations or
competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect
additional regulations or legislation could have on its activities.
Employees
and Consultants
As of
September 30, 2009 we had 5 full-time employees. This represents a decrease of 5
employees since September 30, 2008. We also engage consultants to
perform specific functions that otherwise would require an employee. We have not
experienced any work stoppages and we consider relations with our employees to
be good.
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.
Properties
We own no
real property. However, we lease facilities in Golden, Colorado and
Aliso Viejo, California as described below.
California
Corporate Office Lease
Effective
April 1, 2009, we reduced our leased facilities at its Aliso Viejo, CA offices
by approximately 50%. This resulted in associated reductions to monthly lease
and facility expenses totaling approximately $2,000 leaving a monthly lease and
facility liability of approximately $1,400. We plan to continue to
lease these facilities for the foreseeable future.
Colorado
Facilities Lease
Our lease
for facilities in Golden, at the lease rate of $1,790 per month plus $945 in
triple net for a total of $2,735 per month will expire May 30,
2010. Under agreement with the landlord we plan to vacate the
premises by June 15, 2010. While we do not currently conduct operations of any
significance in the facility a machine built under contract for us, and held in
inventory for sale by us, is housed in this facility and we are engaged in the
sale of this machine as part of our plans to prepare to
vacate.
Oregon Manufacturing Facility Lease and
Lease Termination
In
furtherance of our revised plan of operations focusing on the development of new
manufacturing technology for CIGS thin films, and plans to establish
manufacturing operations through joint venture license agreements for such new
technology, we elected to eliminate our Oregon based facility. On
August 27, 2009, we entered into a lease termination and mutual release of
claims with Merix Corporation, an Oregon corporation. Pursuant to the terms of
the agreement, the parties agreed to terminate that certain sublease agreement
by and between the parties, dated April 1, 2008, related to certain real
property described therein which comprised our Oregon based facility (the
“Premises”). Accordingly, we agreed to vacate the Premises on or
before September 1, 2009. In connection with the termination of the sublease, we
also agreed (a) to sell certain equipment, currently housed on the Premises, to
Merix for the amount of $111,620, (b) to allow Merix to complete a full drawdown
of that certain $106,000 irrevocable letter of credit issued by Wells Fargo
Bank, N.A., at our request, in favor of Merix. The combined amounts of the sale
of equipment and draw down to the letter of credit totaling $217,620 were
credited to the accrued lease payment liabilities. The remaining accrued lease
payment liabilities and contractual term lease obligation were reduced to
$456,921 and we issued an unsecured promissory note in favor of Merix in the
amount of $456,921. The note accrues interest at 10% per annum. The parties
agreed to unconditionally release each other from the obligations imposed by, or
related to, the sublease, except for the obligations established by the
agreement. The termination of the sublease eliminates continued
monthly operating costs associated with the facility, which we no longer require
for our plan of operations, while also reducing our short-term liabilities
associated with the lease to zero and reducing our long-term liabilities by
approximately sixty-five percent (65%).
Legal
Proceedings
In the ordinary conduct of our business,
we may become involved in various lawsuits and legal proceedings, which arise in
the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business. We are currently not aware of any such
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 except as set forth below.
On September 3, 2009, we received
notice of an action filed by Airgas, Corp. in the State of Oregon, Multnomah
County, requesting, a) that the court grant the re-possession of certain
industrial gas management equipment (the “equipment”) for shipment back to the
vendor (we had returned the equipment to the vendor on August 28, 2009), b) that
the court grant the vendor unspecified re-stocking and re-shipment fees, or c)
the sum of $117,207 plus interest and collection fees for payment for the
equipment. Earlier attempts by us to return the equipment were met with demands
for re-stocking fees from the vendor. We had refused to pay re-stocking fees.
The vendor eventually agreed to the return of the equipment and then
subsequently filed its claim. In February 2010, prior to a summary judgment
hearing, we elected to negotiate a settlement with Airgas Corp. agreeing to pay
$114,641 in 12 equal monthly payments of $9,553 commencing March 1, 2010. No
default currently exists under this agreement.
MANAGEMENT
Officers
and directors
The
following table lists the executive offices and directors of the Company as of
April 21, 2010.
Name
|
|
Age
|
|
Position
Held
|
|
Tenure
|
Tom
Djokovich
|
|
53
|
|
CEO,
Director, Secretary, and acting Principal Accounting
Officer
|
|
CEO
and Director since October 2003, Secretary and PAO since September
2009
|
Joseph
Grimes
|
|
52
|
|
President,
COO, Director
|
|
President
since March 2009, COO since April 2006, and as a director Since August
2008
|
Robert
Wendt
|
|
47
|
|
CTO
|
|
Since
March 2009
|
Thomas
Anderson
|
|
44
|
|
Director
|
|
Since
August 2001
|
Oz
Fundingsland
|
|
66
|
|
Director
|
|
Since
November 2007
|
Michael
Russak
|
|
62
|
|
Director
|
|
Since
November
2007
|
The above
listed directors will serve until the next annual meeting of the stockholders or
until their death, resignation, retirement, removal, or disqualification, and
until their successors have been duly elected and qualified. Vacancies in the
existing Board of Directors are filled by majority vote of the remaining
Directors. There are no agreements or understandings for any officer or director
to resign at the request of another person and no officer or director is acting
on behalf of or will act at the direction of any other person. There is no
family relationship between any of our directors or executive
officers.
The
directors of the Company will devote such time to the Company’s affairs on an
“as needed” basis, but typically less than 20 hours per month. As a result, the
actual amount of time which they will devote to the Company’s affairs is unknown
and is likely to vary substantially from month to month.
Biographical
Information
Mr.
Tom Djokovich, age 53, Chief Executive Officer and a Director as of October
2003, acting Principal Accounting Officer as of September 2009;
Mr.
Djokovich was the founder and served from 1995 to 2002 as the Chief Executive
Officer of Accesspoint Corporation, a vertically integrated provider of
electronic transaction processing and e-business solutions for merchants. Under
Mr. Djokovich’s guidance, Accesspoint became a member of the Visa/MasterCard
association, the national check processing association NACHA, and developed one
of the payment industry’s most diverse set of network based transaction
processing, business management and CRM systems for both Internet and
conventional points of sale. Prior to Accesspoint, Mr. Djokovich founded TMD
Construction and Development in 1979. TMD provided management for
multimillion-dollar projects incorporating at times hundreds of employees,
subcontractors and international material acquisitions for commercial,
industrial and custom residential construction services as a licensed building
firm in California. In 1995 Mr. Djokovich developed an early Internet based
business-to-business ordering system for the construction industry.
Mr.
Joseph Grimes, age 52, Chief Operating Officer as of April 2006, a Director as
of August 2008, and President as of March 2009;
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.
Mr.
Robert Wendt, age 47, Chief Technology Officer as of March 2009;
Mr. Wendt
holds a B.S. and M.S. in Metallurgical Engineering and Material Science from the
Colorado School of Mines. His responsibility encompasses technical specification
of the facilities, equipment, and manufacturing processes for XsunX. Prior to
joining XsunX in 2007, Mr. Wendt served at various times as Vice President of
Sales, Product Development, and Engineering at Global Solar Energy from May 1996
to 2005. At Global Solar, Mr. Wendt led and directed several areas including
copper indium gallium di-selenide (CIGS) technology development, equipment
design and integration, facilities design and construction, engineering,
production, and operations.
Prior to
Global Solar, Mr. Wendt was at ITN with responsibility for the development of
thin-film deposition technologies, thin-film PV, and development of charge
controller/battery systems for portable solar cell powered systems. Prior to
joining ITN, Mr. Wendt spent eight years with Lockheed Marietta Astronautics,
Denver Division. While in this position, Mr. Wendt was program manager/principal
investigator on over 20 material-based programs. During 1994 and 1995, Mr. Wendt
was the technical lead for thin-film PV research at the Denver
Division.
Independent
Directors
Mr.
Thomas Anderson, age 44, became a director of the Company in August
2001;
Mr.
Anderson presently works as the Director of Southwest Business Operations for
American Capital Energy, a commercial and utility scale solar integrator. He has
been with American Capital Energy since October, 2008. He recently served
as Managing Director of the Environmental Science and Engineering Directorate of
Qinetiq North America in Los Alamos, New Mexico. He was with Qinetiq North
America, formerly Apogen Technologies, from January, 2005, through September,
2008. Mr. Anderson worked for 19 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.
Mr.
Oz Fundingsland as Director, age 66, became a director of the Company in
November 2007;
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.
Dr.
Michael A. Russak as Director, age 62, became a director of the Company in
November 2007;
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. Michael A. Russak currently
holds the position of Executive Vice President of Business Development with
Intevac, Inc. in Santa Clara, CA. He 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.
Involvement
in certain legal proceedings
In the
past ten years, none of the members of the Board of Directors or other executive
officers has been involved in any bankruptcy or insolvency proceedings, criminal
proceedings, any proceeding involving any possibility of enjoining, barring or
suspending members of our Board of Directors or other executive officers from
engaging in any business, securities or banking activities, and have not been
found to have violated, nor been accused of having violated, any federal or
state securities or commodities laws or regulations, any law or regulation
respecting financial institutions or insurance companies, or any law or
regulation prohibiting mail or wire fraud or fraud in connection with any
business entity. Further, none of our directors or executive officers
have been the subject of, or a party to, any sanction or order of any
self-regulatory organization, any registered entity, or any equivalent exchange,
association, entity or organization that has disciplinary authority over its
members or persons associated with a member.
Board
committees; audit committee
As of
September 30, 2009, the Board was comprised of five directors, three of which
are considered independent directors and the Company did not have an audit
committee. Further, none of the members of the Board of directors is qualified
as a financial expert. We are a development stage company with limited resources
and we are actively seeking a qualified financial expert for addition to the
Board. The Board will appoint committees as necessary, including an audit
committee as resources permit. In the meantime, the Board serves as
the Company’s audit committee utilizing business judgment rules and good faith
efforts.
Director
qualifications and experience.
The
following table identifies some of the experience, qualifications, attributes
and skills that the Board considered in making its decision to appoint and
nominate directors to the Board. This information supplements the biographical
information provided above. The vertical axis displays the primary factors
reviewed by the Board in evaluating a board candidate.
Experience, Qualification,
Skill or Attribute
|
|
Djokovich
|
|
Grimes
|
|
|
Anderson
|
|
|
Fundingsland
|
|
|
Russak
|
|
|
|
x
|
|
x
|
|
|
x
|
|
|
x
|
|
|
x
|
|
Professional
standing in chosen field
|
|
|
|
x
|
|
|
x
|
|
|
|
|
|
x
|
|
Expertise
in solar or related industry
|
|
x
|
|
|
|
|
x
|
|
|
x
|
|
|
x
|
|
Expertise
in technology or related industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
Audit Committee Financial Expert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Civic
and community involvement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
public company experience
|
|
x
|
|
|
|
|
|
|
|
|
|
|
x
|
|
Diversity
by race, gender or culture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific
skills/knowledge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-solar
industry
|
|
|
|
|
|
|
x
|
|
|
|
|
|
x
|
|
-technology
|
|
x
|
|
x
|
|
|
|
|
|
x
|
|
|
x
|
|
-governance
|
|
x
|
|
x
|
|
|
|
|
|
|
|
|
x
|
|
Section
16(A) beneficial ownership reporting compliance
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
certain persons who own more than 10% of a registered class of the Company’s
equity securities (collectively, “
Reporting Persons
”),
to file reports of ownership and changes in ownership (“
Section 16 Reports
”)
with the SEC. Reporting Persons are required by the SEC to furnish the Company
with copies of all Section 16 Reports they file. Based on its review
of the copies of such forms received by it, or written representations from
certain reporting persons, the Company believes that, during the fiscal year
ended September 30, 2009, all filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with the
exception that one report, covering an aggregate of three gift and
donation transactions were not timely filed by the chief
executive officer with the SEC via Form 4 or via year-end report on Form
5.
Code
of ethics
The Board
adopted a Code of Ethics policy on January 7, 2008.
Overview
We are a
development stage company and we rely on our Board to evaluate compensation and
incentive offerings made by the Company as it applies to our executive officers,
and efforts to attract and maintain qualified staff. To date, our compensation
policy has been conducted on a case by case basis with input from our chief
executive officer, and focused on the following three primary areas; (a) salary
compensatory with peer group companies and peer position, (b) cash bonuses tied
to sales and revenue attainment, and (c) long term equity compensation tied to
strategic objectives of establishing solar module manufacturing
infrastructure.
In this
compensation discussion and analysis, the individuals in the Summary
Compensation Table set forth below are referred to as the “named executive
officers”. Generally, the types of compensation and benefits provided to the
named executive officers may be similar to what we intend to provided to future
executive officers. The named executive officers for fiscal 2009 are Tom M.
Djokovich, our chief executive officer, Joseph Grimes, our chief operating
officer, Jeff Huitt our chief financial officer for portions of the 2009 fiscal
year, and Robert Wendt, our chief technical officer.
Executive
compensation
The
following table sets forth information with respect to compensation earned by
our chief executive officer, our former chief financial officer, our chief
operating officer, and our chief technical officer (collectively, our “named
executive officers”) for the fiscal years ended September 30, 2009, and 2008
respectively.
Summary
Compensation Table
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Djokovich, CEO(1)
|
|
2009
|
|
|
165,000
|
|
|
|
0
|
|
|
0
|
|
|
|
0
|
|
|
4,800
|
|
|
|
169,800
|
|
|
|
2008
|
|
|
220,000
|
|
|
|
0
|
|
|
0
|
|
|
|
0
|
|
|
4,800
|
|
|
|
224,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe
Grimes, COO(2)
|
|
2009
|
|
|
157,500
|
|
|
|
0
|
|
|
0
|
|
|
|
107,750
|
|
|
4,800
|
|
|
|
270,050
|
|
|
|
2008
|
|
|
210,000
|
|
|
|
30,000
|
|
|
0
|
|
|
|
44,600
|
|
|
4,800
|
|
|
|
289,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff
Huitt, CFO(3)
|
|
2009
|
|
|
155,000
|
|
|
|
0
|
|
|
0
|
|
|
|
39,000
|
|
|
4,800
|
|
|
|
198,800
|
|
|
|
2008
|
|
|
155,000
|
|
|
|
0
|
|
|
0
|
|
|
|
44,600
|
|
|
4,800
|
|
|
|
204,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Wendt, CTO(4)
|
|
2009
|
|
|
150,000
|
|
|
|
0
|
|
|
0
|
|
|
|
107,750
|
|
|
4,800
|
|
|
|
262,550
|
|
|
|
2008
|
|
|
200,000
|
|
|
|
0
|
|
|
0
|
|
|
|
44,600
|
|
|
3,600
|
|
|
|
203,600
|
|
|
(1)
|
In
March 2009 Mr. Djokovich and the Company agreed to the reduction of annual
salary from $220,000 to $165,000 as part of cost cutting measures approved
by the Board of Directors in association with the Company’s efforts to
modify its plan of operations. In addition to Mr. Djokovich’s base
compensation the Company also provides Mr. Djokovich with a $400 monthly
health insurance allowance.
|
|
(2)
|
In March 2009 Mr. Grimes and the
Company agreed to the reduction of annual salary from $210,000 to $157,500
as part of cost cutting measures approved by the Board of Directors in
association with the Company’s efforts to modify its plan of operations.
In addition to Mr. Grimes’ base compensation the Company also provides Mr.
Grimes with a $400 monthly health insurance allowance. Mr.
Grimes’ employment agreement with the Company included a facilities
finders and relocation bonus of $30,000 which was fully paid in the year
ended September 30, 2008 upon completion of the
requirements.
|
|
(3)
|
In March, 2009, as part of our
efforts to modify the Company’s plan of operations, the Company and Mr.
Huitt agreed to the termination of Mr. Huitt’s employment status as an
employee of the Company and annual salary of $155,000 and a $400 monthly
health insurance allowance. In March 2009, the Company and Mr. Huitt’s
consulting firm, Orion Business Services, LLC, entered into a professional
service consulting agreement under which Mr. Huitt would provide financial
consulting services to the Company as a consulting chief financial
officer. The Company paid $65,625 for these professional consulting
services in the fiscal year ended September 30, 2009. Effective September
9, 2009 Orion Business Services, LLC and the Company agreed to the
termination of Mr. Huitt’s services in the capacity as chief financial
officer of the Company.
|
|
(4)
|
Prior to March 2009 Mr. Wendt
held the position of Vice President of Engineering and Product Development
and was not an executive officer to the Company. In March 2009 Mr. Wendt
was elected to the position of chief technical officer for XsunX. In March
2009 Mr. Wendt and the Company also agreed to the reduction of annual
salary from $200,000 to $150,000 as part of cost cutting measures approved
by the Board of Directors in association with the Company’s efforts to
modify its plan of operations. In February 2010 the Company and Mr. Wendt
agreed to an increase from $150,000 to $165,000 for Mr. Wendt’s annual
salary. In addition to Mr. Wendt’s base compensation the Company also
agreed to provide Mr. Wendt with a $400 monthly health insurance
allowance.
|
No other
compensation other than as described above was paid or distributed during the
listed fiscal years to the executive officers of the Company.
Grants
of plan-based awards table
The
following table sets forth summary information regarding all grants of
plan-based awards made to our named executive officers during the two years
ended September 30, 2009, and 2008 respectively.
