TABLE OF CONTENTS
accounted for in the period ended September 30, 2006. Excluding these one time non-cash expenses, in the comparative analysis between the periods, results in a decrease of $331,505 in net cash used in operations for the period ended September 30, 2006 compared to the same period 2005.This decrease of net cash used in operations was primarily due to a decrease in consulting expenses of $273,094 in the 2006 period.
For the twelve (12) months ended, September 30, 2007, the Companys capital needs have primarily been met from the proceeds of (i) the issuance of Common Stock for Debenture conversion and; (ii) the issuance of Common Stock for warrant conversion. Total cash provided by financing activities for the period ended September 30, 2007 decreased to $135,000. For the period ended September 30, 2006 total cash provided by financing activity increased to $8,171,250 from $1,380,170 for the same period ended September 30, 2005. The decrease of $8,036,250 is a result of financing activity in fiscal year 2006 that was not required to execute on the business
plan in 20007. Additionally, $135,000 was received by the Company for 900,000 warrants that were exercised by a consultant. The increase of $6,791,080 between the 2006 and 2005 periods was mainly attributable to an increase of $5,000,000 from the conversion of a debenture into common stock and $3,171,250 in the conversion of warrants for common stock.
The Company had cash at December 31, 2007 of $2,188,260 and prepaid expenses in the amount of $6,481 as compared to cash of $1,773,748 and prepaid expenses in the amount of $54,377 as of September 30, 2007. The Company had a net working capital of $1,900,767 as compared to a net working capital of $1,515,437 at September 30, 2006. Cash flow used in operating activities during the three (3) month period ended, December 31, 2007, was ($392,636) as compared to a use of cash of ($584,606) for the same period 2006. The decrease in cash used in operations of $191,970 included (i) the issuance of common stock for commitment fees of $54,300 relating to
Fusion Capitals investment in the Company, (ii) increased non-cash expense relating to option and warrant expenses of $1,308,865 and (iii) an increase in non-cash interest income of $90,740 relating to the Sencera note, and (iii) the operation changes discussed above. The current period ended December 31, 2007 also included a non-cash depreciation expense of $129,958 compared to $27,047 in the same period in 2006.
For the three (3) month period ended December 31, 2007, the Companys capital needs have been met from the use of working capital provided by the proceeds of (i) the issuance of common stock for cash which occurred in the three (3) month period ended December 31, 2007 and other historical financings which occurred in the fiscal year ended September 30, 2006.
At December 31, 2007, we had cash and cash equivalents of $2,188,260 and net working capital of $1,515,437.
On January 1, 2007, the Company issued a secured, seven (7) year, 10% note to Sencera, LLC in the amount up to $1,500,000. Under the terms, the Company provided Sencera with $400,000 at the time of signing and $137,500 per month for up to eight (8) months. The note may be converted into a membership interest in Sencera, LLP and an extension of the license for a period of three (3) years. The security consists of the license rights, the ability to exercise the conversion and all other rights and remedies provided by law. On September 7, 2007, XsunX initiated the final funding of disbursements under the Sencera note. As of December 31, 2007, the
current balance of the note receivable was $1,500,000plus accrued interest earned of $234,192.
On November 1, 2007, we entered into a Purchase Agreement with Fusion Capital, an Illinois limited liability company. Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $21 million from time to time over a twenty-five (25) month period. We have sold 3,333,332 shares of common stock to Fusion Capital (together with 3,333,332 shares issuable under an immediately exercisable common stock purchase warrant that is not part of this offering) under the Purchase Agreement for total proceeds of $1,000,000. Under the terms of the Purchase Agreement, Fusion Capital has
received a commitment fee consisting of 3,500,000 shares of our common stock. As of February 20, 2008, there were 173,403,188 shares outstanding (155,443,288shares held by non-affiliates) excluding the 33,166,668 shares offered by Fusion Capital pursuant to this Prospectus which it has not yet purchased from us. If all of such 33,166,668 shares offered hereby were issued and outstanding as of the date hereof, the 33,166,668 shares would represent 19.12% of the total common stock outstanding or
TABLE OF CONTENTS
21.33% of the non-affiliates shares outstanding as of the date hereof.The number of shares ultimately offered for sale by Fusion Capital is dependent upon the number of shares purchased by Fusion Capital under the Purchase Agreement.
Under the Purchase Agreement and the Registration Rights Agreement we are required to register 6,833,332 shares which have already been issued and
at least
20,000,000 shares which we may issue to Fusion Capital after this registration statement is declared effective. We are registering under the Securities Act 40,000,000 shares of our common stock, 6,833,332 shares which have already been issued and 33,166,668 shares (13,166,668 shares more than we are required to register under the agreements) which we may issue to Fusion Capital after this registration statement is declared effective under the Securities Act. All 40,000,000 shares are being
offered pursuant to this Prospectus. Under the Purchase Agreement, we have the right but not the obligation to sell more than the 40,000,000 shares to Fusion Capital. As of the date hereof, we do not have any plans or intent to sell to Fusion Capital any shares beyond the 40,000,000 shares offered hereby. However, if we elect to sell more than the 40,000,000 shares (which we have the right but not the obligation to do), we must first register under the Securities Act any additional shares we may elect to sell to Fusion Capital before we can sell such additional shares, which could cause substantial dilution to our shareholders.