Name
|
|
Grant
Date
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
|
Exercise or
Base Price
of Option
Awards
($/Sh)
|
|
|
Aggregate Grant Date
Fair Value of
Stock and
Option Awards
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Djokovich, CEO
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff
Huitt, CFO
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2008
|
|
|
0
|
|
|
|
0.46
|
|
|
|
44,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe
Grimes, COO
|
|
2009
|
|
|
2,500,000
|
|
|
|
0.16
|
|
|
|
68,750
|
|
|
|
2008
|
|
|
500,000
|
|
|
|
0.36
|
|
|
|
44,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Wendt, CTO
|
|
2009
|
|
|
2,500,000
|
|
|
|
0.16
|
|
|
|
68,750
|
|
|
|
2008
|
|
|
500,000
|
|
|
|
0.36
|
|
|
|
44,600
|
|
Outstanding
equity awards at fiscal year end table
The following table sets forth the
outstanding equity awards with respect our named executive officers for the
fiscal year ended September 30, 2009:
OPTION
AWARDS
|
|
|
STOCK
AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Plan
|
|
|
Incentive
Plan
|
|
|
|
|
|
|
|
|
|
Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
|
|
|
|
Number
of
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Number
of
|
|
|
Market
or
|
|
|
|
Number
of
|
|
|
Securities
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
Value
of
|
|
|
Unearned
|
|
|
Payout
Value of
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
Shares
or
|
|
|
Shares,
Units
|
|
|
Unearned
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units
of
|
|
|
Units
of
|
|
|
or
Other
|
|
|
Shares,
Units or
|
|
|
|
Unexercised
|
|
|
Unearned
|
|
|
Unexercisable
|
|
|
Option
|
|
|
Option
|
|
|
Stock
That
|
|
|
Stock
that
|
|
|
Rights
That
|
|
|
Other
Rights
|
|
|
|
Options
(#)
|
|
|
Options
(#)
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have
Not
|
|
|
Have
Not
|
|
|
Have
Not
|
|
|
That
Have
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Options
(#)
|
|
|
Price
($)
|
|
|
Date
|
|
|
Vested
(#)
|
|
|
Vested
($)
|
|
|
Vested
(#)
|
|
|
Not
Vested (#)
|
|
Tom
Djokovich, CEO
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Jeff
Huitt, CFO
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Joe
Grimes, COO
|
|
|
624,999
|
|
|
|
1,875,001
|
|
|
|
0
|
|
|
$
|
0.16
|
|
|
4/1/2014
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0
|
|
|
$
|
0.36
|
|
|
10/23/2012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
400,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
1/26/2012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
352,000
|
|
|
|
148,000
|
|
|
|
0
|
|
|
$
|
0.51
|
|
|
7/19/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
112,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.69
|
|
|
4/4/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Robert
Wendt
|
|
|
624,999
|
|
|
|
1,875,001
|
|
|
|
0
|
|
|
$
|
0.16
|
|
|
4/1/2014
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0
|
|
|
$
|
0.36
|
|
|
10/23/2012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
400,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
1/26/2012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Option
exercises
None
Pension benefits
None
Nonqualified
defined contribution and other nonqualified deferred compensation
plans
None
Employment
agreements and arrangements
Tom
M. Djokovich
Mr.
Djokovich serves as our chief executive officer, acting principal accounting
officer, and a director. We do not have an employment agreement with Mr.
Djokovich. He currently works at the discretion of the board of directors as he
has since October 2003. His annual base salary compensation for the 2009 period
was initially $220,000, and he was provided a $400 per month allowance for use
in the payment of medical benefits. In March 2009, Mr. Djokovich and the Company
agreed to the reduction of annual salary from $220,000 to $165,000 as part of
cost cutting measures approved by the Board of Directors in association with the
Company’s efforts to modify its plan of operations. His medical allowance
payment was unchanged. His total compensation is based solely on the annual base
cash salary and we do not have any equity based, cash bonus, or special
compensation agreements or understanding in place with Mr.
Djokovich.
Joseph
Grimes
On
November 6, 2007, we entered into an amended and restated employment agreement
with Mr. Joseph Grimes, our chief operating officer. Under the terms of his
employment agreement, Mr. Grimes is entitled to a minimum annual base
salary of $210,000 (subject to annual review and increase upon the attainment by
the Company of a minimum of $5,000,000 in revenue in any calendar year) and is
eligible to receive additional compensation in the form of a cash payment bonus
upon certain remaining business development attainment goals as follows; a
$5,000 cash payment bonus upon the successful implementation of a pilot
production line,. Mr. Grimes is also eligible for cash payment bonus subject to
attainment by the Company of certain minimum revenues in the course of a
calendar year as follows; a $5,000 cash payment bonus upon the attainment by the
Company of $5,000,000 in revenue, a $10,000 cash payment bonus upon the
attainment by the Company of $10,000,000 in revenue, a $15,000 cash payment
bonus upon the attainment by the Company of $15,000,000 in revenue. We also
provide Mr. Grimes a $400 monthly allowance for use in payment for health
benefits with the balance of such benefits paid by Mr. Grimes. Our employment
agreement with Mr. Grimes provides that, in the event that Mr. Grimes
employment is terminated by us without good cause, Mr. Grimes will receive
a severance payment in the amount equal to 6 months of his annual base
salary, payable within 30 days of such termination. Under the employment
agreement Mr. Grimes is also subject to confidentiality and
non-solicitation provisions which provide that Mr. Grimes will not divulge
information or solicit employees for 24 months after termination of his
employment.
In March
2009 Mr. Grimes and the Company agreed to the reduction of annual base salary
from $210,000 to $157,500 as part of cost cutting measures approved by the Board
of Directors in association with the Company’s efforts to modify its plan of
operations. In conjunction with agreeing to the reduction in base salary
the Company provided Mr. Grimes with a stock option grant to purchase
2,500,000 shares of our common stock, exercisable at $0.16 cents per
share.
Jeff
Huitt
On
January 1, 2007, we entered into an employment agreement with Mr. Jeff Huitt,
our former chief financial officer. Under the terms of his employment agreement,
Mr. Huitt was initially entitled to a minimum annual base salary of
$135,000 which was adjusted to $155,000 in November 2007 after review by the
board. We also provide Mr. Huitt a $400 monthly allowance for use in payment for
health benefits with the balance of such benefits paid by Mr.
Huitt.
In March,
2009, as part of our efforts to modify the Company’s plan of operations, the
Company and Mr. Huitt agreed to the termination of Mr. Huitt’s employment status
as an employee of the Company and annual salary of $155,000 and a $400 monthly
health insurance allowance. In March the Company and Mr. Huitt’s consulting
firm, Orion Business Services, LLC, entered into a professional service
consulting agreement under which Mr. Huitt would provide financial consulting
services to the Company as a consulting chief financial officer. The Company
paid $65,625 for these professional consulting services in the fiscal year ended
September 30, 2009. Effective September 9, 2009 Orion Business Services, LLC and
the Company agreed to the termination of Mr. Huitt’s services in the capacity as
chief financial officer of the Company.
Robert
Wendt
On
January 1, 2007, we entered into an employment agreement with Mr. Robert Wendt,
our chief technical officer. Under the terms of his employment agreement,
Mr. Wendt was initially entitled to a minimum annual base salary of
$150,000 which was adjusted to $200,000 in November 2007 after review by the
board. We also provide Mr. Wendt a $300 monthly allowance for use in payment for
health benefits with the balance of such benefits paid by Mr.
Wendt.
In March
2009 Mr. Wendt and the Company agreed to the reduction of annual salary from
$200,000 to $150,000 as part of cost cutting measures approved by the Board of
Directors in association with the Company’s efforts to modify its plan of
operations. In conjunction with agreeing to the reduction in base salary
the Company provided Mr. Wendt with a stock option grant to purchase
2,500,000 shares of our common stock, exercisable at $0.16 cents per share.
In February 2010 the Company and Mr. Wendt agreed to an increase from $150,000
to $165,000 for Mr. Wendt’s annual salary.
Potential payments upon termination
or change-in-control
Terms of
an amended and restated employment agreement dated November 6, 2007, with
Mr. Grimes, our chief operating officer, provide that in the event that
Mr. Grimes employment is terminated by us without good cause, Mr. Grimes
may receive a severance payment in the amount equal to 6 months of his
annual base salary then paid to Mr. Grimes, all payable within 30 days of such
termination. Potential cost to the Company could total at minimum $100,000 for
the termination of Mr. Grimes subject to the termination without good cause by
the Company.
Terms of
a two year Key Employee Retention Agreement dated September 1, 2009, with Mr.
Robert Wendt, our chief technical officer, provide that in the event that Mr.
Wendt’s employment is terminated by the Company without good cause, Mr. Wendt
may receive twelve months salary at the then salary rate at time of termination,
twelve months Company paid costs for actual costs incurred by Mr. Wendt for
medical benefits related to COBRA coverage, and a relocation payment up to
$2,500. Potential cost to the Company could total at minimum $179,500 for the
termination of Mr. Wendt subject to the termination without good cause by the
Company.
Long
term incentive plans — awards in last fiscal year
The
following table and notes set forth the incentive awards provided to named
officers of the Company in 2009 fiscal year.
|
Date
Issued
|
|
Number
Issued
|
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Consideration
|
Joseph
Grimes
(1)
|
31-March-09
|
|
|
2,500,000
|
|
|
$
|
0.16
|
|
1-April-14
|
|
As
part of an employment incentive agreement related to salary
reductions
|
Robert Wendt (1)
|
31-March-09
|
|
|
2,500,000
|
|
|
$
|
0.16
|
|
1-April-14
|
|
As
part of an employment incentive agreement related to salary
reductions
|
(1)
The vesting schedule for Mr. Grimes and
Mr. Wendt is as follows:
The
option shall become exercisable in the following amounts upon the delivery
and/or achievement by the optionee(s) of the following employment and
performance milestones:
|
(a)
|
208,333 shares vested on April 1,
2009 and thereafter 208,333 shall vest per each XsunX fiscal calendar
quarter of continuous employment from the date of
grant.
|
|
(b)
|
In the event of a sale or merger
of all or substantially all of the Company’s assets to an acquiring party
following which the Company would not be a surviving operating entity, the
Company will provide Optionee a fifteen (15) day prior notice of such
proposed event providing for immediate vesting of all remaining unvested
Options.
|
|
(c)
|
All remaining unvested Options
shall vest and become exercisable upon the assembly and third party
validation of a functioning XsunX manufactured solar module producing a
10% frame to frame average DC power conversion rating under standard test
conditions (STC), and the subsequent sale and delivery of a solar module
manufactured by XsunX meeting similar
specifications.
|
Director
Compensation
In the
fiscal year ended September 30, 2009, Directors received no additional cash or
non cash compensation for their service to the Company as
directors. Outside Directors received an annual retainer fee of
$9,000. All Directors were reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
SUMMARY
COMPENSATION TABLE OF DIRECTORS
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Tom
Djokovich
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Joseph
Grimes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Thomas
Anderson
|
|
$
|
9,000
|
|
|
|
0
|
|
|
|
63,011
|
|
|
|
0
|
|
|
$
|
72,011
|
|
Oz
Fundingsland
|
|
$
|
9,000
|
|
|
|
0
|
|
|
|
59,063
|
|
|
|
0
|
|
|
$
|
68,063
|
|
Dr.
Michael Russak
|
|
$
|
9,000
|
|
|
|
0
|
|
|
|
53,150
|
|
|
|
0
|
|
|
$
|
62,150
|
|
Compensation
committee interlocks and insider participation
For the
fiscal year ended September 30, 2009 adjustments or additions to new or existing
employment agreements were reviewed and deliberated by the five members of the
Board of Directors.
PRINCIPAL
STOCKHOLDERS
The following table sets forth
information as of April 29, 2010, with respect to each person known by the
Company to own beneficially more than 5% of the Company’s outstanding common
stock, each director and officer of the Company and all directors and executive
officers of the Company as a group. The Company has no other class of
equity securities outstanding other than common stock.
Shareholders/Beneficial Owners
|
|
Number of
Shares
|
|
|
Ownership
Percentage(1)
|
|
Tom
Djokovich*(2)
President
& Director
|
|
|
16,293,000
|
|
|
|
8.1
|
%
|
Thomas
Anderson*
Director
|
|
|
1,500,000
|
|
|
<
1
|
%
|
Oz
Fundingsland*
Director
|
|
|
500,000
|
|
|
<
1
|
%
|
Mike
Russak*
Director
|
|
|
600,000
|
|
|
<
1
|
%
|
Joseph
Grimes*(3)
Chief
Operating Officer
|
|
|
2,113,998
|
|
|
<
1
|
%
|
Robert
Wendt*(3)
Chief
Technical Officer
|
|
|
1,509,998
|
|
|
<
1
|
%
|
*
Individual receives mail at
65 Enterprise, Aliso Viejo, California 92656.
All
directors and executive officers as a group of (6 persons) account for ownership
of 22,516,996 shares representing 10.80% of the issued and outstanding common
stock. Each principal shareholder has sole investment power and sole voting
power over the shares.
|
(1)
|
Applicable percentage ownership
is based on 208,484,641 shares of common stock issued and outstanding as
of April 29, 2010. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common
stock that are currently exercisable or exercisable within 60 days of
April 29, 2010 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 15,368,000 shares owned
by the Djokovich Limited Partnership. Mr. Djokovich shares voting and
dispositive power with respect to these shares with Mrs.
Djokovich.
|
|
(3)
|
Includes 446,666 warrants/options
that may vest and be exercised within 60 days of the date of April 29,
2010.
|
Certain
relationships and related transactions, and director independence
As of the
fiscal year ended September 30, 2009, no officer, director, or related person 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 securities holdings,
contracts, options or otherwise or any transaction in which the amount involved
exceeds the lesser of $120,000 or one percent of the Company's total assets at
year end.
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 can 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.
The
following directors are independent: Thomas Anderson, Oz Fundingsland
and. Dr. Michael Russak.
The
following directors are not independent: Tom Djokovich and Joseph
Grimes.
Promoters
We have not had a promoter at any time
during the past five (5) fiscal years.
MARKET
PRICE OF AND DIVIDENDS
ON
THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Our
common stock is currently listed on the Over-The-Counter Bulletin Board (“
OTCBB
”) under the
symbol “XSNX.OB”. Set forth below is a table summarizing the high and low bid
quotations for our common stock during the last two fiscal years and the most
recent interim period as reported by Pink OTC Markets Inc.
|
|
|
|
|
|
|
2
nd
Quarter 2010 ended March 31, 2010
|
|
$
|
0.19
|
|
|
$
|
0.12
|
|
1
st
Quarter 2010 ended December 31, 2009
|
|
$
|
0.26
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
4
th
Quarter 2009 ended September 30, 2009
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
3
rd
Quarter 2009 ended June 30, 2009
|
|
$
|
0.17
|
|
|
$
|
0.11
|
|
2
nd
Quarter 2009 ended March 31, 2009
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
1
st
Quarter 2009 ended December 31, 2008
|
|
$
|
0.28
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
th
Quarter 2008 ended September 30, 2008
|
|
$
|
0.42
|
|
|
$
|
0.26
|
|
3
rd
Quarter 2008 ended June 30, 2008
|
|
$
|
0.51
|
|
|
$
|
0.37
|
|
2
nd
Quarter 2008 ended March 31, 2008
|
|
$
|
0.74
|
|
|
$
|
0.33
|
|
1
st
Quarter 2008 ended December 31, 2007
|
|
$
|
0.55
|
|
|
$
|
0.29
|
|
The
market price for our common stock, like that of other technology companies, is
highly volatile and is subject to fluctuations in response to variations in our
operating results, announcements related to technological innovation or business
development, or other events and factors. Our stock price may also be affected
by broader market trends unrelated to our performance.
The above
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions.
On April 21, 2010, the last reported
sales price of our common stock on the OTCBB was $0.15 per share.
Number
of Holders
As of
April 29, 2010, there were approximately 288 record holders of the Company’s
common stock, not counting shares held in “street name” in brokerage accounts
which is unknown. As of April 29, 2010, there were approximately 208,484,641
shares of common stock outstanding.
Dividends
We have
not declared or paid any cash dividends on our common stock and do not
anticipate paying dividends for the foreseeable future.
Stock
option plan
On
January 5, 2007, the Board 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 our 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.
Options granted under the Plan may be either Incentive Options or Nonqualified
Options and shall be administered by the Board. Each option shall be
exercisable to the nearest whole share, in installments or otherwise, as the
respective option agreements may provide. Notwithstanding any other provision of
the plan or of any option agreement, each option shall expire on the date
specified in the option agreement. 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, 2009, the Board authorized the grant of
options to purchase an aggregate 5,350,000 stock options. The stock options are
exercisable for a period of five years from the date of grant at an exercise
price between $0.16 and $0.36 per share and expire at various times through
March 2014.
Employment
Option Grants — In connection with the Company’s efforts to develop
and commercialize thin film solar manufacturing technology and as part of
reductions to salaries, the Company authorized employment option grants to the
following employees on in the year ended September 30, 2009. The options have a
5 year exercise terms and vest in conjunction with employment and performance
milestones based vesting schedule as described below:
Name
|
|
Date
of Grant
|
|
Amount
|
|
Exercise
Price
|
|
Term
|
Vanessa
Watkins (1)
|
|
October
10, 2008
|
|
|
115,000
|
|
$
|
0.36
|
|
5
yr.
|
Tyler
Anderson
|
|
October
10, 2009
|
|
|
100,000
|
|
$
|
0.36
|
|
5
yr.
|
Yang
Zhuang
|
|
October
29, 2009
|
|
|
20,000
|
|
$
|
0.36
|
|
5
yr.
|
Vanessa
Watkins (2)
|
|
March
31, 2009
|
|
|
115,000
|
|
$
|
0.16
|
|
5
yr.
|
Joseph
Grimes
|
|
March
31, 2009
|
|
|
2,500,000
|
|
$
|
0.16
|
|
5
yr.
|
Robert
G. Wendt
|
|
March
31, 2009
|
|
|
2,500,000
|
|
$
|
0.16
|
|
5
yr.
|
The
vesting schedule for Vanessa Watkins is as follows:
|
(a)
|
(1)
The option became exercisable in the amount of 38,334 shares on April 6,
2009. Thereafter, the option shall vest and become exercisable at the rate
of 38,333 Shares per year of continuous employment.