We do not have the right to commence any additional sales of our shares to Fusion Capital until the SEC has declared effective the registration statement of which this Prospectus is a part. After the SEC has declared effective such registration statement, generally we have the right but not the obligation from time to time to sell our shares to Fusion Capital in amounts between $80,000 and $1.0 million depending on certain conditions. We have the right to control the timing and amount of any sales of our shares to Fusion Capital. The purchase price of the shares will be determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right or the obligation to purchase any shares of our common stock on any business day that the price of our common stock is below $0.20. There are no negative covenants, restrictions on future fundings, penalties or liquidated damages in the Purchase Agreement or the Registration Rights Agreement. The Purchase Agreement may be terminated by us at any time at our discretion without any cost to us, however the agreement provides that neither party has the ability to amend the Purchase Agreement and the obligations of both parties are non-transferable.
We believe that, if we choose to sell up to all of the 33,166,668 shares offered hereby to Fusion Capital, we will have access to the remaining $20 million of funding potentially available to us as payment for purchases of our shares pursuant to the Purchase Agreement. However, no assurance can be given as to what shares we will actually sell to Fusion Capital. The Company and Fusion Capital agreed to $21 million because it was the maximum amount Fusion Capital would commit to the Company under the agreement and was based on arms-length negotiations between the parties. Based on the market price of our common stock as of February 20, 2008 ($0.48),
proceeds to us from the sale of the remaining 33,166,668 shares of common stock would only be approximately $15,920,001. However, the market price of our common stock has been higher and lower than this amount during the past twelve months. We believe that as we execute on our business plan, the market price of our stock will increase and thereby allow us to realize the remaining $20 million under the agreement by selling the 33,166,668 shares or possibly fewer shares. However, no assurance can be given that this will occur.
The proceeds received by the Company under the Purchase Agreement are expected to be used to build an initial base production system delivering full size commercial quality solar modules, and initiate the manufacture of the first of four (4) planned 25 megawatt systems under the Companys planned 100 megawatt thin film solar module production facility. Proceeds may also be used to lease and prepare manufacturing facilities with the necessary support systems for the manufacturing line, inventory, staff, and general working capital.
47
TABLE OF CONTENTS
Contractual Obligations are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
Contractual Obligations
|
|
Total
|
|
Less than
1 Year
|
|
1 3 Years
|
|
3 5 Years
|
|
More Than
5 Years
|
Long Term Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease
(1)
|
|
|
37,118
|
|
|
|
21,008
|
|
|
|
16,110
|
|
|
|
|
|
|
|
|
|
Purchase Obligations
(2)
(3)
|
|
|
492,345
|
|
|
|
492,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Long Term Liabilities Reflected on the Registrants Balance Sheet Under GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
529,463
|
|
|
|
513,353
|
|
|
|
16,110
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Operating Lease Obligations consist of the lease on the Companys Administrative and Sales facility in Golden, CO.
|
|
(2)
|
Remaining accounts payable associated with the production a roll to roll cassette cluster tool providing plasma enhanced chemical vapor deposition (PECVD) and sputtering system of $353,000.
|
|
(3)
|
Estimated remaining amount due a third party research and development provider of $139,345.
|
The estimated contract cost in item (2) and (3) above may be higher or lower based on final costs. The Company has not booked any contingency for cost overruns.
During the year ended, September 30, 2007, we used $1,822,942 for investing activities as compared to $2,099,736 for the same period ended September 30, 2006. This represents a decrease of $276,794 primarily related to the purchase of fewer fixed assets in 2007 than in the previous year and the purchase of the marketable manufacturing tool in 2006 which reduced 2007 expenditures. This difference was offset by the investment of $1,500,000 and associated accrued interest income in the Sencera note. During the year ended, September 30, 2006, we used $2,099,736 for investing activities as compared to $191,995, for the year ended, September 30, 2005. The
increased use of cash for investing activities resulted from an increase in the acquisition of assets in the form of a marketable manufacturing tool and additional equipment.
We had, at September 30, 2007, working capital of $1,515,437. The Company has announced plans to build its manufacturing facility which we anticipate will lead to revenue after the close of fiscal year 2008. However the cash flow requirements associated with the transition to revenue recognition may exceed cash generated from operations in the current and future periods. We may seek to obtain additional financing from equity and/or debt placements. We have been able to raise capital in a series of equity and debt offerings in the past. While there can be no assurances that we will be able to obtain such additional financing, on terms acceptable to us
and at the times required, or at all, we believe that sufficient capital can be raised in the foreseeable future if necessary.
Net Operating Loss
For federal income tax purposes, we have net operating loss carry forwards of approximately $10,960,721 as of September 30, 2007. These carry forwards will begin to expire in 2010. The use of such net operating loss carry forwards to be offset against future taxable income, if achieved, may be subject to specified annual limitations.
Quantitative and Qualitative Disclosures About Market Risk
We do not have any market risk sensitive instruments. Since all operations are in U.S. dollar denominated accounts, we do not have foreign currency risk. Our operating costs are reported in U.S. dollars.
The Company does not invest in term financial products or instruments or derivatives involving risk other than money market accounts, which fluctuate with interest rates at market.
48
TABLE OF CONTENTS
Development Stage Company
The Company is currently working to transition from the development stage to the implementation phase and as of the period ended December 31, 2007, did not have any significant revenues. The transition to revenue recognition may exceed cash generated from operations in the current and future periods. We may seek to obtain additional financing from equity and/or debt placements. As such, the Companys ability to secure additional financing on a timely basis is critical to its ability to stay in business and to pursue planned operational activities.
On November 1, 2007, XsunX signed a $21 million Purchase Agreement with Fusion Capital. Upon signing the agreement, XsunX received $1,000,000 from Fusion Capital as an initial purchase under the $21 million commitment in exchange for 3,333,332 shares of our common stock. The shares were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. Concurrently with entering into the Purchase Agreement, we entered into a registration rights agreement with Fusion Capital. Under the registration rights agreement, we agreed to file a registration statement related to the transaction with SEC covering the shares that
have been issued or may be issued to Fusion Capital under the Purchase Agreement. After the SEC has declared effective the registration statement related to the transaction we have the right over a twenty-five (25) month period to sell our shares of common stock to Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions as set forth in the agreement, up to the full aggregate commitment of $21 million.
Also, On January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Companys restricted common stock in a private transaction for total proceeds of $2,500,000. The Company agreed to register the 8,650,000 shares purchased by Cumorah Capital. Cumorah Capital is a Nevada corporation and an accredited investor as such term is defined in Rule 501(a) of Regulation D as promulgated by the SEC.
While we have been able to raise capital in a series of equity and debt offerings in the past there can be no assurances that we will be able to obtain such additional financing, on terms acceptable to us and at the times required, or at all.
Irrespective of whether the Companys cash assets prove to be inadequate to meet the Companys operational needs, the Company might seek to compensate providers of services by issuances of stock in lieu of cash.
49
TABLE OF CONTENTS
DESCRIPTION OF PROPERTY
As of February 20, 2008, the Company leases administrative office facilities located at 65 Enterprise, Aliso Viejo CA 92656 for approximately $3,800 per month.
In April 2006 the Company entered into a three (3) year lease for technical and marketing operations facilities in Golden, CO. The Company provided a $2,615 security deposit and expensed $79,867 in costs associated with tenant improvements to the facilities in preparation for occupancy. The following is a schedule, by years, of the minimum base payments required under this operating lease for facilities. An additional $905 monthly is also due as a pro rata share equaling 4.12% of the operating costs for real estate taxes, assessments, and the expenses of operating and maintaining common areas within the commercial grounds surrounding the leased
facilities.
|
|
|
|
|
|
|
Annual Rent Schedule
|
|
Annualized
Rate/sf
|
|
Monthly
Rent
|
|
Rent
|
7/1/06 6/30/07
|
|
$
|
6.75
|
|
|
$
|
20,250.00
|
|
|
$
|
1,687.50
|
|
7/1/07 6/30/08
|
|
$
|
6.95
|
|
|
$
|
20,850.00
|
|
|
$
|
1,737.50
|
|
7/1/08 6/30/09
|
|
$
|
7.16
|
|
|
$
|
21,480.00
|
|
|
$
|
1,790.00
|
|
The Company owns no real property.
To support the Companys plans to prepare TFPV solar module manufacturing capabilities, we plan to lease suitable facilities of approximately 65,000 to 75,000 square feet in the 2008 fiscal year. We have selected the area surrounding the Portland, Oregon area as the location of our facilities and we are working to complete site selection and lease negotiations.
50
TABLE OF CONTENTS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
No officer or director of the Company has or proposes to have any direct or indirect material interest in any asset proposed to be acquired by the Company through security holdings, contracts, options, or otherwise.
The Company has adopted a policy under which any consulting or finders fee that may be paid to a third party for consulting services to assist management in evaluating a prospective business opportunity would be paid in stock, stock purchase options or in cash. Any such issuance of stock or stock purchase options would be made on an ad hoc basis. Accordingly, the Company is unable to predict whether or in what amount such a stock issuance might be made.
Review, Approval or Ratification of Transactions with Related Persons
General
It is the policy of the Company that all Interested Transactions with Related Persons will be subject to the procedures summarized below. An Interested Transaction is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (a) the aggregate amount involved will or may reasonably be expected to exceed $120,000 in any calendar year, (b) the Company or its subsidiaries or affiliates is a participant and (c) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director
or a less than 10% beneficial owner of another entity). A Related Person is any (a) director, nominee for director or executive officer of the Company and any Immediate Family Member of such person, and (b) any holder of 5% or more of any class of outstanding equity securities of the Company and any Immediate Family Member such person. Immediate Family Member means (a) any child, stepchild, parent, stepparent, spouse, sibling, mother in law, father in law, son in law, daughter in law, brother in law or sister in law of the person in question and (b) any person (other than a tenant or employee) sharing the household of the person in question.
Procedures
As a general matter, prior to entering into Interested Transactions, the Board will review the material facts of all Interested Transactions that require the Boards approval and either approve or disapprove of the entry into the Interested Transaction, subject to the exceptions described below.