(2)
The option became exercisable in the amount of 38,334 shares on April 1,
2009. Thereafter, the option shall vest and become exercisable at the rate
of 38,333 Shares per year of continuous
employment.
|
The
vesting schedule for Tyler Anderson is as follows:
|
(a)
|
The
option became exercisable in the amount of 33,334 shares on May 12, 2009.
Thereafter, the option shall vest and become exercisable at the rate of
33,333 Shares per year of continuous employment. As of September 30, 2009
Mr. Anderson no longer worked for the Company and the total grant of
100,000 options was terminated and the options were returned to the pool
of available options under the XsunX 2007 Stock option
Plan.
|
The
vesting schedule for Yang Zhuang is as follows:
|
(a)
|
The
option became exercisable in the amount of 6,667 shares on August 18,
2009. Thereafter, the option shall vest and become exercisable at the rate
of 6,666 Shares per year of continuous employment. As of September 30,
2009, Mr. Zhuang no longer worked for the Company and the total grant of
20,000 options was terminated and the options were returned to the pool of
available options under the XsunX 2007 Stock Option
Plan.
|
The
vesting schedule for Mr. Grimes and Mr. Wendt is as follows:
The
option became exercisable in the following amounts upon the delivery and/or
achievement by the optionee(s) of the following employment and performance
milestones:
|
(a)
|
208,333
shares vested on April 1, 2009 and thereafter 208,333 shall vest per each
XsunX fiscal calendar quarter of continuous employment from the date of
grant.
|
|
(b)
|
In
the event of a sale or merger of all or substantially all of the Company’s
assets to an acquiring party following which the Company would not be a
surviving operating entity, the Company will provide optionee a fifteen
(15) day prior notice of such proposed event providing for immediate
vesting of all remaining unvested
options.
|
|
(c)
|
All
remaining unvested Options shall vest and become exercisable upon the
assembly and third party validation of a functioning XsunX manufactured
solar module producing a 10% frame to frame average DC power conversion
rating under standard test conditions (STC), and the subsequent sale and
delivery of a solar module manufactured by XsunX meeting similar
specifications.
|
Table
of equity compensation
The
following table sets forth summary information, as of September 30, 2009,
concerning securities authorized for issuance under all equity compensation
plans and agreements for the fiscal years ended September 30, 2009, and 2008 is
as follows:
|
2009
|
|
2008
|
Risk
free interest rate
|
1.67%
to 2.77%
|
|
3.23%
to 4.87%
|
Stock
volatility factor
|
90.56%
to 104.73%
|
|
53%
to 122%
|
Weighted
average expected option life
|
5
years
|
|
5
years
|
Expected
dividend yield
|
None
|
|
None
|
A summary
of the Company’s stock option activity and related information
follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of year
|
|
|
5,750,000
|
|
|
$
|
0.39
|
|
|
|
1,950,000
|
|
|
$
|
0.46
|
|
Granted
|
|
|
5,350,000
|
|
|
$
|
0.17
|
|
|
|
3,800,000
|
|
|
$
|
0.36
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(920,000
|
)
|
|
$
|
0.41
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding,
end of year
|
|
|
10,180,000
|
|
|
$
|
0.27
|
|
|
|
5,750,000
|
|
|
$
|
0.39
|
|
Exercisable
at the end of year
|
|
|
4,927,500
|
|
|
$
|
0.33
|
|
|
|
2,927,500
|
|
|
$
|
0.40
|
|
Weighted
average fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
granted during the year
|
|
|
$
|
0.11
|
|
|
|
|
|
|
$
|
0.28
|
|
The
weighted average remaining contractual life of options outstanding issued under
the plan as of September 30, 2009 was as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Stock
|
|
Remaining
|
Exercisable
|
|
|
Options
|
|
|
Options
|
|
Contractual
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
0.46
|
|
|
|
1,150,000
|
|
|
|
950,000
|
|
2.32
years
|
$
|
0.53
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.40
years
|
$
|
0.45
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.56
years
|
$
|
0.41
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.91
years
|
$
|
0.36
|
|
|
|
2,500,000
|
|
|
|
1,437,500
|
|
3.07
years
|
$
|
0.36
|
|
|
|
500,000
|
|
|
|
437,500
|
|
3.12
years
|
$
|
0.36
|
|
|
|
500,000
|
|
|
|
437,500
|
|
3.16
years
|
$
|
0.36
|
|
|
|
115,000
|
|
|
|
57,501
|
|
4.03
years
|
$
|
0.16
|
|
|
|
5,115,000
|
|
|
|
1,307,499
|
|
4.50
years
|
|
|
|
|
|
10,180,000
|
|
|
|
4,927,500
|
|
|
Stock-based
compensation expense recognized during the period is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest.
Stock-based compensation expense recognized in the financial statements of
operations during the year ended September 30, 2009, included compensation
expense for the stock-based payment awards granted prior to, but not yet vested,
as of September 30, 2009 based on the grant date fair value estimated, and
compensation expense for the stock-based payment awards granted subsequent to
September 30, 2009, based on the grant date fair value estimated. We account for
forfeitures as they occur. The stock-based compensation expense recognized in
the statement of operations during the fiscal years ended September 30, 2009 and
2008 was $534,518 and $673,287, respectively.
Warrants
During
the fiscal year ended September 30, 2009, the Company issued no
warrants. At September 30, 2009, the Company had a total of 4,195,332
warrants to purchase 4,047,332 shares of common stock outstanding.
A summary
of the Company’s warrants activity and related information follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of year
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
|
|
15,362,000
|
|
|
$
|
0.22
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,333,332
|
|
|
$
|
0.63
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(14,500,000
|
)
|
|
$
|
0.20
|
|
Outstanding,
end of year
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
Exercisable
at the end of year
|
|
|
4,047,332
|
|
|
$
|
0.62
|
|
|
|
4,047,332
|
|
|
$
|
0.61
|
|
Weighted
average fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants
granted during the year
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
0.63
|
|
At
September 30, 209, the weighted average remaining contractual life of options
outstanding:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Remaining
|
Exercisable
|
|
|
Warrants
|
|
|
Warrants
|
|
Contractual
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
1.69
|
|
|
|
112,000
|
|
|
|
112,000
|
|
1.51
years
|
$
|
0.51
|
|
|
|
500,000
|
|
|
|
352,000
|
|
1.80
years
|
$
|
0.20
|
|
|
|
250,000
|
|
|
|
250,000
|
|
2.25
years
|
$
|
0.50
|
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
3.09
years
|
$
|
0.75
|
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
3.09
years
|
|
|
|
|
|
4,195,332
|
|
|
|
4,047,332
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The
following discussion and analysis should be read in conjunction with the
financial statements, and the notes thereto included herein. The
information contained below includes statements of the Company’s or management’s
beliefs, expectations, hopes, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. See “Forward-Looking Statements”. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and
elsewhere in this Prospectus, particularly under the heading “Risk
Factors”.
Business
Overview
In the
fiscal year ended September 30, 2009, we modified our previous business plans
which were to directly establish a solar module manufacturing infrastructure. We
have re-focused our operations on the development of a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for us to
establish a competitive advantage within the solar industry. Our current efforts
are focused on developing the combination of highly developed thin film solar
processes with state-of-the-art mature magnetic media thin film manufacturing
technologies derived from the hard disc drive (HDD) industry in an effort to
improve manufacturing output, increase cell efficiency and production yields,
and lower costs for the production of high efficiency Copper Indium Gallium (di)
Selenide (CIGS) thin film solar cells.
It is our
belief that by leveraging the manufacturing processes from the HDD industry and
adapting them to thin-film CIGS solar technologies, we can reduce the cost per
watt for solar power to well below $1 per watt, thereby making solar power a
viable alternative in the energy field. Furthermore, it is our belief
that our expertise, experience and the proprietary technology we are developing
in this area will allow us to seek joint ventures with larger companies thereby
generating revenue streams through licensing fees and manufacturing
royalties.
Plan
of Operations
We have
developed a plan of operations based upon three significant management
implementations which began in the 2009 fiscal year. The first is
cost-cutting measures, including the closure of the proposed Oregon solar module
manufacturing facility which was under assembly, layoff of staff employed under
efforts to establish the Oregon facility, and an across the board reduction to
salaries, with the intended goal of reducing operating expenses not directly
related to the development of new technologies under the Company’s revised
plans. The second was a modified sales strategy. Rather than operate
under a direct manufacturing business model, we plan to develop joint-ventures
with pre-existing semi-conductor companies that management believes may be
capable and prepared to invest in the green energy market. Lastly, we
have re-focused operations on the development of a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for us to
establish a competitive advantage within the industry. In furtherance of these
efforts we have begun, the development of a hybrid manufacturing system
combining certain technologies derived from the magnetic media manufacturing
industry with manufacturing techniques for thin film solar to produce high
efficiency Copper Indium Gallium (di) Selenide (CIGS) thin film solar
cells.
Our
current plan of operations, based upon the aforementioned activities, commits
$1.65 million for general, administrative and working capital under a phase one
plan necessary to prove and prepare the commercial viability of the new thin
film CIGS manufacturing systems we are developing. Once we have completed our
initial development efforts and proven the commercial viability of these new
manufacturing technologies we plan to launch a phase two plan to establish a
pilot production system for marketing and sales efforts, continued process
improvement, and general business development efforts related to the
commercialization of our proposed new CIGS manufacturing
technology.
We 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.
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 our change
in primary business focus and new business opportunities these historical
results may not necessarily be indicative of results to be expected for any
future period. As such, future results of the Company may differ significantly
from previous periods.
Results
of operations for the fiscal year ended September 30, 2009 compared to fiscal
year ended September 30, 2008
Revenue
and Cost of Sales:
The
Company generated no revenues in the fiscal years ended September 30, 2009, and
2008. There were no associated costs of goods sold in any of the fiscal periods
represented above. The Company to date has had minimal revenue and cost of
sales, and is still in the development stage.
Selling
and Marketing Expenses:
Selling
and Marketing (S&M) expenses decreased by ($224,498) during the fiscal
year ended September 30, 2009 to $212,700 as compared to $437,198 for
the fiscal year ended September 30, 2008. The decreases in S&M expenses were
primarily due to a decrease in branding efforts and investor relations expenses
associated with the Company’s efforts to modify its plan of
operations.
General
and Administrative Expenses:
General
and Administrative (G&A) expenses increased by $55,494 during
the fiscal year ended September 30, 2009 to $2,745,269 as compared to
$2,689,775 for the fiscal year ended September 30, 2008. The increase in G&A
expenses were primarily due to the increase in rent and operating expense for
the Oregon facilities related to the Company’s prior efforts to establish
amorphous silicon solar module manufacturing operations, and accounting expenses
related to the Company’s re-audit of the fiscal years ended September 30, 2007,
and 2006.
Research
and Development:
Research
and development expenses increased by $399,474 during the fiscal year ended
September 30, 2009 to $358,884 as compared to ($40,590) for the fiscal year
ended September 30, 2008. The increase in R&D was due primarily to an
increase in contract engineering expenses and laboratory materials related to
the Company’s efforts to develop new manufacturing technology for the production
of thin film CIGS solar technologies, and because during the fiscal year ended
September 30, 2008 the Company had recovered R&D expenses previously
incurred.
Net
Loss:
For the
fiscal year ended September 30, 2009, our net loss was ($10,634,133) as compared
to a net loss of ($4,058,952) for the fiscal year ended September 30,
2008. This increase in Net Loss of $6,575,180 compared to the
fiscal year ended September 30, 2008 was primarily driven by the Company’s
impairment of certain assets related to the Company’s prior efforts to establish
amorphous silicon solar module manufacturing infrastructure. This impairment
resulted in an expense of $5,826,990. This represents a total write down to zero
for the portion of the Company’s Manufacturing Equipment in Process account that
the Company does not anticipate using under its new plan of
operations. The valuation adjustment was the result of an analysis of
certain significant unobservable events and the inputs used in determining the
amount of the valuation adjustment include the decision to move to new
manufacturing technology under efforts to establish a competitive
advantage.
Liquidity
and Capital Resources
We had
working capital at September 30, 2009 of $517,387, as compared to working
capital of $3,321,294 as of September 30, 2008. The decrease in working capital
of $2,803,907 was the result of an increase in operating expenses, and no
revenue producing activities for the fiscal year ended September 30,
2009.
Cash flow
used by operating activities was ($2,862,327) for the fiscal year ended
September 30, 2009, as compared to cash flow used by operating activities of
($2,695,476) for the fiscal year ended September 30, 2008. The increase in cash
flow used of $166,851 by operating activities was primarily due to the increase
of $(6,575,181) in operating net loss due to the Company refocusing its
operations from solar module manufacturing to focus on development of new thin
film solar technology. The majority of the net change in net loss consisted of
an increase in asset impairment of $5,611,365, and an increase in write down of
inventory asset of $1,117,000.
Cash flow
used in investing activities was $(16,174) for the fiscal year ended
September 30, 2009, as compared to cash flow used in investing activities of
($4,228,623) during the fiscal year ended September 30, 2008. The decrease in
investing activities of $4,212,449, primarily due to the Company’s change in
business development focus, whereby, there were no investments in manufacturing
equipment and facilities in process, and the purchase of fixed assets decreased
by $95,039 Also, the Company had a no notes receivable for the fiscal year ended
September 30, 2009.
Cash flow
provided by financing activities was $1,020,000 for the fiscal year ended
September 30, 2009, as compared to cash provided by financing activities of
$7,544,700 during the fiscal year ended September 30, 2008. The decrease in cash
flow provided by financing activities of $6,524,700 was the result of a
reduction to cash provided through equity financing.
The
Company is currently engaged in efforts to develop a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for XsunX to
establish a competitive advantage within the solar industry. However the cash
flow requirements associated with the completion of these development efforts,
and the transition to revenue recognition will 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 as
necessary.
Off-Balance
Sheet Arrangements
We do not
have any relationships with unconsolidated entities or financial partnerships
such as entities often referred to as structured finance or special purpose
entities that would have been established for the purpose of facilitating
off-balance-sheet arrangements or for other contractually narrow or limited
purposes. As such, we are not exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such
relationships.
RESULTS
OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2009 COMPARED TO THE
SAME PERIOD IN 2008
Revenue:
The Company generated no revenues in
the period ended December 31, 2009 and 2008 respectively. Additionally, there
was no associated cost of sales.
Selling and Marketing
Expenses
:
Selling and marketing expenses for the
three month period ended December 31, 2009 were $109,993, as compared to
$100,535 for the same period in 2008. The increase of $9,458 in selling and
marketing expenses between the periods is primarily attributable to increase in
public relation expenses relating to increasing the Company’s exposure, and
efforts to establish brand awareness under the Company’s revised plan of
operations.
General
and Administrative Expenses:
General and administrative expenses for
the three month period ending December 31, 2009 were $279,024 as compared to
$1,007,764 during the same period in 2008. The decrease of $728,739
was related primarily to closing the Oregon facilities and the reduction of
operations at the Company’s Colorado facilities, which decreased overall
expenses.
Research and
Development
:
Research and development for the three
month period ended December 31, 2009 were $44,891 as compared to $12,836 during
the same period in 2008. The increase of $32,055 was due to efforts related to
the development new thin film manufacturing technology under the Company’s
revised plan of operations. The Company anticipates that costs associated with
the development of new thin film solar manufacturing technologies under its
revised plan of operations will continue and may increase in the future as the
Company works to complete the development of its new technologies.
Net Loss
:
The net loss for the three months ended
December 31, 2009 was $(543,144) as compared to a net loss of ($1,239,611) for
the same period 2008. The decreased net loss of $696,467 includes the operating
expense changes discussed above, and non-cash expense of $23,477 in
depreciation. The Company anticipates the trend of losses to continue
in future quarters until the Company can recognize sales of significance of
which there is no assurance.
Liquidity
and Capital Resources
As of December 31, 2009, we had
$176,511 of working capital as compared to $517,387 for the prior period. This
decrease of $340,876 was due primarily to a decrease in cash and prepaid
expenses.
During the three months ended December
31, 2009, the Company used $(249,753) of cash for operating activities, as
compared to cash provided of $2,117,910 for the prior period. The decrease in
cash provided of $2,367,663 for operating activities was primarily due to a
decrease in accounts payable related primarily to the closure of the Oregon
manufacturing facilities.
Cash used by investing activities for
the three months ended December 31, 2009 was $(230,000), as compared to cash use
of $(3,551,889) for the prior period. The net decrease of cash used in investing
activities was primarily due to a decrease in the purchase of manufacturing
equipment and facilities in process under the Company’s revised plan of
operations.
Cash provided by financing activities
for the three months ended December 31, 2009 was $225,000, as compared to
$600,000 for the prior period. Our capital needs have primarily been met from
the proceeds of private placements, as we are currently in the development stage
and had no revenues.