If advance approval of an Interested Transaction is not feasible or obtained: (a) If the transaction is pending or ongoing, it will be submitted to the Board promptly, and the Board will consider the transaction and evaluate all options, including but not limited to approval, ratification, amendment or termination of the Interested Transaction; and (b) If the transaction is completed, the Board will consider the transaction to determine if ratification or rescission of the transaction and/or any further action is appropriate, and will request that Company counsel evaluate the Companys controls and procedures to ascertain whether any changes to
these procedures are recommended.
In determining whether to approve, disapprove or ratify an Interested Transaction, the Board will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Persons interest in the transaction.
The Board has determined that each of the Interested Transactions described below in Standing Pre-Approval for Certain Interested Transactions shall be deemed to be pre-approved by the Board under the terms of this policy. In addition, the Board has delegated to the Chair of the Board the authority to approve, disapprove or ratify (as applicable) any Interested Transaction with a Related Person in which the aggregate amount involved is expected to be less than $120,000.
No director will participate in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except that the director will provide all material information concerning the Interested Transaction to the Board.
51
TABLE OF CONTENTS
If an Interested Transaction will be ongoing, the Board may establish guidelines for the Companys management to follow in its ongoing dealings with the Related Person. Thereafter, the Board, on at least an annual basis, shall review and assess ongoing relationships with the Related Person to see that the Company is in compliance with the Boards guidelines and whether the Interested Transaction should continue.
Standing Pre-Approval for Certain Interested Transactions
The Board has determined that each of the following Interested Transactions shall be deemed to be pre-approved by the Board, even if the aggregate amount involved will exceed $120,000: (a) any employment by the Company of an executive officer of the Company if (i) the related compensation is required to be reported in the Companys proxy statement under Item 402 of Regulation S-K (generally applicable to named executive officers) or (ii) the executive officer is not an immediate family member of another executive officer or director of the Company, the related compensation would be reported in the Companys proxy statement under
Item 402 of Regulation S-K if the executive officer was a named executive officer, and the Compensation/Nominating/Governance Board (or any subBoard thereof) approved (or recommended that the Board approve) such compensation; (b) any compensation paid to a director if the compensation is required to be reported in the Companys proxy statement under Item 402 of Regulation S-K; (c) a transaction with another company (the Other Company) at which a Related Persons only relationship is as an employee, director or beneficial owner of less than 10% of that Other Companys shares, if: (i) the transaction involves the sale or purchase or goods or services and the annual sales to, or purchases from, the Company (or its subsidiaries or affiliates) are less than 1% of the annual consolidated revenue of both the Company and the Other Company, and (ii) the transaction involves lending or borrowing the total amount of either company's consolidated indebtedness
to the other is less than 1% of the total consolidated assets of the indebted company; (d) any charitable contribution, grant or endowment to a charitable organization, foundation or university at which a Related Persons only relationship is as an employee, director or trustee, if the aggregate amount involved does not exceed 1% of the charitable organizations total annual receipts, even if such charitable contribution, grant or endowment would not require approval under clause (b) herein above; (e) any transaction where the Related Persons interest arises solely from the ownership of the Companys common stock and all holders of the Companys common stock received the same benefit on a pro rata basis (e.g., dividends); (f) any transaction involving a Related Person where the rates or charges involved are determined by competitive bids; (g) any transaction with a Related Person involving the rendering of services as a common or contract carrier, or public
utility, at rates or charges fixed in conformity with law or governmental authority; and (h) any transaction with a Related Person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.
Promoters and Certain Control Persons
The Company completed a Plan of Reorganization and Asset Purchase Agreement on September 24, 2003 (the
Plan
) pursuant to which the Company effected a reverse one (1) for twenty (20) split of the then issued capital stock of the Company (the
Stock Split
), a name change, the purchase of three (3) patents pertaining to solar energy technologies and a change in the Companys business development efforts to the commercialization of solar technologies.
The following individuals assisted in the organizing and implementation of the Plan, and were compensated as follows:
|
|
Mr. Brian Altounian, an individual, was issued 20,000,000 shares of common stock (post Stock Split). The issuance of shares were approved as part of the Plan for corporate development services rendered by Mr. Altounian pursuant to the asset purchase and reorganization efforts and valued at a price of $0.004 per share for a total valuation of $83,200. Mr. Altounian was appointed as a Director and Secretary to the Company on September 29, 2003 and resigned as Director and Secretary on June 30, 2006.
|
|
|
Mr. Thomas Anderson, the Chief Executive Officer, President, and a Director of the Company at the time of the Plan, was issued 45,000 shares of common stock (post Stock Split). These shares were issued in relation to the retirement of invoicing for director services carried on the books as accrued debt. Mr. Anderson resigned as CEO and President of the Company effective September 29, 2003.
|
52
TABLE OF CONTENTS
|
|
Mr. Steve Weathers, a Director of the Company at the time of the Plan, was issued 45,000 shares of common stock (post Stock Split). These shares were issued in relation to the retirement of invoicing for director services carried on the books as accrued debt. Mr. Weathers resigned as a Director of the Company effective September 29, 2003.
|
|
|
Mr. Randy McCall, a Director of the Company at the time of the Plan, was issued 25,000 shares of common stock (post Stock Split). These shares were issued in relation to the retirement of invoicing for director services carried on the books as accrued debt. Mr. McCall resigned as a Director of the Company effective September 29, 2003.
|
53
TABLE OF CONTENTS
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Companys common stock trades on the Over-the-Counter Bulletin Board under the symbol XSNX. The range of high, low and close trade quotations for the Companys common stock by fiscal quarter within the last two (2) fiscal years, as reported by the National Quotation Bureau Incorporated, was as follows:
|
|
|
|
|
|
|
Year Ended September 30, 2008
|
|
High
|
|
Low
|
|
Close
|
First Quarter ended December 31, 2007
|
|
|
0.55
|
|
|
|
0.29
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2007
|
|
High
|
|
Low
|
|
Close
|
First Quarter ended December 31, 2006
|
|
|
0.68
|
|
|
|
0.34
|
|
|
|
0.38
|
|
Second Quarter ended March 31, 2007
|
|
|
0.64
|
|
|
|
0.40
|
|
|
|
0.49
|
|
Third Quarter ended June 30, 2007
|
|
|
0.51
|
|
|
|
0.41
|
|
|
|
0.42
|
|
Fourth Quarter ended September 30, 2007
|
|
|
0.44
|
|
|
|
0.30
|
|
|
|
0.39
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2006
|
|
High
|
|
Low
|
|
Close
|
First Quarter ended December 31, 2005
|
|
|
0.59
|
|
|
|
0.53
|
|
|
|
0.58
|
|
Second Quarter ended March 31, 2006
|
|
|
2.24
|
|
|
|
2.08
|
|
|
|
2.13
|
|
Third Quarter ended June 30, 2006
|
|
|
1.06
|
|
|
|
1.04
|
|
|
|
1.05
|
|
Fourth Quarter ended September 30, 2006
|
|
|
0.55
|
|
|
|
0.52
|
|
|
|
0.54
|
|
The above quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
Number of Holders
As of February 20, 2008, there were approximately 1,456 record holders of the Companys common stock, not counting shares held in street name in brokerage accounts which is unknown. As of February 20, 2008, there were approximately 173,403,188 shares of common stock outstanding on record with the Companys stock transfer agent, Mountain Share Transfer. On February 20, 2008 the last reported sales price of our common stock on the OTCBB was $0.48 per share.
Dividends
The Company has not declared or paid any cash dividends on its common stock and does not anticipate paying dividends for the foreseeable future.
Stock Option Plan
On January 5, 2007,our Board of Directors resolved to establish the Companys 2007 Stock Option Plan to enable the Company to obtain and retain the services of the types of employees, consultants and directors who could contribute to the Companys long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company. A total of 20,000,000 shares of common stock are authorized under the plan.
Stock Compensation, Issuance of Stock Purchase Options
During the fiscal year ended September 30, 2007, our Board of Directors authorized the grant of options to purchase an aggregate of 2,200,000 shares of the Companys common stock of which 1,950,000 remain authorized. The options are exercisable at prices ranging from $0.41 to $0.53 per share, and expire at various times through August 2012.
54
TABLE OF CONTENTS
Consulting Incentive Options:
In connection with entering into a Consulting and Advisory Agreement effective January 26, 2007 with Dr. John Moore for two years service as Chairman of the Companys Scientific Advisory Board, the Company issued to Dr. Moore 150,000 options under the terms of a Stock Option Agreement, with an exercise price of $0.46 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a five (5) year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of April 26, 2007. Thereafter, the Option shall vest become exercisable at the rate of 18,750 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Employment Incentive Options:
In connection with entering into an Employment Agreement effective January 1, 2007 with Jeff Huitt for two years service as Chief Financial Officer, the Company issued to Mr. Huitt 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $0.46 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a five (5) year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two (2) sales/licensure of an XsunX system.
|
Employment Incentive Options:
In connection with entering into an Employment Agreement effective January 1, 2007 with Robert Wendt for two years service as Vice President of Engineering, the Company issued to Mr. Wendt 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $0.46 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two (2) sales/licensure of an XsunX system.
|
Employment Incentive Options:
In connection with entering into an Employment Agreement effective January 1, 2007 with Kurt Laetz for two years service as Vice President of Sales, the Company issued to Mr. Laetz 250,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $0.46 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. As of September 30, 2007 Mr. Laetz no longer worked for the Company and the above referenced option grant was terminated and the available options were returned to the pool of
available options under the XsunX 2007 Stock Option Plan.
Employment Incentive Options:
In connection with entering into an Employment Agreement effective January 1, 2007 with Joseph Grimes for two (2) years service as Chief Operating Officer, the Company issued to Mr. Grimes 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $0.46 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a five (5) year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
55
TABLE OF CONTENTS
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two (2) sales/licensure of an XsunX system.