Our financial statements as of December
31, 2009 have been prepared under the assumption that we will continue as a
going concern from inception (February 25, 1997) through December 31, 2009. Our
independent registered public accounting firm has issued their report dated
January 11, 2010 that included an explanatory paragraph expressing substantial
doubt in our ability to continue as a going concern without additional capital
becoming available. Our ability to continue as a going concern ultimately is
dependent on our ability to generate a profit which is dependent upon our
ability to obtain additional equity or debt financing, attain further operating
efficiencies and, ultimately, to achieve profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
For the three months ended December 31,
2009, the Company's capital needs have been met from the use of working capital
provided by the proceeds of (i) the Company’s working capital and (ii) the sale
of unregistered common stock for proceeds totaling $225,000
dollars.
Recent
Accounting Pronouncements
In June 2009, the FASB issued guidance
under Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted
Accounting Principles” (SFAS No. 168, The FASB Accounting Standards Codification
TM and the Hierarchy of Generally Accepted Accounting Principles). This guidance
establishes the FASB ASC as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the
ASC are effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The ASC supersedes all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the ASC has become non-authoritative.
Following SFAS 168, the FASB will no longer issue new standards in the form of
Statements, FSPs, or EITF Abstracts. Instead, the FASB will issue Accounting
Standards Updates, which will serve only to update the ASC, provide background
information about the guidance, and provide the bases for conclusions on the
change(s) in the ASC. We adopted ASC 105 effective for our financial statements
issued as of September 30, 2009. The adoption of this guidance did not have an
impact on our financial statements but will alter the references to accounting
literature within the financial statements.
Transfer
Agent
Our
transfer agent is Mountain Share Transfer, Inc. located at 1625 Abilene Drive,
Broomfield, CO 80020
Indemnification
Of Directors And Executive Officers And Limitation On Liability
Our articles of incorporation provide
that we shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses including attorney fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. Termination of any action, suit or proceeding in any manner
does not by itself create a presumption that such person did not act in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful.
The articles of incorporation also
provide that the Company must indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee,
fiduciary or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee, fiduciary, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such proceeding, if such
person believed it to be in, or not opposed to, the best interests of the
Company. Such indemnification may not be made for any claim, issue or
matter as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of such person’s duty to the Company, unless and
only to the extent that the court in which the proceeding was brought determines
that, despite the adjudication of liability, but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
The
bylaws adopt the provisions of the Colorado Revised Statutes 7-3-101 (now C.R.S.
7-109), as amended from time to time, relating to Indemnification and
incorporate such provisions by reference as fully as if set forth
therein.
The
Colorado Revised Statutes 7-109-102 provide that a corporation may indemnify a
director who is a party to a proceeding against liability if the director’s
conduct was in good faith, the director reasonably believed, in the case of
conduct in an official capacity with the corporation, that such conduct was in
the corporation’s best interests, and in the case of any criminal proceeding,
the director had no reasonable cause to believe his conduct was
unlawful. The termination of a proceeding in any manner is not, of
itself, determinative that the director did not meet the standard of conduct
described in C.R.S. 7-109-102. A corporation may not indemnify a
director in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation, or in any
proceeding where the director is adjudged liable on the basis that the director
derived an improper benefit. Indemnification under C.R.S. 7-109-102
in connection with a proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the proceeding.
C.R.S.
7-109-103 provides that a corporation must indemnify a director who is wholly
successful, on the merits or otherwise, in the defense of any proceeding brought
against him in his capacity as a director, against reasonable expenses incurred
by the director in connection with the proceeding.
C.R.S.
7-109-104 provides that a company may pay the costs incurred by any person
entitled to indemnification in defending a proceeding as such costs are incurred
and in advance of the final disposition of a proceeding; provided however, that
the company must pay such costs only upon receipt of a written affirmation of
the director’s good faith belief that he met the appropriate standard of
conduct, a written undertaking by or on behalf of such person to repay the
advance if it is ultimately determined that the director did not meet the
standard of conduct, and after a determination is made that indemnification is
not precluded.
C.R.S.
7-109-105 provides that unless otherwise provided in the articles of
incorporation, a director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court, after giving
any notice the court considers necessary, may order indemnification in the
following manner: If it determines that the director is entitled to mandatory
indemnification, the court shall order indemnification, in which case the court
shall also order the corporation to pay the director's reasonable expenses
incurred to obtain court-ordered indemnification. If the court
determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the appropriate standard of conduct or was adjudged liable under
the circumstances, the court may order such indemnification as the court deems
proper; except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in connection with a proceeding regarding the
right of the corporation or derivation of an improper benefit is limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
C.R.S.
7-109-106 provides that a corporation may not indemnify a director unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the appropriate standard of conduct. A corporation
shall not advance expenses to a director under section 7-109-104 unless
authorized in the specific case after the required written affirmation and
undertaking are received and the determination has been made.
The
determinations required by C.R.S. 7-109-106 must be made:
(a) By
the board of directors by a majority vote of those present at a meeting at which
a quorum is present, and only those directors not parties to the proceeding
shall be counted in satisfying the quorum; or
(b) If a
quorum cannot be obtained, by a majority vote of a committee of the board of
directors designated by the board of directors, which committee shall consist of
two or more directors not parties to the proceeding; except that directors who
are parties to the proceeding may participate in the designation of directors
for the committee.
If a
quorum cannot be obtained as contemplated in paragraph (a) above, and a
committee cannot be established under paragraph (b) above, or, even if a quorum
is obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required shall be made:
(a) By
independent legal counsel selected by a vote of the board of directors or the
committee in the manner described above or, if a quorum of the full board cannot
be obtained and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full board of directors; or
(b) By
the shareholders.
C.R.S.
7-109-107 provides that an officer is entitled to a mandatory indemnification
and is entitled to apply for court-ordered indemnification to the same extent as
a director. Also, a corporation may indemnify and advance expenses to
an officer, employee, fiduciary or agent of the corporation to the same extent
as to a director, or to a greater extent, if not inconsistent with public
policy, the corporation’s bylaws, actions of the board of directors or
shareholders, or contract.
C.R.S.
7-109-108 provides that a corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign entity or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from the person's status as a director, officer, employee, fiduciary, or
agent, whether or not the corporation would have power to indemnify the person
against the same liability under another section.
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification 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 (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person connected with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
LEGAL
MATTERS
The
validity of the shares offered hereby has been opined on for us by Michael
Littman, Esq. Such attorney was not employed for such purpose
on a contingent basis, did not receive any interest in XsunX in connection with
the offering hereunder, and is not connected in any other way with XsunX or the
offering hereunder.
EXPERTS
Our
financial statements as of September 30, 2009 and for the year then
ended included or referred to in this Prospectus have been audited by
HJ Associates & Consultants, LLP. Our financial statements as of
September 30, 2008 and for the year then ended included or referred
to in this Prospectus have been audited by Stark Winter Schenkein & Co.
LLP. Both firms are independent registered public accounting firms,
and are included in this Prospectus in reliance on these firms as experts in
accounting and auditing.
AVAILABLE
INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which forms a part of the registration statement, does not contain all the
information set forth in the registration statement, as permitted by the rules
and regulations of the SEC. For further information with respect to us and the
securities offered by this Prospectus, reference is made to the registration
statement.
Statements
contained in this Prospectus as to the contents of any contract or other
document that we have filed as an exhibit to the registration statement are
qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions. The registration statement and other
information may be read and copied at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains a web site at
http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
FINANCIAL
STATEMENTS OF XSUNX, INC.
TABLE
OF CONTENTS
FINANCIAL
STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
|
|
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-2
– F-3
|
|
|
Balance
Sheets as of September 30, 2009 and 2008
|
F-4
|
|
|
Statements
of Operations for the years ended September 30, 2009 and
2008
|
F-5
|
|
|
Statements
of Stockholders Equity for the years ended September 30, 2009 and
2008
|
F-6
|
|
|
Statements
of Cash Flows for the years ended September 30, 2009 and
2008
|
F-8
|
|
|
Notes
to Financial Statements
|
F-9
|
|
|
FINANCIAL
STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
|
|
|
|
Balance
Sheets (Unaudited).
|
F-18
|
|
|
Statements
of Operations (Unaudited).
|
F-19
|
|
|
Statements
of Stockholders (Deficit) (Unaudited)
|
F-20
|
|
|
Statements
of Cash Flows (Unaudited).
|
F-21
|
|
|
Notes
to Financial Statements (Unaudited)
|
F-22
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
XsunX,
Inc. (A Development Stage Company)
Aliso
Viejo, California
We have
audited the accompanying balance sheet of XsunX, Inc. (a development stage
company) as of September 30, 2009, and the related statements of operations,
stockholders’ equity (deficit), and cash flows for the year then ended and the
period from February 25, 1997 (inception) to September 30, 2009. 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. The financial statements for the period from February 25, 1997
(inception) to September 30,2008 were audited by other auditors and our opinion,
insofar as it relates to cumulative amounts included for such prior periods, is
based solely on the reports of such other auditors.
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. as of September 30,
2009, and the results of its operations and its cash flows for each of the year
ended September 30, 2009 and the period from February 25, 1997 (inception) to
September 30, 2009, in conformity with U.S. generally accepted accounting
principles.
We were
not engaged to examine management’s assessment of the effectiveness of XsunX,
Inc.’s internal control over financial reporting as of September 30, 2009,
included in the accompanying managements’ report and, accordingly, we do not
express an opinion thereon.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company does not generate significant revenue and has negative
cash flows from operations which raise substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ HJ
Associates & Consultants, LLP
Salt Lake
City, Utah
January
11, 2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
XsunX,
Inc.
We have
audited the accompanying balance sheet of XsunX, Inc., as of September 30, 2008
and the related statements of operations, stockholders’ equity and cash flows
for the year 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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., at September 30, 2008,
and the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As described in Note 1 of the financial statements,
the Company has an accumulated deficit as of September 30,2008, and needs to
raise additional capital to finance its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans as to this matter are further described in Note 1. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Stark
Winter Schenkein & Co. LLP
Denver,
Colorado
January
30, 2009
XSUNX,
INC.
(A
Development Stage Company)
Balance
Sheets
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
530,717
|
|
|
$
|
2,389,218
|
|
Inventory
asset
|
|
|
300,000
|
|
|
|
1,417,000
|
|
Prepaid
expenses
|
|
|
118,332
|
|
|
|
11,986
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
949,049
|
|
|
|
3,818,204
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
& EQUIPMENT
|
|
|
|
|
|
|
|
|
Office
& miscellaneous equipment
|
|
|
51,708
|
|
|
|
50,010
|
|
Machinery
& equipment
|
|
|
450,386
|
|
|
|
435,910
|
|
Leasehold
improvements
|
|
|
89,825
|
|
|
|
89,825
|
|
|
|
|
591,919
|
|
|
|
575,745
|
|
Less
accumulated depreciation
|
|
|
(378,353
|
)
|
|
|
(299,559
|
)
|
|
|
|
|
|
|
|
|
|
Net
Property & Equipment
|
|
|
213,566
|
|
|
|
276,186
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Manufacturing
equipment in progress
|
|
|
207,219
|
|
|
|
5,824,630
|
|
Security
deposit
|
|
|
5,815
|
|
|
|
5,815
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
213,034
|
|
|
|
5,830,445
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,375,649
|
|
|
$
|
9,924,835
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
389,293
|
|
|
$
|
425,548
|
|
Accrued
expenses
|
|
|
24,451
|
|
|
|
30,957
|
|
Credit
card payable
|
|
|
17,918
|
|
|
|
40,405
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
431,662
|
|
|
|
496,910
|
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued
interest on note payable
|
|
|
4,256
|
|
|
|
-
|
|
Note
payable, vendor
|
|
|
456,921
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Long Term Liabilities
|
|
|
461,177
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
892,839
|
|
|
|
496,910
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value;
|
|
|
|
|
|
|
|
|
50,000,000
authorized preferred shares
|
|
|
-
|
|
|
|
-
|
|
Common
stock, no par value;
|
|
|
|
|
|
|
|
|
500,000,000
authorized common shares
|
|
|
|
|
|
|
|
|
196,484,610
and 186,292,437 shares issued and outstanding,
respectively
|
|
|
23,767,869
|
|
|
|
22,613,369
|
|
Paid
in capital, common stock warrants
|
|
|
3,175,930
|
|
|
|
2,641,412
|
|
Additional
paid in capital
|
|
|
5,248,213
|
|
|
|
5,248,213
|
|
Deficit
accumulated during the development stage
|
|
|
(31,709,202
|
)
|
|
|
(21,075,069
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
482,810
|
|
|
|
9,427,925
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
1,375,649
|
|
|
$
|
9,924,835
|
|
The
Accompanying Notes are an Integral Part of These Financial
Statements
XSUNX,
INC.
(A
Development Stage Company)
Statements
of Operations
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
February 25, 1997
|
|
|
|
Years Ended
|
|
|
to
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative, and research and development
expense
|
|
|
3,316,853
|
|
|
|
3,331,683
|
|
|
|
14,597,953
|
|
Stock
option and warrant expense
|
|
|
534,518
|
|
|
|
673,287
|
|
|
|
3,450,120
|
|
Depreciation
and amortization expense
|
|
|
127,293
|
|
|
|
257,222
|
|
|
|
562,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
3,978,664
|
|
|
|
4,262,192
|
|
|
|
18,610,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSE)
|
|
|
(3,978,664
|
)
|
|
|
(4,262,192
|
)
|
|
|
(18,595,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
5,443
|
|
|
|
176,250
|
|
|
|
445,493
|
|
Impairment
of assets
|
|
|
(5,826,990
|
)
|
|
|
(215,625
|
)
|
|
|
(7,031,449
|
)
|
Legal
settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100,000
|
|
Loan
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,001,990
|
)
|
Write
down of inventory asset
|
|
|
(1,117,000
|
)
|
|
|
-
|
|
|
|
(1,117,000
|
)
|
Forgiveness
of debt
|
|
|
287,381
|
|
|
|
245,000
|
|
|
|
592,154
|
|
Other,
non-operating
|
|
|
-
|
|
|
|
(1,331
|
)
|
|
|
(5,215
|
)
|
Interest
expense
|
|
|
(4,303
|
)
|
|
|
(1,054
|
)
|
|
|
(95,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME/(EXPENSES)
|
|
|
(6,655,469
|
)
|
|
|
203,240
|
|
|
|
(13,113,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(10,634,133
|
)
|
|
$
|
(4,058,952
|
)
|
|
$
|
(31,709,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
189,455,449
|
|
|
|
166,998,772
|
|
|
|
|
|
The
Accompanying Notes are an Integral Part of These Financial
Statements
XSUNX,
INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity
From
Inception February 25, 1997 to September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock Options/
|
|
|
|
|
|
during the
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Warrants
|
|
|
Treasury Stock
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Paid-in-Capital
|
|
|
Shares
|
|
|
Stage
|
|
|
Total
|
|
Balance
at 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 the year ended September 30, 1997
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(193,973
|
)
|
|
|
(193,973
|
)
|
Balance
at September 30, 1997
|
|
|
474,990
|
|
|
|
529,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(193,973
|
)
|
|
|
335,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the year ended September 30, 1998
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(799,451
|
)
|
|
|
(799,451
|
)
|
Balance
at 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 the year ended September 30, 1999
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,482,017
|
)
|
|
|
(1,482,017
|
)
|
Balance
at 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 the year ended September 30, 2000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(118,369
|
)
|
|
|
(118,369
|
)
|
Balance
at September 30, 2000
|
|
|
768,148
|
|
|
|
1,921,419
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,593,810
|
)
|
|
|
(672,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of debt
|
|
|
-
|
|
|
|
337,887
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337,887
|
|
Net
Loss for the year ended September 30, 2001
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,402
|
)
|
|
|
(32,402
|
)
|
Balance
at September 30, 2001
|
|
|
768,148
|
|
|
|
2,259,306
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,626,212
|
)
|
|
|
(366,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the year ended September 30, 2002
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,297
|
)
|
|
|
(47,297
|
)
|
Balance
at 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 the year ended September 30, 2003
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(145,868
|
)
|
|
|
(145,868
|
)
|
Balance
at September 30, 2003
|
|
|
111,298,148
|
|
|
|
2,821,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,819,377
|
)
|
|
|
2,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
2,737,954
|
|
|
|
282,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
282,670
|
|
Warrant
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
|
1,200,000
|
|
Net
Loss for the year ended September 30, 2004
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,509,068
|
)
|
|
|
(1,509,068
|
)
|
Balance
at September 30, 2004
|
|
|
114,036,102
|
|
|
|
3,104,396
|
|
|
|
-
|
|
|
|
825,000
|
|
|
|
-
|
|
|
|
(3,953,445
|
)
|
|
|
(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
|
|
Warrant
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,000
|
|
Beneficial
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Shares
held as collateral for debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,798,418
|
|
|
|
-
|
|
|
|
-
|
|
Net
Loss for the year ended September 30, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,980,838
|
)
|
|
|
(1,980,838
|
)
|
Balance
at September 30, 2005
|
|
|
123,876,639
|
|
|
|
3,996,736
|
|
|
|
400,000
|
|
|
|
1,005,000
|
|
|
|
26,798,418
|
|
|
|
(5,934,283
|
)
|
|
|
(532,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
72,366
|
|
|
|
31,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,500
|
|
Warrant
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
996,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
996,250
|
|
Beneficial
conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
5,685,573
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,685,573
|
|
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 the year ended September 30, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,112,988
|
)
|
|
|
(9,112,988
|
)
|
Balance
at September 30, 2006 (restated)
|
|
|
157,169,856
|
|
|
|
13,290,869
|
|
|
|
6,085,573
|
|
|
|
2,001,250
|
|
|
|
26,798,418
|
|
|
|
(15,047,271
|
)
|
|
|
6,330,421
|
|
The
Accompanying Notes are an Integral Part of These Financial
Statements
XSUNX,
INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity
From
Inception February 25, 1997 to September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock Options/
|
|
|
|
|
|
during the
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Warrants
|
|
|
Treasury Stock
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Paid-in-Capital
|
|
|
Shares
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of stock for serivces returned
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Release
of security collateral
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,798,418
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance
of stock for warrants
|
|
|
900,000
|
|
|
|
135,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135,000
|
|
Stock
option and warrant expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
772,315
|
|
|
|
-
|
|
|
|
-
|
|
|
|
772,315
|
|
Net
Loss for the year ended September 30, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,968,846
|
)
|
|
|
(1,968,846
|
)
|
Balance
at September 30, 2007 (restated)
|
|
|
157,919,856
|
|
|
|
13,425,869
|
|
|
|
6,085,573
|
|
|
|
2,773,565
|
|
|
|
-
|
|
|
|
(17,016,117
|
)
|
|
|
5,268,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fusion
Equity common stock purchase
|
|
|
15,347,581
|
|
|
|
5,200,000
|
|
|
|
(55,300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,144,700
|
|
Commiment
fees
|
|
|
3,500,000
|
|
|
|
1,190,000
|
|
|
|
(1,190,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cumorah
common stock purchase
|
|
|
8,650,000
|
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
|
Wharton
settlement
|
|
|
875,000
|
|
|
|
297,500
|
|
|
|
(397,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,000
|
)
|
MVS
warrant cancellation
|
|
|
-
|
|
|
|
-
|
|
|
|
805,440
|
|
|
|
(805,440
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock
options and warrant expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
673,287
|
|
|
|
-
|
|
|
|
-
|
|
|
|
673,287
|
|
Net
Loss for the year ended September 30, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,058,952
|
)
|
|
|
(4,058,952
|
)
|
Balance
at September 30, 2008
|
|
|
186,292,437
|
|
|
|
22,613,369
|
|
|
|
5,248,213
|
|
|
|
2,641,412
|
|
|
|
-
|
|
|
|
(21,075,069
|
)
|
|
|
9,427,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
|
2,000,000
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Issuance
of stock for cash
|
|
|
1,000,000
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
Issuance
of stock for services
|
|
|
50,000
|
|
|
|
11,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,000
|
|
Issuance
of stock for cash
|
|
|
1,129,483
|
|
|
|
70,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,000
|
|
Issuance
of stock for services
|
|
|
900,000
|
|
|
|
108,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,000
|
|
Issuance
of stock for services
|
|
|
76,976
|
|
|
|
10,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,500
|
|
Issuance
of stock for services
|
|
|
35,714
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
Issuance
of stock for cash
|
|
|
5,000,000
|
|
|
|
350,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
Stock
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
534,518
|
|
|
|
-
|
|
|
|
-
|
|
|
|
534,518
|
|
Net
Loss for the year ended September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,634,133
|
)
|
|
|
(10,634,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
|
196,484,610
|
|
|
$
|
23,767,869
|
|
|
$
|
5,248,213
|
|
|
$
|
3,175,930
|
|
|
$
|
-
|
|
|
$
|
(31,709,202
|
)
|
|
$
|
482,810
|
|
The
Accompanying Notes are an Integral Part of These Financial
Statements
XSUNX,
INC.