|
Consulting Incentive Options:
In conjunction with entering into a Consulting and Advisory Agreement effective February 22, 2007 with Dr. Edward Yu for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $0.53 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a five (5) year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of May 23, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Consulting Incentive Options:
In conjunction with entering into a Consulting and Advisory Agreement effective April 23, 2007 with Dr. Richard Ahrenkiel for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $0.45 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of July 24, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Consulting Incentive Options:
In conjunction with entering into a Consulting and Advisory Agreement effective August 28, 2007 with Dr. Michael Russak for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Russak 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $0.41 per share. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The options have a five (5) year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of November 29, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
56
TABLE OF CONTENTS
Table of Equity Compensation
The following table sets forth summary information, as of September 30, 2007, concerning securities authorized for issuance under all equity compensation plans and agreements for the fiscal yeas ended September 30, 2005, 2006 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options/
Warrants
|
|
Weighted-Average
Exercise
Price
|
|
Accrued
Options/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
Outstanding, September 30, 2004
|
|
|
8,000,000
|
|
|
$
|
0.15
|
|
|
|
5,500,000
|
|
|
$
|
0.15
|
|
Granted 2005
|
|
|
7,125,000
|
|
|
$
|
0.17
|
|
|
|
6,708,334
|
|
|
$
|
0.17
|
|
Exercisable from 2004 in 2005
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
0.15
|
|
Outstanding, September 30, 2005
|
|
|
15,125,000
|
|
|
$
|
0.16
|
|
|
|
13,408,334
|
|
|
$
|
0.16
|
|
Granted 2006
|
|
|
11,987,000
|
|
|
$
|
0.36
|
|
|
|
5,543,000
|
|
|
$
|
0.46
|
|
Exercised 2006
|
|
|
(4,375,000
|
)
|
|
$
|
0.48
|
|
|
|
(4,375,000
|
)
|
|
$
|
0.48
|
|
Exercised from 2004 in 2006
|
|
|
(100,000
|
)
|
|
$
|
0.15
|
|
|
|
(100,000
|
)
|
|
$
|
0.15
|
|
Exercised from 2005 in 2006
|
|
|
(6,375,000
|
)
|
|
$
|
0.17
|
|
|
|
(6,375,000
|
)
|
|
$
|
0.17
|
|
Exercisable from 2004 in 2006
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
0.15
|
|
Exercisable from 2005 in 2006
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
0.20
|
|
Outstanding, September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
|
|
8,701,334
|
|
|
|
|
|
Granted 2007
|
|
|
1,950,000
|
|
|
$
|
0.46
|
|
|
|
554,167
|
|
|
$
|
0.46
|
|
Exercised 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised from 2004 in 2007
|
|
|
(900,000
|
)
|
|
$
|
0.15
|
|
|
|
(900,000
|
)
|
|
$
|
0.15
|
|
Exercised from 2005 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised from 2006 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable from 2004 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable from 2005 in 2007
|
|
|
|
|
|
|
|
|
|
|
116,666
|
|
|
$
|
0.20
|
|
Exercisable from 2006 in 2007
|
|
|
|
|
|
|
|
|
|
|
296,000
|
|
|
$
|
0.51
|
|
Outstanding, September 30, 2007
|
|
|
17,312,000
|
|
|
$
|
0.33
|
|
|
|
8,768,167
|
|
|
$
|
0.22
|
|
At September 30, 2007, the range of warrant/option prices for shares under warrants/options not exercised and the weighted-average remaining contractual life is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/Warrants Outstanding
|
|
Options/Warrants Exercisable
|
Range of Option/
Warrant Prices
|
|
Number of
Options/
Warrants
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual
Life (yr)
|
|
Number of
Options/
Warrants
|
|
Weighted-
Average
Exercise Price
|
$ 0.15
|
|
|
7,000,000
|
|
|
$
|
0.15
|
|
|
|
1.9
|
|
|
|
6,000,000
|
|
|
$
|
0.15
|
|
$ 0.20
|
|
|
750,000
|
|
|
$
|
0.20
|
|
|
|
0.3
|
|
|
|
750,000
|
|
|
$
|
0.20
|
|
$ 0.25
|
|
|
7,000,000
|
|
|
$
|
0.25
|
|
|
|
3.0
|
|
|
|
1,000,000
|
|
|
$
|
0.25
|
|
$ 0.41
|
|
|
100,000
|
|
|
$
|
0.41
|
|
|
|
4.9
|
|
|
|
4,167
|
|
|
$
|
0.41
|
|
$ 0.45
|
|
|
100,000
|
|
|
$
|
0.45
|
|
|
|
4.6
|
|
|
|
20,833
|
|
|
$
|
0.45
|
|
$ 0.46
|
|
|
1,650,000
|
|
|
$
|
0.46
|
|
|
|
4.3
|
|
|
|
500,000
|
|
|
$
|
0.46
|
|
$ 0.51
|
|
|
500,000
|
|
|
$
|
0.51
|
|
|
|
3.8
|
|
|
|
352,000
|
|
|
$
|
0.51
|
|
$ 0.53
|
|
|
100,000
|
|
|
$
|
0.53
|
|
|
|
4.4
|
|
|
|
29,167
|
|
|
$
|
0.53
|
|
$ 1.69
|
|
|
112,000
|
|
|
$
|
1.69
|
|
|
|
3.5
|
|
|
|
112,000
|
|
|
$
|
1.69
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
|
Sales or Transactions of Securities
The authorized capital stock of the Company was established at 500,000,000 shares with no par value.