(A
Development Stage Company)
Statements
of Cash Flows
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
February 25,1997
|
|
|
|
Years Ended
|
|
|
to
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,634,133
|
)
|
|
$
|
(4,058,952
|
)
|
|
$
|
(31,709,202
|
)
|
Adjustment
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
127,293
|
|
|
|
257,222
|
|
|
|
562,406
|
|
Common
stock issued for services and interest
|
|
|
134,500
|
|
|
|
-
|
|
|
|
1,964,134
|
|
Stock
option and warrant expense
|
|
|
534,518
|
|
|
|
673,287
|
|
|
|
3,450,120
|
|
Beneficial
conversion and commitment fees
|
|
|
-
|
|
|
|
-
|
|
|
|
5,685,573
|
|
Asset
impairment
|
|
|
5,826,990
|
|
|
|
215,625
|
|
|
|
7,031,449
|
|
Write
down of inventory asset
|
|
|
1,117,000
|
|
|
|
-
|
|
|
|
1,117,000
|
|
Gain
on settlement of debt
|
|
|
(287,381
|
)
|
|
|
-
|
|
|
|
(287,381
|
)
|
Settlement
of lease
|
|
|
59,784
|
|
|
|
-
|
|
|
|
59,784
|
|
Change
in Assets and Liabilites
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(106,346
|
)
|
|
|
329,771
|
|
|
|
(118,332
|
)
|
Inventory
asset
|
|
|
-
|
|
|
|
(1,700,000
|
)
|
|
|
(1,417,000
|
)
|
Other
assets
|
|
|
-
|
|
|
|
1,638,326
|
|
|
|
(5,815
|
)
|
Increase
(Decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
345,211
|
|
|
|
16,729
|
|
|
|
2,439,940
|
|
Accrued
expenses
|
|
|
(2,250
|
)
|
|
|
(36,951
|
)
|
|
|
28,707
|
|
Credit
cards payable
|
|
|
22,487
|
|
|
|
(30,533
|
)
|
|
|
17,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,862,327
|
)
|
|
|
(2,695,476
|
)
|
|
|
(11,198,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of manufacturing equipment and facilities in process
|
|
|
-
|
|
|
|
(5,617,410
|
)
|
|
|
(5,824,629
|
)
|
Payments
on note receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,500,000
|
)
|
Receipts
on note receivable
|
|
|
-
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Purchase
of marketable prototype
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,780,396
|
)
|
Purchase
of fixed assets
|
|
|
(16,174
|
)
|
|
|
(111,213
|
)
|
|
|
(591,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(16,174
|
)
|
|
|
(4,228,623
|
)
|
|
|
(8,196,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from warrant conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
3,306,250
|
|
Proceeds
from debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
5,850,000
|
|
Proceeds
for issuance of common stock, net
|
|
|
1,020,000
|
|
|
|
7,544,700
|
|
|
|
10,770,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,020,000
|
|
|
|
7,544,700
|
|
|
|
19,926,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(1,858,501
|
)
|
|
|
620,601
|
|
|
|
530,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
2,389,218
|
|
|
|
1,768,616
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, END OF YEAR
|
|
$
|
530,717
|
|
|
$
|
2,389,218
|
|
|
$
|
530,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
46
|
|
|
$
|
47,217
|
|
|
$
|
119,663
|
|
Taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During
the fiscal year ended September 30, 2009, the Company agreed upon a settlement
of its remaining lease obligation on the Oregon facility, and issued a
promissory note in the amount of $456,921. During the year ended September 30,
2008, the Company issued 875,000 shares of common stock for settlement of debt
at a fair value of $297,500.
The
Accompanying Notes are an Integral Part of These Financial
Statements
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
1.
|
ORGANIZATION
AND LINE OF BUSINESS
|
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”).
Line of
Business
In the
fiscal year ended September 30, 2009 XsunX modified its previous plans to
directly establish product manufacturing infrastructure. We have re-focused
operations on the development of a cross-industry thin film solar manufacturing
concept that we believe provides an opportunity for XsunX to establish a
competitive advantage within the industry. Our current efforts are focused on
the combination of proven thin film solar processes with state-of-the-art mature
magnetic media thin film manufacturing technologies derived from the hard disc
drive (HDD) industry to improve manufacturing output, increase cell efficiency
and production yields, and lower the costs for the production of high efficiency
Copper Indium Gallium (di) Selenide (CIGS) thin film solar
cells.
It is our
belief that by leveraging the manufacturing processes from the HDD industry and
adapting them to thin-film solar technologies, we can reduce the cost per watt
for solar to well below $1 per watt, thereby making solar a viable alternative
in the energy field. Furthermore, it is our belief that our
expertise, experience and proprietary technology in this area will allow us to
seek joint ventures with larger companies thereby generating revenue streams
through licensing fees and manufacturing royalties.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis of
accounting, which contemplates continuity of operations, realization of assets,
liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The
Company does not generate revenue, and has negative cash flows from operations,
which raise substantial doubt about the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern
and appropriateness of using the going concern basis is dependent upon, among
other things, additional cash infusion. The Company has obtained
funds from its shareholders since its inception through September 30, 2009.
Management believes the existing shareholders and the prospective new investors
will provide the additional cash needed to meet the Company’s obligations as
they become due, and will allow the development of its core of
business.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
This
summary of significant accounting policies of XsunX, Inc. is presented to assist
in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible
for their integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the financial
statements.
Development Stage Activities
and Operations
The
Company has been in its initial stages of formation and for the fiscal years
ended September 30, 2009, and 2008, had no revenues. A development stage
activity as one in which all efforts are devoted substantially to establishing a
new business and even if planned principal operations have commenced, revenues
are insignificant.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the estimate of useful lives of property and equipment, the
deferred tax valuation allowance, impairment of assets, commitments and
contingencies, and the fair value of stock options. Actual results could differ
from those estimates.
Cash and Cash
Equivalents
For
purposes of the statements of cash flows, cash and cash equivalents include cash
in banks and money markets with an original maturity of three months or
less.
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, 2009, and 2008, 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.
Revenue
Recognition
The
Company recognizes revenue when services are performed, and at the time of
shipment of products, provided that evidence of an arrangement exists, title and
risk of loss have passed to the customer, fees are fixed or determinable, and
collection of the related receivable is reasonably assured. To date,
only a limited amount of consulting revenue has been earned and the Company is
still in the development stage. The Company’s revenue recognition
policy will be re-evaluated in light of the licensing of solar manufacturing
technologies in the future.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Property and
Equipment
Property
and equipment are stated at cost, and are depreciated using straight line over
its estimated useful lives:
Leasehold
improvements
|
|
Length
of the lease
|
Computer
software and equipment
|
|
3
Years
|
Furniture
& fixtures
|
|
5
Years
|
Machinery
& equipment
|
|
5
Years
|
The
Company capitalizes property and equipment over $500. Property and equipment
under $500 are expensed in the year purchased.
Loss per
Share
Loss per
Share is the calculation of basic earnings per share and diluted earnings per
share. Basic earnings per share are computed by dividing income available to
common shareholders by the weighted-average number of common shares available.
Diluted earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. The Company’s
diluted loss per share is the same as the basic loss per share for the fiscal
years ended September 30, 2009, and 2008, as the inclusion of any potential
shares would have had an anti-dilutive effect due to the Company generating a
loss.
Advertising
Advertising
costs are expensed as incurred. Total advertising costs were $11,340, and
$19,894 for the fiscal years ended September 30, 2009, and 2008,
respectively.
Research and
Development
Research
and development costs are expensed as incurred. Total research and development
costs were $358,884, and $(40,590) for the fiscal years ended September 30,
2009, and 2008, respectively. In the fiscal year ended September 30, 2008 the
Company recovered previous R&D expenses.
Inventory
Inventories
are stated at the lower of cost or market, and consist of a marketable
production prototype. As of September 30, 2009 and 2008, the value of the
inventory was $300,000 and $1,417,000, respectively.
Stock-Based
Compensation
Share-based
Payment applies to transactions in which an entity exchanges its equity
instruments for goods or services and also applies to liabilities an entity may
incur for goods or services that are to follow a fair value of those equity
instruments. We are required to follow a fair value approach using an
option-pricing model, such as the Black Scholes option valuation model, at the
date of a stock option grant. The deferred compensation calculated under the
fair value method would then be amortized over the respective vesting period of
the stock option. This has not had a material impact on our results of
operations.
Income
Taxes
Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of the changes in tax laws
and rates of the date of enactment.
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions. Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the
benefits associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination.
Recent Accounting
Pronouncements
In June
2009, the FASB issued guidance under Accounting Standards Codification (“ASC”)
Topic 105, “Generally Accepted Accounting Principles” (SFAS No. 168, The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles). This guidance establishes the FASB ASC as the single
source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. SFAS 168 and the ASC are effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The ASC
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the ASC has
become non-authoritative. Following SFAS 168, the FASB will
no longer
issue new standards in the form of Statements, FSPs, or EITF Abstracts. Instead,
the FASB will issue Accounting Standards Updates, which will serve only to
update the ASC, provide background information about the guidance, and provide
the bases for conclusions on the change(s) in the ASC. We adopted ASC 105
effective for our financial statements issued as of September 30, 2009. The
adoption
of this guidance did not have an impact on our financial statements but will
alter the references to accounting literature within the financial
statements.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
In August
2009, the FASB issued guidance under Accounting Standards Update (“ASU”) No.
2009-05, “Measuring Liabilities at Fair Value”. This guidance clarifies how the
fair value a liability should be determined. This guidance is effective for the
first reporting period after issuance. We will adopt this guidance for our
fiscal year ended September 30, 2009. The adoption of this guidance has no
material impact on our financial statements
Reclassification
Certain
expenses for the fiscal year ended September 30, 2008 were reclassified to
conform with the expenses for the fiscal year ended September 30,
2009.
At
September 30, 2009, the Company’s authorized stock consisted of 500,000,000
shares of common stock, with no par value. The Company is also
authorized to issue 50,000,000 shares of preferred stock with a par value of
$0.01 per share. The rights, preferences and privileges of the
holders of the preferred stock will be determined by the Board of Directors
prior to issuance of such shares. During the year ended September 30, 2009, the
Company issued 3,000,000 shares of common stock issued through a private
placement at a price of $0.20 per share for cash of $600,000; 5,000,000 shares
of common stock issued at a price of $0.07 per share for cash of $350,000;
1,129,483 shares of common stock issued at a price of $0.062 per share for cash
of $70,000; 1,062,690 shares of common stock issued at prices between $0.12 and
$0.22 per share for services. During the year ended September 30, 2008, the
Company issued 8,650,000 shares of common stock at a price of $0.2890 per share
for cash of $2,500,000; 15,347,581 shares of common stock issued at an average
price of $0.3388 per share for gross cash proceeds of $5,200,000; 3,500,000
shares of common stock issued at a price of $0.34 per share as part of
a financing commitment fee of $1,190,000; 875,000 shares of common
stock issued at a price of $0.34 per share for settlement of a
debt.
|
4.
|
STOCK
OPTIONS AND WARRANTS
|
The
Company adopted a Stock Option Plan for the purposes of granting stock options
to its employees and others providing services to the Company, which reserves
and sets aside for the granting of Options for Twenty Million (20,000,000)
shares of Common Stock. Options granted under the Plan may be either
Incentive Options or Nonqualified Options and shall be administered by the
Company's Board of Directors ("Board"). Each Option shall be
exercisable to the nearest whole share, in installments or otherwise, as the
respective Option agreements may provide. Notwithstanding any other provision of
the Plan or of any Option agreement, each Option shall expire on the date
specified in the Option agreement. During the fiscal year ended September 30,
2009, the Company granted 5,350,000 stock options. The stock options are
exercisable for a period of five years from the date of grant at an exercise
price between $0.16 and $0.36 per share and expire at various times through
March 2014.
|
2009
|
|
2008
|
Risk
free interest rate
|
1.67%
to 2.77%
|
|
3.23% to 4.87%
|
Stock
volatility factor
|
90.56% to 104.73%
|
|
53%
to 122%
|
Weighted
average expected option life
|
5
years
|
|
5
years
|
Expected
dividend yield
|
None
|
|
None
|
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
4.
|
STOCK
OPTIONS AND WARRANTS (Continued)
|
A summary
of the Company’s stock option activity and related information
follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of year
|
|
|
5,750,000
|
|
|
$
|
0.39
|
|
|
|
1,950,000
|
|
|
$
|
0.46
|
|
Granted
|
|
|
5,350,000
|
|
|
$
|
0.17
|
|
|
|
3,800,000
|
|
|
$
|
0.36
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(920,000
|
)
|
|
$
|
0.41
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding,
end of year
|
|
|
10,180,000
|
|
|
$
|
0.27
|
|
|
|
5,750,000
|
|
|
$
|
0.39
|
|
Exercisable
at the end of year
|
|
|
4,927,500
|
|
|
$
|
0.33
|
|
|
|
2,927,500
|
|
|
$
|
0.40
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
|
$
|
0.11
|
|
|
|
|
|
|
$
|
0.28
|
|
The
weighted average remaining contractual life of options outstanding issued under
the plan as of September 30, 2009 was as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Stock
|
|
|
Stock
|
|
Remaining
|
Exercisable
|
|
Options
|
|
|
Options
|
|
Contractual
|
Prices
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
0.46
|
|
|
1,150,000
|
|
|
|
950,000
|
|
2.32
years
|
$
|
0.53
|
|
|
100,000
|
|
|
|
100,000
|
|
2.40
years
|
$
|
0.45
|
|
|
100,000
|
|
|
|
100,000
|
|
2.56
years
|
$
|
0.41
|
|
|
100,000
|
|
|
|
100,000
|
|
2.91
years
|
$
|
0.36
|
|
|
2,500,000
|
|
|
|
1,437,500
|
|
3.07
years
|
$
|
0.36
|
|
|
500,000
|
|
|
|
437,500
|
|
3.12
years
|
$
|
0.36
|
|
|
500,000
|
|
|
|
437,500
|
|
3.16
years
|
$
|
0.36
|
|
|
115,000
|
|
|
|
57,501
|
|
4.03
years
|
$
|
0.16
|
|
|
5,115,000
|
|
|
|
1,307,499
|
|
4.50
years
|
|
|
|
10,180,000
|
|
|
|
4,927,500
|
|
|
Stock-based
compensation expense recognized during the period is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest.
Stock-based compensation expense recognized in the financial statements of
operations during the fiscal year ended September 30, 2009, included
compensation expense for the stock-based payment awards granted prior to, but
not yet vested, as of September 30, 2009 based on the grant date fair value
estimated, and compensation expense for the stock-based payment awards granted
subsequent to September 30, 2009, based on the grant date fair value estimated.
We account for forfeitures as they occur. The stock-based compensation expense
recognized in the statement of operations during the fiscal years ended
September 30, 2009 and 2008 was $534,518 and $673,287,
respectively.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
4.
|
STOCK
OPTIONS AND WARRANTS (Continued)
|
Warrants
A summary of the Company’s warrants
activity and related information follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of year
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
|
|
15,362,000
|
|
|
$
|
0.22
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,333,332
|
|
|
$
|
0.63
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(14,500,000
|
)
|
|
$
|
0.20
|
|
Outstanding,
end of year
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
Exercisable
at the end of year
|
|
|
4,047,332
|
|
|
$
|
0.62
|
|
|
|
4,047,332
|
|
|
$
|
0.61
|
|
Weighted
average fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants
granted during the year
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
0.63
|
|
At
September 30, 2009, the weighted average remaining contractual life of options
outstanding:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Remaining
|
Exercisable
|
|
Warrants
|
|
|
Warrants
|
|
Contractual
|
Prices
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
1.69
|
|
|
112,000
|
|
|
|
112,000
|
|
1.51
years
|
$
|
0.51
|
|
|
500,000
|
|
|
|
352,000
|
|
1.80
years
|
$
|
0.20
|
|
|
250,000
|
|
|
|
250,000
|
|
2.25
years
|
$
|
0.50
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
3.09
years
|
$
|
0.75
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
3.09
years
|
|
|
|
4,195,332
|
|
|
|
4,047,332
|
|
|
The
Company files income tax returns in the U.S. Federal jurisdiction, and the state
of California. With few exceptions, the Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities
for years before 2006.
Included
in the balance at September 30, 2009, are no tax positions for which the
ultimate deductibility is highly certain, but for which there is uncertainty
about the timing of such deductibility. Because of the impact of
deferred tax accounting, other than interest and penalties, the disallowance of
the shorter deductibility period would not affect the annual effective tax rate
but would accelerate the payment of cash to the taxing authority to an earlier
period.
The
Company's policy is to recognize interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses. During the
fiscal year ended September 30, 2009, the Company did not recognize interest and
penalties.
At
September 30, 2009, the Company had net operating loss carry-forwards of
approximately $16,648,000 that may be offset against future taxable income from
the year 2010 through 2030. No tax benefit has been reported in the September
30, 2009 financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carry-forwards for Federal income tax reporting purposes are subject to
annual limitations. Should a change in ownership occur, net operating loss
carry-forwards may be limited as to use in future years.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
6.
|
DEFERRED
TAX BENEFIT (Continued)
|
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rate of 40% to pretax income from
continuing operations for the fiscal year ended September 30, 2009 due to the
following:
|
|
2009
|
|
Book
Income
|
|
$
|
(4,253,653
|
)
|
State
Income Taxes
|
|
|
-
|
|
Nondeductible
Stock Compensation
|
|
|
213,807
|
|
Other
|
|
|
1,784
|
|
NOL
Carryover
|
|
|
-
|
|
Valuation
Allowance
|
|
|
4,038,062
|
|
Income
Tax Expense
|
|
$
|
-
|
|
At
September 30, 2008, the Company had net operating loss carry forwards of
approximately, $6,576,177 for federal income tax purposes. The deferred tax
assets of $2,630,471 are composed of the Company’s net operating loss carry
forwards of approximately $6,576,177 at the approximate tax effect of 40%. There
are no other material deferred tax assets or liabilities of the Company as of
September 30, 2008.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net
deferred tax assets consist of the following components as of September 30,
2009:
|
|
2009
|
|
Deferred
Tax Assets:
|
|
|
|
NOL
Carryforward
|
|
$
|
6,659,187
|
|
Depreciation
|
|
|
38,990
|
|
Contribution
Carryforward
|
|
|
40
|
|
Section
179 Expense Carry-Forward
|
|
|
90,686
|
|
Deferred
Tax Liabilities:
|
|
|
-
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
(6,788,903
|
)
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
Manufacturing Equipment in
Process
In
response to changes within the financial markets and solar industry the Company
modified its business development efforts. The change to operation and business
development plans required the review and valuation assessment of each of the
assets that make up the total under the Company’s Manufacturing Equipment in
Process account. The review has resulted in a write down of certain assets
related to the Company’s efforts to establish amorphous silicon solar module
manufacturing infrastructure that the Company does not anticipate utilizing
under its new plan. This impairment resulted in an expense of $5,826,990. This
represents a total write down to zero for the portion of the Company’s
Manufacturing Equipment in Process account that the Company does not anticipate
using under its new plan of operations. The valuation adjustment was
the result of an analysis of certain significant unobservable events and the
inputs used in determining the amount of the valuation adjustment include the
decision to move to new manufacturing technology under efforts to establish a
competitive advantage. As these assets were not in service, there was
no impact to depreciation expense or accumulated depreciation. The non-cash
expense for the period ended September 30, 2009 is $209,580. However, there was
an impact to the impairment expense recorded for the period.
Inventory Asset for
Sale
The
Company has engaged in efforts to market and sell a production prototype machine
held in inventory for sale. We have engaged in efforts to solicit buyers, but we
cannot be assured that a sale of the machine will be finalized in the near term.
In an effort to develop alternate methods for the sale of the system the Company
is engaged in discussions with interested parties for an arms-length trade of
the system for services related to the Company’s efforts to develop new thin
film manufacturing techniques for CIGS thin films. As a result of these
negotiations utilizing the system as a trade for services, the company
reasonably believes that the book value of the marketable prototype should be
adjusted to reflect a current fair market valuation of $300,000 representing an
average of the trade discussions under way at September 30, 2009. Management
also believes that the write down of $1,117,000 to a book value of $300,000
represents the reasonable salvage value for the marketable prototype
machine.
XSUNX, INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
During
the fiscal year ended September 30, 2009, the Company converted an accounts
payable for accrued facility lease payments to a promissory note in the amount
of $456,921 The note accrues interest at 10% per annum. The note, including all
principal and interest are due September 1, 2011. The interest expense for the
fiscal year ended September 30, 2009 is $4,256. Also, as part of the lease
payments the Company returned equipment to the lease holder and recognized
a non-cash loss of $59,784.
During
the fiscal year ended September 30, 2009, the Company was forgiven an accounts
payable liability for equipment and services in the amount of
$287,381.
|
10.
|
CONCENTRATION
OF CREDIT RISK
|
The
Company has a concentration of credit risk for cash by maintaining deposits with
banks, which may at a time exceed insured amounts. The accounts are
insured by the Federal Deposit Insurance Corporation up to $250,000 per
financial institution. At September 30, 2009, the Company’s uninsured cash
deposits were $280,717.
|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
California Corporate Office
Lease
Effective
April 1, 2009 the Company reduced its leased facilities at its Aliso Viejo, CA
offices by approximately 50%. This resulted in associated reductions to monthly
lease and facility expenses totaling approximately $2,000 leaving a monthly
lease and facility liability of approximately $1,400. The Company plans to
continue to lease these facilities for the foreseeable future.
Oregon Manufacturing
Facility Lease
In
furtherance of its revised plan of operations focusing on the development of new
manufacturing technology for CIGS thin films and plans to establish
manufacturing operations through joint venture license agreements for such new
technology the Company elected to eliminate its Oregon based
facility. On August 27, 2009, the Company entered into a lease
termination and mutual release of claims with Merix Corporation, an Oregon
corporation. Pursuant to the terms of the Agreement, the Parties agreed to
terminate that certain sublease agreement by and between the Parties, dated
April 1, 2008, related to certain real property described therein which
comprised the Company’s Oregon based facility (the “Premises”). Accordingly, the
Company agreed to vacate the Premises on or before September 1, 2009. In
connection with the termination of the Sublease, the Company also agreed (a) to
sell certain equipment, currently housed on the Premises, to Merix for the
amount of $111,620, (b) to allow Merix to complete a full drawdown of that
certain $106,000 irrevocable letter of credit issued by Wells Fargo Bank, N.A.,
at the request of the Company, in favor of Merix. The combined amounts of the
sale of equipment and draw down to the letter of credit totaling $217,620 were
credited to the accrued lease payment liabilities. The remaining accrued lease
payment liabilities and contractual term lease obligation were reduced to
$456,920.66 and the Company issued an unsecured promissory note in favor of
Merix in the amount of $456,920.66. The note accrues interest at 10% per annum.
The Parties agreed to unconditionally release each other from the obligations
imposed by, or related to, the Sublease, except for the obligations established
by the Agreement. The termination of the Sublease eliminates
continued monthly operating costs associated with the facility, which the
Company no longer requires for its plan of operations, while also reducing the
Company’s short-term liabilities associated with the lease to zero and reducing
the Company’s long-term liabilities by approximately sixty-five percent
(65%).
Colorado Facilities
Lease
On
September 30, 2009 the Company extended the lease at its Golden, Colorado
facility for an additional six months expiring on March 31, 2010 at the lease
rate of $1,790 per month plus $945.00 in triple net for a total of $2,735 per
month. While the Company does not currently conduct operations of any
significance in the facility a machine built under contract for the Company, and
held in inventory for sale by the Company, is housed in this facility and we are
engaged in efforts to market and sell this machine. Upon the sale of the machine
we do not anticipate continued use of the facility in our
operations.
Marketable Production
Prototype Machine
An
inspection on April 30, 2009 of a production prototype machine built for the
Company to prove technology for intended resale by the Company resulted in the
determination that the machine continues to fail to meet contractual
requirements and on May 4, 2009 XsunX provided the vendor, MVSystems Inc., a
notice asserting that MVSystems is in material default of the terms of the
agreement for the machine between the parties. No resolution to this notice of
default has been agreed to by the parties.
Marketable Production
Prototype Sales Tax Dispute
In March
2009 XsunX received notice from the State of Colorado offering determination
that sales tax and penalties were due for what the state perceived as a purchase
of a machine for use by XsunX rather than as an inventory item that was
developed for re-sale. On April 10, 2009 the Company filed a protest
and hearing request disputing the findings of the tax auditor requesting that
the total tax liability determination be reversed. As of September 30, 2009 we
had not yet received a final determination from the Colorado Department of
Revenue and we had a potential contingent liability in the amount of $72,800 for
tax on the machine. On November 17, 2009 the Colorado Department of Revenue
withdrew and cancelled its assessment of tax liability in
total.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
|
11.
|
COMMITMENTS
AND CONTINGENCIES
(Continued)
|
Manufacturing Facility
Production Equipment Dispute
Under the
Company’s previous efforts to establish a thin film solar module manufacturing
facility the Company had placed an order for certain thin film deposition
equipment with a vendor. While the Company worked with the vendor to verify and
approve the contractual compliance of certain deliverables associated with
$2,500,000 in invoicing received by the Company from the vendor the Company
reported this invoice as a liability in its quarterly report for the period
ended December 31, 2008 on Form 10Q. We completed our review of the deliverables
and the vendor’s compliance with contractual requirements and determined that
the deliverables under the invoice did not meet the required contractual
specifications. For the period ended March 31, 2009 the Company reversed the
$2,500,000 accounts payable liability until such time that the contractual
requirements had been met by the vendor. In June the vendor and XsunX proposed
terms for the cancellation of the order without further obligation to either
party. As of the year ended September 30, 2009 the parties had agreed to terms
but had not executed a signed release. The terms did not include or create any
current or continuing liabilities for XsunX or the vendor. On December 21, 2009
the parties agreed to the termination of the order and all liabilities
associated with the order further providing that neither party would be require
to provide continuing services or payment.
Under the
Company’s previous efforts to establish a thin film solar module manufacturing
facility the Company had placed an order for glass washing systems totaling
$523,950 with a vendor. Deposits totaling $130,987.50 were paid to the vendor
prior to the cancellation of the order by the Company, and no systems have been
delivered. The vendor is claiming that a balance is due prior to shipment in the
amount of $408,963 which includes certain accrued interest payments. The Company
has cancelled this order and disputes this amount and has instructed the vendor
to apply the deposit payment of $130,987.50 towards re-stocking fees as full and
final settlement to the account. Invoicing for this item totaling $209,580
remains on the Company’s account payables until such time that a final
adjustment can be determined between the parties. In the judgment of management
this remaining accounts payable amount of $209,580, if necessary, fairly
represents an allowance sufficient to account for adjustments to re-stocking
credits.
On
September 3, 2009, XsunX received notice of an action filed by a vendor in the
State of Oregon, Multnomah County, requesting, a) that the court grant the
re-possession of certain industrial gas management equipment (the “equipment”)
for shipment back to the vendor (XsunX had returned the equipment to the vendor
on August 28, 2009), b) that the court grant the vendor unspecified re-stocking
and re-shipment fees, or c) the sum of $117,207.07 plus interest and collection
fees for payment for the equipment. The vendor allegations stem from XsunX’s
determination that the vendor had modified an order for the equipment previously
placed by XsunX without approval by XsunX through the issuance of an authorizing
purchase order. Attempts by XsunX to return the equipment were met with demands
for re-stocking fees from the vendor. XsunX has refused to pay re-stocking fees
for equipment it believes was modified without approval. The vendor agreed to
the return of the equipment and then subsequently filed its claim. Since the
filing of the claim the vendor has proposed that it provide XsunX with a
re-stocking credit leaving approximately $95,000 in re-stocking fees, interest,
and collection fees. We dispute this amount and have retained counsel to
aggressively defend this matter. As of the date the financial statements were
issued the Company is unable to estimate a loss related to this
action.
Employment
Agreements
On
November 6, 2007, we entered into an amended and restated employment agreement
with Mr. Joseph Grimes, our chief operating officer. Under the terms of his
employment agreement, Mr. Grimes is entitled to a minimum annual base
salary of $210,000. In March 2009 Mr. Grimes and the Company agreed to the
reduction of annual base salary from $210,000 to $157,500 as part of cost
cutting measures approved by the Board of Directors in association with the
Company’s efforts to modify its plan of operations. In conjunction with agreeing
to the reduction in base salary the Company also provided Mr. Grimes with a
stock option grant to purchase 2,500,000 shares of our common stock,
exercisable at $0.16 cents per share. In the event that Mr. Grimes
employment is terminated by us without good cause, Mr. Grimes may receive a
severance payment in the amount equal to 6 months of his annual base salary
then paid to Mr. Grimes, all payable within 30 days of such termination.
Potential cost to the Company could total at minimum $100,000 for the
termination of Mr. Grimes subject to the termination without good cause by the
Company.
On
January 1, 2007, we entered into an employment agreement with Mr. Robert Wendt,
our chief technical officer. Under the terms of his employment agreement,
Mr. Wendt was initially entitled to a minimum annual base salary of
$150,000 which was adjusted to $200,000 in November 2007 after review by the
board. In March 2009 Mr. Wendt and the Company agreed to the reduction of annual
salary from $200,000 to $150,000 as part of cost cutting measures approved by
the Board of Directors in association with the Company’s efforts to modify its
plan of operations. In conjunction with agreeing to the reduction in base salary
the Company also provided Mr. Wendt with a stock option grant to purchase
2,500,000 shares of our common stock, exercisable at $0.16 cents per share.
In September 2009 the Company agreed to the terms of a two year Key Employee
Retention Agreement with Mr. Robert Wendt providing that in the event that Mr.
Wendt’s employment is terminated by the Company without good cause, Mr. Wendt
may receive twelve months salary at the then salary rate at time of termination,
twelve months Company paid costs for actual costs incurred by Mr. Wendt for
medical benefits related to COBRA coverage, and a relocation payment up to
$2,500. Potential cost to the Company could total at minimum $164,500 for the
termination of Mr. Wendt subject to the termination without good cause by the
Company.
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 were 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. On June 13, 2008, the Company entered
into a separations agreement with Sencera, LLC which resulted in the full
repayment of the principal $1,500,000 balance of the note plus accrued interest
of approximately $173,251.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2009 and 2008
The
following are items management has evaluated as subsequent events through
the date the financial statements were issued.
Under the
Company’s previous efforts to establish a thin film solar module manufacturing
facility the Company had placed an order for certain thin film deposition
equipment with a vendor. In June the vendor and XsunX proposed terms for the
cancellation of the order without further obligation to either party. On
December 21, 2009 the parties agreed to the termination of the order
and all liabilities
associated with the order further providing that neither party would be require
to provide continuing services or payment.
On
October 16, 2009, the Company accepted an offer for the sale of 2,556,818 shares
of its restricted common stock in a private placement for cash proceeds of
$225,000.
On
November 16, 2009 the Company issued 53,789 shares of its common restricted
stock for services related to marketing and public relations valued at $10,000
dollars.
On
December 31, 2009 the Company accepted an offer for the sale of 1,000,000 shares
of its restricted common stock in a private placement for cash proceeds of
$88,000.
In the
fiscal year ended September 30, 2009 XsunX modified its previous plans to
directly establish amorphous silicon product manufacturing infrastructure. We
have re-focused operations on the development of a cross-industry thin film
solar manufacturing concept that we believe provides an opportunity for XsunX to
establish a competitive advantage within the industry. In furtherance of these
efforts the Company has begun the development of a hybrid manufacturing system
combining certain technologies derived from the magnetic media manufacturing
industry with manufacturing techniques for thin film solar. The Company has
agreed to an estimate of $1,150,000 from a vendor for the cost of this prototype
system, and in October 2009 paid an initial $115,000 deposit towards the
manufacture of this system. The vendor and the Company are now engaged in
efforts to complete the testing and engineering designs necessary to build the
system.