57
TABLE OF CONTENTS
In the fiscal year ended September 30, 2005, the Company issued a total of 9,818,631 shares of common stock as follows: 6,735,137 shares of common stock were issued pursuant to Regulation S promulgated under the Securities Act, raising gross proceeds of $531,396; 474,231 shares of common stock were issued in transactions exempt from registration pursuant to Section 4(2) of the Securities Act, for consulting services valued at $40,000; and 2,609,263 shares of common stock were issued pursuant to an exemption under Section 4(2) of the Securities Act, in connection with the sale of an $850,000 secured convertible debenture by the Company.
In the fiscal year ended September 30, 2006, the Company issued a total of 33,293,217 shares of common stock as follows: 33,120,851 shares of common stock registered pursuant to an effective registration statement were issued pursuant to the conversion of secured convertible debentures, raising gross proceeds of $9,294,133; 72,366 shares of common stock were issued in transactions exempt from registration pursuant to Section 4(2) of the Securities Act, for consulting services valued at $31,500; and 100,000 shares of common stock were issued pursuant to an exemption under Section 4(2) of the Securities Act, in connection with the exercise of 100,000
warrants bearing an exercise price of $0.15 each.
In December 2006, the Company entered into a settlement agreement with a service provider in which the service provider returned to the Company 150,000 of the 300,000 shares of common stock issued to the service provider in the period ended March 31, 2005. The shares were originally issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The returned shares were received and cancelled effective January 2007. As a result of the return and cancellation of these shares, the Company recorded a credit to expenses in the amount of $12,000 and a debit to paid in capital of $12,000 for the period ending March 31,
2007.The $12,000 represents one half of the monetary value expensed by the Company in the period in which the shares were issued.
In conjunction with the sale of convertible debentures in the amount of $850,000 and $5,000,000 in the fiscal periods ended December 31, 2005 and 2006 respectively, the Company issued and deposited into escrow 26,798,418 shares of common stock as part of a security structure for the above referenced obligations. As of September 30, 2006, the principal balance of the debentures had been reduced to $0.0. Subsequently the holder of the debentures provided the Company with a notice of release of its security interests and returned the security shares to the Company for cancellation. On January 18, 2007 the above shares were cancelled on the
Companys books.
In September 2007, a consultant exercised the remaining 900,000 of the 1,000,000 $0.15 warrants granted to the consultant in September 2004. The amount of $135,000 dollars was paid to XsunX by the consultant and 900,000 shares of unregistered common stock were issued. The shares were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act.
On November 1, 2007, XsunX signed its $21 million Purchase Agreement with Fusion Capital pursuant to which XsunX received $1,000,000 from Fusion Capital as an initial purchase in exchange for 3,333,332 shares of our common stock. Concurrently with entering into the Purchase Agreement, we entered into a registration rights agreement with Fusion Capital pursuant to which we agreed to file a registration statement covering the shares that have been issued or may be issued to Fusion Capital under the Purchase Agreement. After the SEC has declared effective the registration statement related to the transaction we have the right over a twenty-five (25)
month period to sell our shares of common stock to Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions as set forth in the agreement, up to the full aggregate commitment of $21 million.
The purchase price of the shares related to the $20 million balance of future funding will be based on the prevailing market prices of the Company's shares at the time of sales without any fixed discount, and the Company will control the timing and amount of any sale of shares to Fusion Capital. There are no upper limits to the price Fusion Capital may pay to purchase our common stock. However, Fusion Capital shall not be obligated to purchase any shares of our common stock on any business day that the price of our common stock is below $0.20. There are no negative covenants, restrictions on future fundings, penalties or liquidated damages in the
agreement. The common stock purchase agreement may be terminated by us at any time at our discretion without any cost to us.
58
TABLE OF CONTENTS
In consideration for entering into the $21 million agreement we agreed to issue to Fusion Capital 3,500,000 shares of our common stock as financing commitment shares which Fusion Capital has agreed to hold for the term of the Purchase Agreement. Additionally, we granted Fusion Capital common stock purchase warrants to purchase 1,666,666 shares of our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75. The shares underlying the warrant grants do not carry mandatory registration requirements under the terms of the Purchase Agreement and registration rights agreement.
On January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Companys restricted common stock in a private transaction for total proceeds of $2,500,000.
Use of Proceeds from the Sale of Securities
The proceeds from the above sales of securities were used primarily to fund the product developments efforts and day-to-day operations of the Company and to pay the accrued liabilities associated with these operations.
59
TABLE OF CONTENTS
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name & Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
(S)
|
|
Nonqualified
Deferred
Compensation
(S)
|
|
All Other Compensation
(S)
|
|
Total
|
Tom Djokovich,
President
(1)
|
|
|
2007
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,800
|
|
|
$
|
154,800
|
|
|
|
2006
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
|
2005
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
Joseph Grimes, COO
(2)
|
|
|
2007
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
199,567
|
|
|
|
|
|
|
|
|
|
|
|
4,800
|
|
|
$
|
354,367
|
|
|
|
2006
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
|
2005
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Jeff Huitt, CFO
(3)
|
|
|
2007
|
|
|
$
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
45,300
|
|
|
|
|
|
|
|
|
|
|
|
4,800
|
|
|
$
|
185,100
|
|
|
|
2006
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
2005
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Robert Wendt, VP
Engineering
(4)
|
|
|
2007
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
45,300
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
$
|
198,900
|
|
|
|
2006
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
2005
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Dr. Guang Lin,
Chief Scientist
(5)
|
|
|
2007
|
|
|
$
|
63,462
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
4,393
|
|
|
$
|
67,855
|
|
|
|
2006
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
2005
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
(1)
|
In the fiscal period ended September 30, 2007, the Company agreed to pay Mr. Djokovich an annual salary of $150,000 for services provided as Chief Executive Officer up to and until the Company determines executive compensation pursuant to an employment agreement as determined by our Board of Directors. In addition to Mr. Djokovichs base compensation the Company also provides Mr. Djokovich with a $400 monthly health insurance allowance. Effective November 2007 the Company agreed to increase Mr. Djokovich annual salary to $220,000. When necessitated by the Companys adverse financial condition Mr. Djokovich has agreed to the deferment of his monthly salary up to and until such time that the Company can repay any such deferred amounts.