In March
2009 XsunX received notice from the State of Colorado offering determination
that sales tax and penalties were due for what the state perceived as a purchase
of a machine for use by XsunX rather than as an inventory item that was
developed for re-sale. On April 10, 2009 the Company filed a protest
and hearing request disputing the findings of the tax auditor requesting that
the total tax liability determination be reversed. On November 17, 2009 the
Colorado Department of Revenue withdrew and cancelled its assessment of tax
liability in total.
XSUNX,
INC.
(A
Development Stage Company)
BALANCE
SHEETS
|
|
December
31, 2009
|
|
|
September
30, 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
275,964
|
|
|
$
|
530,717
|
|
Common
stock subscription receivable
|
|
|
88,000
|
|
|
|
-
|
|
Inventory
asset
|
|
|
300,000
|
|
|
|
300,000
|
|
Prepaid
expenses
|
|
|
63,224
|
|
|
|
118,332
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
727,188
|
|
|
|
949,049
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
& EQUIPMENT
|
|
|
|
|
|
|
|
|
Office
& miscellaneous equipment
|
|
|
51,708
|
|
|
|
51,708
|
|
Machinery
& equipment
|
|
|
450,386
|
|
|
|
450,386
|
|
Leasehold
improvements
|
|
|
89,825
|
|
|
|
89,825
|
|
|
|
|
591,919
|
|
|
|
591,919
|
|
Less
accumulated depreciation
|
|
|
(401,830
|
)
|
|
|
(378,353
|
)
|
|
|
|
|
|
|
|
|
|
Net
Property & Equipment
|
|
|
190,089
|
|
|
|
213,566
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Manufacturing
equipment in progress
|
|
|
437,219
|
|
|
|
207,219
|
|
Security
deposit
|
|
|
5,815
|
|
|
|
5,815
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
443,034
|
|
|
|
213,034
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,360,311
|
|
|
$
|
1,375,649
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
528,091
|
|
|
$
|
389,293
|
|
Accrued
expenses
|
|
|
15,770
|
|
|
|
24,451
|
|
Credit
card payable
|
|
|
6,816
|
|
|
|
17,918
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
550,677
|
|
|
|
431,662
|
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued
interest on note payable
|
|
|
15,679
|
|
|
|
4,256
|
|
Note
payable, vendor
|
|
|
456,921
|
|
|
|
456,921
|
|
|
|
|
|
|
|
|
|
|
Total
Long Term Liabilities
|
|
|
472,600
|
|
|
|
461,177
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
1,023,277
|
|
|
|
892,839
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value;
|
|
|
|
|
|
|
|
|
50,000,000
authorized preferred shares
|
|
|
|
|
|
|
|
|
Common
stock, no par value;
|
|
|
|
|
|
|
|
|
500,000,000
authorized common shares
|
|
|
|
|
|
|
|
|
200,095,217
and 196,484,610 shares issued and outstanding,
respectively
|
|
|
24,090,869
|
|
|
|
23,767,869
|
|
Paid
in capital, common stock warrants
|
|
|
3,250,298
|
|
|
|
3,175,930
|
|
Additional
paid in capital
|
|
|
5,248,213
|
|
|
|
5,248,213
|
|
Deficit
accumulated during the development stage
|
|
|
(32,252,346
|
)
|
|
|
(31,709,202
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
337,034
|
|
|
|
482,810
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
1,360,311
|
|
|
$
|
1,375,649
|
|
The
accompanying notes are an integral part of these financial
statements
XSUNX,
INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
From
Inception
|
|
|
|
|
|
|
|
|
|
February
25, 1997
|
|
|
|
For
the Three Months Ended
|
|
|
through
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
109,993
|
|
|
|
100,535
|
|
|
|
1,208,527
|
|
General
and administrative expenses
|
|
|
279,024
|
|
|
|
1,007,764
|
|
|
|
11,072,894
|
|
Research
and development
|
|
|
44,891
|
|
|
|
12,836
|
|
|
|
2,750,440
|
|
Stock
option and warrant expense
|
|
|
74,368
|
|
|
|
77,250
|
|
|
|
3,524,488
|
|
Depreciation
and amortization expense
|
|
|
23,477
|
|
|
|
37,052
|
|
|
|
585,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
531,753
|
|
|
|
1,235,437
|
|
|
|
19,142,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSE)
|
|
|
(531,753
|
)
|
|
|
(1,235,437
|
)
|
|
|
(19,127,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
44
|
|
|
|
3,416
|
|
|
|
445,537
|
|
Impairment
of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,031,449
|
)
|
Write
down of inventory asset
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,117,000
|
)
|
Legal
settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100,000
|
|
Loan
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,001,990
|
)
|
Forgiveness
of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
592,154
|
|
Other,
non-operating
|
|
|
-
|
|
|
|
(7,590
|
)
|
|
|
(5,215
|
)
|
Interest
expense
|
|
|
(11,435
|
)
|
|
|
-
|
|
|
|
(107,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME/(EXPENSES)
|
|
|
(11,391
|
)
|
|
|
(4,174
|
)
|
|
|
(13,124,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(543,144
|
)
|
|
$
|
(1,239,611
|
)
|
|
$
|
(32,252,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING
BASIC AND DILUTED
|
|
|
198,662,320
|
|
|
|
188,404,937
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
XSUNX,
INC.
(A
Development Stage Company)
STATEMENT
OF SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock
Options/
|
|
|
during
the
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Warrants
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Paid-in-Capital
|
|
|
Stage
|
|
|
Total
|
|
Balance
at September 30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
196,484,610
|
|
|
$
|
23,767,869
|
|
|
$
|
5,248,213
|
|
|
$
|
3,175,930
|
|
|
$
|
(31,709,202
|
)
|
|
$
|
482,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in October 2009 for cash
(2,556,818
common shares issued at $0.088 per share )
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,556,818
|
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in November 2009 for services
(53,789 common
shares issued at a fair value of $0.1859 per share)
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
53,789
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in December 2009 for subscription receivable
(1,000,000 common shares issued at $0.088 per share)
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
88,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,368
|
|
|
|
-
|
|
|
|
74,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the period ended December 31, 2009 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(543,144
|
)
|
|
|
(543,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
200,095,217
|
|
|
$
|
24,090,869
|
|
|
$
|
5,248,213
|
|
|
$
|
3,250,298
|
|
|
$
|
(32,252,346
|
)
|
|
$
|
337,034
|
|
The
accompanying notes are an integral part of these financial
statements
XSUNX,
INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
(Unaudted)
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
February 25,1997
|
|
|
|
For the Three Months Ended
|
|
|
through
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(543,144
|
)
|
|
$
|
(1,239,611
|
)
|
|
$
|
(32,252,346
|
)
|
Adjustment
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
23,477
|
|
|
|
37,052
|
|
|
|
585,883
|
|
Common
stock issued for services and interest
|
|
|
10,000
|
|
|
|
11,000
|
|
|
|
1,974,134
|
|
Stock
option and warrant expense
|
|
|
74,368
|
|
|
|
77,250
|
|
|
|
3,524,488
|
|
Beneficial
conversion and commitment fees
|
|
|
-
|
|
|
|
-
|
|
|
|
5,685,573
|
|
Asset
impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
7,031,449
|
|
Write
down of inventory asset
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117,000
|
|
Gain
on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(287,381
|
)
|
Settlement
of lease
|
|
|
-
|
|
|
|
-
|
|
|
|
59,784
|
|
Change
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
55,108
|
|
|
|
(26,098
|
)
|
|
|
(63,224
|
)
|
Inventory
held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,417,000
|
)
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,815
|
)
|
Increase
(Decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
127,696
|
|
|
|
3,235,035
|
|
|
|
2,567,636
|
|
Accrued
expenses
|
|
|
2,742
|
|
|
|
23,282
|
|
|
|
31,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED)/PROVIDED IN OPERATING ACTIVITIES
|
|
|
(249,753
|
)
|
|
|
2,117,910
|
|
|
|
(11,448,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of manufacturing equipment and facilities in process
|
|
|
(230,000
|
)
|
|
|
(3,516,719
|
)
|
|
|
(6,054,629
|
)
|
Payments
on note receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,500,000
|
)
|
Receipts
on note receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500,000
|
|
Purchase
of marketable prototype
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,780,396
|
)
|
Purchase
of fixed assets
|
|
|
-
|
|
|
|
(35,170
|
)
|
|
|
(591,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED BY INVESTING ACTIVITIES
|
|
|
(230,000
|
)
|
|
|
(3,551,889
|
)
|
|
|
(8,426,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from warrant conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
3,306,250
|
|
Proceeds
from debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
5,850,000
|
|
Proceeds
for issuance of common stock, net
|
|
|
225,000
|
|
|
|
600,000
|
|
|
|
10,995,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
225,000
|
|
|
|
600,000
|
|
|
|
20,151,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(254,753
|
)
|
|
|
(833,979
|
)
|
|
|
275,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
530,717
|
|
|
|
2,389,218
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
275,964
|
|
|
$
|
1,555,240
|
|
|
$
|
275,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
12
|
|
|
$
|
-
|
|
|
$
|
119,675
|
|
Taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
SUPPLEMENTAL
DISCLOSURES OF NON CASH TRANSACTIONS
During
the three months ended December 31, 2009, the Company issued 1,000,000 shares of
common stock for $88,000 for a subscription receivable.
The
accompanying notes are an integral part of these financial
statements
XSUNX,
INC.
(A
Development Stage Company)
Notes to
Financial Statements – (Unaudited)
December
31, 2009
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal recurring adjustments considered necessary for a fair presentation have
been included. Operating results for the three months ended December
31, 2009 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2010. For further information refer to
the financial statements and footnotes thereto included in the Company's Form
10-K for the year ended September 30, 2009.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis of
accounting, which contemplates continuity of operations, realization of assets
and liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The
Company does not generate significant revenue, and has negative cash flows from
operations, which raise substantial doubt about the Company’s ability to
continue as a going concern. The ability of the Company to continue
as a going concern and appropriateness of using the going concern basis is
dependent upon, among other things, additional cash infusion. The
Company has obtained funds from its shareholders since its inception through the
three months ended December 31, 2009. Management believes the existing
shareholders and the prospective new investors will provide the additional cash
needed to meet the Company’s obligations as they become due, and will allow the
development of its core of business.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of XsunX, Inc. is presented to assist
in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible
for their integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the financial
statements.
Development Stage Activities
and Operations
The
Company has been in its initial stages of formation and for the period ended
December 31, 2009, had no revenues. A development stage activity as one in which
all efforts are devoted substantially to establishing a new business and even if
planned principal operations have commenced, revenues are
insignificant.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the estimate of useful lives of property and equipment, the
deferred tax valuation allowance, and the fair value of stock options. Actual
results could differ from those estimates.
Cash and Cash
Equivalents
For
purposes of the statements of cash flows, cash and cash equivalents include cash
in banks and money markets with an original maturity of three months or
less.
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
December 31, 2009, and September 30, 2009, 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.
XSUNX,
INC.
(A
Development Stage Company)
Notes to
Financial Statements – (Unaudited)
December
31, 2009
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Loss per Share
Calculations
Loss per
Share is the calculation of basic earnings per share and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares available.
Diluted earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. The Company’s
diluted loss per share is the same as the basic loss per share for the period
ended December 31, 2009 as the inclusion of any potential shares would have had
an anti-dilutive effect due to the Company generating a loss.
Revenue
Recognition
The
Company recognizes revenue when services are performed, and at the time of
shipment of products, provided that evidence of an arrangement exists, title and
risk of loss have passed to the customer, fees are fixed or determinable, and
collection of the related receivable is reasonably assured. To date
the Company has had minimal revenue and is still in the development
stage.
Stock-Based
Compensation
Share-based
Payment applies to transactions in which an entity exchanges its equity
instruments for goods or services and also applies to liabilities an entity may
incur for goods or services that are to follow a fair value of those equity
instruments. We are required to follow a fair value approach using an
option-pricing model, such as the Black Scholes option valuation model, at the
date of a stock option grant. The deferred compensation calculated under the
fair value method would then be amortized over the respective vesting period of
the stock option. This has not had a material impact on our results of
operations.
3. CAPITAL
STOCK
At
December 31, 2009, the Company’s authorized stock consisted of 500,000,000
shares of common stock, with no par value. The Company is also
authorized to issue 50,000,000 shares of preferred stock with a par value of
$0.01 per share. The rights, preferences and privileges of the
holders of the preferred stock will be determined by the Board of Directors
prior to issuance of such shares. During the three months ended December 31,
2009, the Company issued 2,556,818 shares of common stock at a price of $0.088
per share for cash of $225,000; 1,000,000 shares of common stock issued at a
price of $0.088 per share for a subscription receivable of $88,000; 53,789
shares of common stock issued at a price of $0.1859 per share for services at a
fair value of $10,000. During the three months ended December 31, 2008, the
Company issued 3,000,000 shares of common stock at a price of $0.20 per share
for cash of $600,000; 50,000 shares of common stock issued at a price of $0.22
per share for services at fair value of $11,000.
4. STOCK
OPTIONS AND WARRANTS
The
Company adopted a Stock Option Plan for the purposes of granting stock options
to its employees and others providing services to the Company, which reserves
and sets aside for the granting of Options for Twenty Million (20,000,000)
shares of Common Stock. Options granted under the Plan may be either
Incentive Options or Nonqualified Options and shall be administered by the
Company's Board of Directors ("Board"). Each Option shall be
exercisable to the nearest whole share, in installments or otherwise, as the
respective Option agreements may provide. Notwithstanding any other provision of
the Plan or of any Option agreement, each Option shall expire on the date
specified in the Option agreement. During the period ended December 31, 2009,
the Company granted no stock options.
XSUNX,
INC.
(A
Development Stage Company)
Notes to
Financial Statements – (Unaudited)
December
31, 2009
4. STOCK
OPTIONS AND WARRANTS (Continued)
A summary
of the Company’s stock option activity and related information
follows:
|
|
For the period ended
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of the period
|
|
|
10,180,000
|
|
|
$
|
0.27
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding,
end of the period
|
|
|
10,180,000
|
|
|
$
|
0.27
|
|
Exercisable
at the end of the period
|
|
|
5,410,207
|
|
|
$
|
0.32
|
|
Weighted
average fair value of options granted during the period
|
|
|
|
|
|
$
|
-
|
|
The
weighted average remaining contractual life of options outstanding issued under
the plan as of December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Stock
|
|
Remaining
|
Exercisable
|
|
|
Options
|
|
|
Options
|
|
Contractual
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
0.46
|
|
|
|
1,150,000
|
|
|
|
950,000
|
|
2.07
years
|
$
|
0.53
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.15
years
|
$
|
0.45
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.31
years
|
$
|
0.41
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2.66
years
|
$
|
0.36
|
|
|
|
2,500,000
|
|
|
|
1,415,625
|
|
2.82
years
|
$
|
0.36
|
|
|
|
500,000
|
|
|
|
471,875
|
|
2.87
years
|
$
|
0.36
|
|
|
|
500,000
|
|
|
|
471,875
|
|
2.91
years
|
$
|
0.36
|
|
|
|
115,000
|
|
|
|
67,084
|
|
3.78
years
|
$
|
0.16
|
|
|
|
5,115,000
|
|
|
|
1,733,748
|
|
4.25
years
|
|
|
|
|
|
10,180,000
|
|
|
|
5,410,207
|
|
|
Stock-based
compensation expense recognized during the period is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest.
Stock-based compensation expense recognized in the financial statements of
operations during the three months ended December 31, 2009, included
compensation expense for the stock-based payment awards granted prior to, but
not yet vested, as of December 31, 2009 based on the grant date fair value
estimated, and compensation expense for the stock-based payment awards granted
subsequent to December 31, 2009, based on the grant date fair value estimated.
We account for forfeitures as they occur. The stock-based compensation expense
recognized in the statement of operations during the three months ended December
31, 2009 and 2008 was $74,368 and $77,250, respectively.
XSUNX,
INC.
(A
Development Stage Company)
Notes to
Financial Statements – (Unaudited)
December
31, 2009
4. STOCK
OPTIONS AND WARRANTS (Continued)
Warrants
A summary
of the Company’s warrants activity and related information follows:
|
|
For the period ended
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
Outstanding,
beginning of the period
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding,
end of the period
|
|
|
4,195,332
|
|
|
$
|
0.61
|
|
Exercisable
at the end of period
|
|
|
4,047,332
|
|
|
$
|
0.64
|
|
Weighted
average fair value of warrants granted during the period
|
|
|
|
|
|
$
|
-
|
|
At
December 31, 2009, the weighted average remaining contractual life of warrants
outstanding:
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Remaining
|
Exercisable
|
|
|
Warrants
|
|
|
Warrants
|
|
Contractual
|
Prices
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Life (years)
|
$
|
1.69
|
|
|
|
112,000
|
|
|
|
112,000
|
|
1.26
years
|
$
|
0.51
|
|
|
|
500,000
|
|
|
|
352,000
|
|
1.55
years
|
$
|
0.20
|
|
|
|
250,000
|
|
|
|
250,000
|
|
2.00
years
|
$
|
0.50
|
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
2.84
years
|
$
|
0.75
|
|
|
|
1,666,666
|
|
|
|
1,666,666
|
|
2.84
years
|
|
|
|
|
|
4,195,332
|
|
|
|
4,047,332
|
|
|
XSUNX,
INC.
(A
Development Stage Company)
Notes to
Financial Statements – (Unaudited)
December
31, 2009
5. PROMISSORY
NOTE
During
the year ended September 30, 2009, the Company converted an accounts payable to
a promissory note in the amount of $456,921. The note accrues interest at 10%
per annum. The note, including all principal and interest, is due September 1,
2011. The interest expense related to this note for the three months ended
December 31, 2009 is $11,423.
6. SUBSEQUENT
EVENTS
The
following are items management has evaluated as subsequent events through
the date the financial statements were issued.
In May
2008 XsunX licensed certain patented and patent-pending technologies from
MVSystems, Inc. In April 2009 the Company received notice from MVSystems that
one of the patent pending technologies licensed by XsunX, U.S. Patent
Application No. 10/905,545 entitled “Stable Three-Terminal and Four Terminal
Solar Cells and Solar Cell Panels Using Thin-Film Silicon Technology, had been
rejected by the US Patent Office for various deficiencies. In August 2009
MVSystems notified the Company that it had amended its application and re-filed
the amended patent application with the U.S Patent Office. On January 22, 2010,
the Company received notification from MVSystems that the above referenced
patent application had again been rejected by the Untied States Patent Office
and that MVSystems had elected to abandon the above referenced patent
application. By prior agreement, the Company has assumed all rights of MVS to
prosecute or maintain the referenced patent application, and the Company
continues to hold related contractual rights and claims against MVSystems,
Inc. The Company's current plan of operations and technology development
efforts does not contemplate the use of the above referenced patent application
technology.
On
January 12, 2010, the Company received $88,000 on a common stock sale receivable
for the purchase of 1,000,000 shares of common restricted stock.
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:
●
there have been no changes in the affairs of XsunX, Inc. after the date of
this Prospectus; or
●
the information contained in this Prospectus is correct after the date of
this Prospectus.
Until
_______ ___, 2010, 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.
|
PROSPECTUS
27,500,000
Shares of Common Stock
XSUNX
INC.
April
___ 2010
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered. We will pay all expenses in connection with this
offering.
Securities
and Exchange Commission Registration Fee
|
|
$
|
275
|
|
Printing
and Engraving Expenses
|
|
|
5,000
|
|
Accounting
Fees and Expenses
|
|
|
10,000
|
|
Legal
Fees and Expenses
|
|
|
25,000
|
|
Miscellaneous
|
|
|
5,000
|
|
TOTAL
|
|
$
|
|
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide
that we shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses including attorney fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. Termination of any action, suit or proceeding in any manner
does not by itself create a presumption that such person did not act in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful.
The articles of incorporation also
provide that the Company must indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee,
fiduciary or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee, fiduciary, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such proceeding, if such
person believed it to be in, or not opposed to, the best interests of the
Company. Such indemnification may not be made for any claim, issue or
matter as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of such person’s duty to the Company, unless and
only to the extent that the court in which the proceeding was brought determines
that, despite the adjudication of liability, but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
The
bylaws adopt the provisions of the Colorado Revised Statutes 7-3-101 (now C.R.S.
7-109), as amended from time to time, relating to Indemnification and
incorporate such provisions by reference as fully as if set forth
therein.
The
Colorado Revised Statutes 7-109-102 provide that a corporation may indemnify a
director who is a party to a proceeding against liability if the director’s
conduct was in good faith, the director reasonably believed, in the case of
conduct in an official capacity with the corporation, that such conduct was in
the corporation’s best interests, and in the case of any criminal proceeding,
the director had no reasonable cause to believe his conduct was
unlawful. The termination of a proceeding in any manner is not, of
itself, determinative that the director did not meet the standard of conduct
described in C.R.S. 7-109-102. A corporation may not indemnify a
director in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation, or in any
proceeding where the director is adjudged liable on the basis that the director
derived an improper benefit. Indemnification under C.R.S. 7-109-102
in connection with a proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the
proceeding.
C.R.S.
7-109-103 provides that a corporation must indemnify a director who is wholly
successful, on the merits or otherwise, in the defense of any proceeding brought
against him in his capacity as a director, against reasonable expenses incurred
by the director in connection with the proceeding.
C.R.S.
7-109-104 provides that a company may pay the costs incurred by any person
entitled to indemnification in defending a proceeding as such costs are incurred
and in advance of the final disposition of a proceeding; provided however, that
the company must pay such costs only upon receipt of a written affirmation of
the director’s good faith belief that he met the appropriate standard of
conduct, a written undertaking by or on behalf of such person to repay the
advance if it is ultimately determined that the director did not meet the
standard of conduct, and after a determination is made that indemnification is
not precluded.
C.R.S.
7-109-105 provides that unless otherwise provided in the articles of
incorporation, a director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court, after giving
any notice the court considers necessary, may order indemnification in the
following manner: If it determines that the director is entitled to mandatory
indemnification, the court shall order indemnification, in which case the court
shall also order the corporation to pay the director's reasonable expenses
incurred to obtain court-ordered indemnification. If the court
determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the appropriate standard of conduct or was adjudged liable under
the circumstances, the court may order such indemnification as the court deems
proper; except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in connection with a proceeding regarding the
right of the corporation or derivation of an improper benefit is limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
C.R.S.
7-109-106 provides that a corporation may not indemnify a director unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the appropriate standard of conduct. A corporation
shall not advance expenses to a director under section 7-109-104 unless
authorized in the specific case after the required written affirmation and
undertaking are received and the determination has been made.
The
determinations required by C.R.S. 7-109-106 must be made:
(a) By
the board of directors by a majority vote of those present at a meeting at which
a quorum is present, and only those directors not parties to the proceeding
shall be counted in satisfying the quorum; or
(b) If a
quorum cannot be obtained, by a majority vote of a committee of the board of
directors designated by the board of directors, which committee shall consist of
two or more directors not parties to the proceeding; except that directors who
are parties to the proceeding may participate in the designation of directors
for the committee.
If a
quorum cannot be obtained as contemplated in paragraph (a) above, and a
committee cannot be established under paragraph (b) above, or, even if a quorum
is obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required shall be made:
(a) By
independent legal counsel selected by a vote of the board of directors or the
committee in the manner described above or, if a quorum of the full board cannot
be obtained and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full board of directors; or
(b) By
the shareholders.
C.R.S.
7-109-107 provides that an officer is entitled to a mandatory indemnification
and is entitled to apply for court-ordered indemnification to the same extent as
a director. Also, a corporation may indemnify and advance expenses to
an officer, employee, fiduciary or agent of the corporation to the same extent
as to a director, or to a greater extent, if not inconsistent with public
policy, the corporation’s bylaws, actions of the board of directors or
shareholders, or contract.
C.R.S.
7-109-108 provides that a corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign entity or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from the person's status as a director, officer, employee, fiduciary, or
agent, whether or not the corporation would have power to indemnify the person
against the same liability under another section.
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification 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 (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person connected with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
Except as
otherwise noted, all of the following shares were issued and options and
warrants granted pursuant to the exemption provided for under Section 4(2) of
the Securities Act as a “transaction not involving a public
offering”. No commissions were paid, and no underwriter participated,
in connection with any of these transactions. Each such issuance was made
pursuant to individual contracts which are discrete from one another and are
made only with persons who were sophisticated in such transactions and who had
knowledge of and access to sufficient information about the Company to make an
informed investment decision. Among this information was the fact that the
securities were restricted securities.
Fiscal
Year 2008
The
following represents a detailed analysis of the 2008 Common stock
transactions.
Fusion
Capital Transaction
On
November 1, 2007, we signed a common stock Purchase Agreement with Fusion
Capital Fund II, LLC, an Illinois limited liability Company (“Fusion”) providing
for the sale of up to $21 million of common stock to Fusion. Upon signing the
agreement, we received $1,000,000 from Fusion 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 common stock
purchase agreement, we entered into a registration rights agreement with
Fusion. On January 18, 2008, we filed a Form S-1 with the SEC seeking
to register 48,650,000 shares related to our financing agreements with Fusion
and Cumorah Capital. The registration was declared effective by the
SEC on April 10, 2008.
Cumorah
Capital Transaction
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.
Wharton
Settlement Agreement
On May
30, 2008, XsunX and Wharton whole name entered into a Settlement Agreement
pursuant to which XsunX agreed to provide Wharton with 875,000 shares of its
common stock. Subject to the fulfillment of the requirements of Rule 144 of the
Securities Act, Wharton agreed not to sell or transfer more than 250,000 shares
monthly. The Company also agreed to a $100,000 cash payment to be paid in four
(4) monthly installments of $25,000 each. As of September 30, 2008, all
securities and cash payment required under the Settlement Agreement had been
provided to Wharton.
Fiscal
Year 2009
In
the fiscal period ended September 30, 2009, there was a placement of our common
stock pursuant to the registration statement declared effective by the SEC on
April 10, 2008. Pursuant to such registration statement, we sold
3,000,000 shares of common stock at a price of $0.20 each, for total proceeds of
$600,000 to Fusion Capital Fund II, LLC. Pursuant to such registration
statement, the Company has sold to Fusion through September 30, 2009, a total of
approximately 18,347,581 shares for a total investment of
$5,808,723. These shares were sold at various pricing between $0.405
and $0.20 per share. The registration statement is currently not
available for use for sales to Fusion.
Through
private placements, on September 8th and 23, 2009, which were made in
reliance upon an exemption from registration under rule 506 of Regulation D
promulgated under Section 4(2) of the Securities Act of 1933, we issued
1,129,483 and then 5,000,000 restricted shares of common
stock respectively, as defined in Rule 501(a) of Regulation D as
promulgated by the SEC, for gross cash proceeds of $70,000 on September 8, 2009,
and gross cash proceeds of $350,000 on September 23, 2009.
Issuance
of Shares for Services
For the
fiscal period ended September 30, 2009, the Company issued a total of 1,062,690
shares of its restricted common stock in connection with service agreements to
provide various marketing, and consulting services to the Company as
follows:
In
November 2008, the Company issued 50,000 shares of its restricted common stock
in connection with a service agreement to provide marketing and financing
service to the Company. The shares were valued at $0.22 per share,
the share price on the date the agreement was reached. The service
agreement ended on December 31, 2008.
In August
2009, the Company issued 76,976 shares of its restricted common stock as payment
for $10,500 in accrued service fees in connection with a service agreement to
provide marketing and public relations services to the Company. The
shares were valued at $0.1364 per share, the average share price between the
period May 1, 2009 and August 30, 2009 in which the fees were accrued and
services were rendered.
In August
2009, the Company issued 900,000 shares of its restricted common stock in
connection with a service agreement to provide marketing and public relations
services to the Company. The shares were valued at $0.12 per share,
the share price on the date the agreement was reached. The service
provider has agreed not to sell or transfer the shares prior to September
2010.
In
September 2009, the Company issued 35,714 shares of its restricted common stock
in connection with a service agreement to provide marketing and financing
service to the Company. Subject to the service agreement the shares
were valued at $5,000.
Interim
Period Since End of Fiscal 2009
On
October 16, 2009, the Company accepted an offer for the sale of 2,556,818 shares
of its restricted common stock in a private placement for cash proceeds of
$225,000. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act.
On
November 16, 2009 the Company issued 53,789 shares of its common restricted
stock for services related to marketing and public relations valued at $10,000
dollars. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act.
On
December 31, 2009 the Company accepted an offer for the sale of 1,000,000 shares
of its restricted common stock in a private placement for cash proceeds of
$88,000. The shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act.
On March
17, 2010 the Company accepted an offer for the sale of 2,000,000 shares of its
restricted common stock in a private placement for cash proceeds of $150,000.
The shares were issued in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act.
In March
2010, the Company issued 139,424 shares of its restricted common stock in
connection with a service agreement to provide marketing and financing service
to the Company. Subject to the service agreement the shares were
valued at $22,500.
The
shares were issued in a transaction exempt from registration pursuant to Section
4(2) of the Securities Act.
In March
2010, the Company agreed to issue up to $5,000,000 shares of common stock to LPC
pursuant to the Purchase Agreement, 5,000,000 shares of which have been issued.
The Company also agreed to issue an additional 2,500,000 shares of common stock
to LPC under the Purchase Agreement as Commitment Shares, 1,250,000 of which
have been issued. See “Selling Stockholder” herein.
Use
of Proceeds from the Sale of Securities
The
proceeds from the above sales of securities were and are being used primarily to
fund efforts by the Company to develop marketable technologies for the
manufacture of thin film solar technologies, and in the day-to-day operations of
the Company and to pay the accrued liabilities associated with these
operations.
ITEM
16. EXHIBITS
Exhibit No.
|
|
Description
of Exhibit
|
|
|
|
3.1
|
|
Articles
of Incorporation (1)
|
|
|
|
3.2
|
|
Bylaws
(2)
|
|
|
|
5.1
|
|
Opinion
re: Legality (6)
|
|
|
|
10.1
|
|
XsunX
Plan of Reorganization and Asset Purchase Agreement, dated September 23,
2003.(3)
|
|
|
|
10.2
|
|
XsunX
2007 Stock Option Plan, dated January 5, 2007.(4)
|
|
|
|
10.3
|
|
MVSystems,
Inc. Non-Exclusive License and Cross-License Agreement, dated May 30,
2008.(5)
|
|
|
|
10.4
|
|
Form
of Employment Retention agreement between the Company and Robert Wendt,
dated September 1, 2009 (9)
|
|
|
|
10.5
|
|
Form
of Stock Sale Agreement used in connection with the sale of equity to
accredited investors totaling 6,000,000 shares of common
stock(9)
|
|
|
|
10.6
|
|
Form
of Stock Option Agreement used in connection with the issuance of Options
to employees in the fiscal year ended September 30, 2009.
(9)
|
|
|
|
10.7
|
|
Lease
Termination and Mutual Release of Claims, dated August 27, 2009 between
the Company and Merix Corporation(9)
|
|
|
|
10.8
|
|
Promissory
Note in the amount of $456,920.66, dated August 27, 2009 between the
Company and Merix Corporation(9)
|
|
|
|
10.9
|
|
Form
of Professional Services Agreement between Orion and the Company, dated
March 9, 2009(9)
|
|
|
|
10.10
|
|
Sencera
LLC, Separation Agreement, dated June 13, 2008.(7)
|
|
|
|
10.11
|
|
Lincoln
Park Capital Fund, LLC, Stock Purchase Agreement, dated March 30, 2010
(8)
|
|
|
|
10.12
|
|
Lincoln
Park Capital Fund, LLC, Registration Rights Agreement, dated March 30,
2010 (8)
|
|
|
|
23.1
|
|
Consent
of HJ Associates and Consultants, LLP (6)
|
|
|
|
23.2
|
|
Consent
of Stark Winter Schenkein & Co. LLP (6)
|
|
|
|
23.3
|
|
Consent
of
Michael
Littman, Esq.
(included in Exhibit 5.1)
|
|
|
|
(1)
Incorporated by reference to Registration Statement Form
10SB12G #000-29621dated February 18, 2000 and by reference to exhibits included
with the Company’s prior Report on Form 8-K/A filed with the Securities and
Exchange Commission dated October 29, 2003.
(2) Incorporated
by reference to Registration Statement Form 10SB12G #000-29621 filed with the
Securities and Exchange Commission dated February 18, 2000.
(3) Incorporated
by reference to exhibits included with the Company’s prior Report on Form 8-K/A
filed with the Securities and Exchange Commission dated October 29,
2003.
(4) Incorporated
by reference to exhibits included with the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission dated January 5,
2007.
(5) Incorporated
by reference to exhibits included with the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission dated June 6,
2008.
(6) Provided
herewith
(7) Incorporated
by reference to exhibits included with the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission dated June 17,
2008.
(8) Incorporated
by reference to exhibits included with the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission dated April 1,
2010.
(9) Incorporated
by reference to exhibits included with the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on January 13,
2010.
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(b) To
reflect in the prospectus any facts or events arising after the effective date
of this registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospects filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
(c) To
include any material information with respect to the plan of distribution not
previously disclosed in this registration statement or any material change to
such information in the registration statement.
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide
offering
thereof.
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
offering.
4. For
determining liability of the undersigned registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(a) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424 (Sec.
230.424);
(b) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(c) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(d) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Aliso Viejo, state of
California, on April 29, 2010.
|
XSUNX,
INC.
|
|
|
|
|
By:
|
/s/ Tom
Djokovich
|
|
Name:
|
Tom
Djokovich
|
|
Title: Chief
Executive Officer, Principal Executive Officer, Principal Financial
Officer and Principal Accounting
Officer
|
We, the
undersigned directors and officers of XsunX, Inc., do hereby constitute and
appoint Tom Djokovich our true and lawful attorneys-in-fact and agent to do any
and all acts and things in our names and our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
name in the capacities indicated below, which said attorney and agent, may deem
necessary or advisable to enable XsunX, Inc. to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in connection with this registration
statement, including specifically, but without limitation, any and all
amendments (including post-effective amendments) hereto, and we hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue thereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated below:
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Tom Djokovich
|
|
Chief
Executive Officer, Principal Executive Officer, Principal Financial and
Accounting Officer, and Director
|
|
April
29, 2010
|
Tom
Djokovich
|
|
(Principal
Executive Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Joseph Grimes
|
|
President,
Chief Operating Officer and Director
|
|
April
29, 2010
|
Joseph
Grimes
|
|
|
|
|
|
|
|
|
|
/s/ Thomas Anderson
|
|
Director
|
|
April
29, 2010
|
Thomas
Anderson
|
|
|
|
|
|
|
|
|
|
/s/ Oz Fundingsland
|
|
Director
|
|
April
29, 2010
|
Oz
Fundingsland
|
|
|
|
|
|
|
|
|
|
/s/Michael Russak
|
|
Director
|
|
April
29, 2010
|
Michael
Russak
|
|
|
|
|
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