|
|
(2)
|
The Company has agreed to pay Mr. Grimes an annual salary of $150,000 for services provided as Chief Operating Officer under the terms of an employment agreement effective January 1, 2007. The calculated value of Mr. Grimes stock options at September 30, 2007 is $214,668. In addition to Mr. Grimes base compensation the Company also provides Mr. Grimes with a $400 monthly health insurance allowance. Effective November 2007, the Company agreed to increase Mr. Grimes annual salary to $210,000.
|
|
(3)
|
The Company has agreed to pay Mr. Huitt an annual salary of $135,000 for services provided as Chief Financial Officer under the terms of an employment agreement effective January 1, 2007. The calculated value of Mr. Huitts stock options at September 30, 2007 is $60,400. In addition to Mr. Huitt's base compensation the Company also provides Mr. Huitt with a $400 monthly health insurance allowance. Effective November 2007, the Company agreed to increase Mr. Huitts annual salary to $155,000.
|
60
TABLE OF CONTENTS
|
(4)
|
The Company has agreed to pay Mr. Robert Wendt an annual salary of $155,000 for services provided as Vice-President of Engineering under the terms of an employment agreement effective January 1, 2007. The calculated value of Mr. Wendts stock options at September 30, 2007 is $45,3000. In addition to Mr. Wendts base compensation the Company also provides Mr. Wendt with a $300 monthly health insurance allowance. Effective November 2007, the Company agreed to increase Mr. Wendts annual salary to $200,000.
|
|
(5)
|
The Company has agreed to pay Dr. Guang Lin an annual salary of $100,000 for services provided as Chief Scientist of which he received a prorate amount of $63,462 during the fiscal year ending September 30, 2007. Dr. Lin did not have any stock options vested as of September 30, 2007. In addition to Dr. Lins base compensation the Company also provides Dr. Lin with a $300 monthly health insurance allowance. The Company also provided a relocation allowance to Dr. Lin of $2,293.
|
Grants of Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
|
|
Exercise or
Base Price
of Option
Awards
|
|
Grant Date
Fair Value
of Stock
and Option
Awards
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
Awards
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
(k)
|
|
(l)
|
Tom Djokovich,
CEO
|
|
|
n/a
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jeff Huitt,
CFO
(2)
|
|
|
1/26/07
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0.46
|
|
|
$
|
45,300
|
|
Joe Grimes,
COO
(1)
|
|
|
1/26/07
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0.46
|
|
|
$
|
199,567
|
|
Robert Wendt,
VP Engineering
(3)
|
|
|
1/26/07
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0.46
|
|
|
$
|
45,300
|
|
Guang Lin,
Chief Scientist
|
|
|
n/a
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
(1)
|
Employment Incentive Options In connection with the issuance of an employment agreement to Joseph Grimes in January 2007, the Company granted 500,000 options effective January 1 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system.
|
|
(2)
|
Employment Incentive Option In connection with the issuance of an employment agreement to Jeff Huitt in January 2007, the Company granted 500,000 options effective January 1 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system.
|
|
(3)
|
Employment Incentive Option In connection with the issuance of an employment agreement to Robert Wendt in January 2007, the Company granted 500,000 options effective January 1 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system.
|
61
TABLE OF CONTENTS
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The Company currently offers several basic forms of compensation. Salary, stock options, vacation and health care reimbursement. The compensation of executive officers is approved by the disinterested members of the Board of Directors and offered in employment agreements. The material terms of each executive officers employment agreement include:
Mr. Tom M. Djokovich, CEO & President:
In the fiscal period ended September 30, 2007, the Company agreed to pay Mr. Djokovich an annual salary of $150,000 for services provided as Chief Executive Officer up to and until the Company determines executive compensation pursuant to an employment agreement as determined by the Board. In addition to Mr. Djokovichs base compensation the Company also provides Mr. Djokovich with a $400 monthly health insurance allowance. Effective November 2007, the Company agreed to increase Mr. Djokovich annual salary to $220,000. Additionally, the Company has not provided to Mr. Djokovich
with cash or stock incentives or bonus payment rights related to his employment, or otherwise. This salary represents 97% of Mr. Djokovichs 2007 fiscal year compensation.
Mr. Jeff Huitt, CFO:
Mr. Huitts employment agreement is for two (2) years commencing on January 1, 2007. It called for initial base salary of $135,000 with bonus opportunities should revenue be achieved during the term of the agreement ranging from $5,000 bonus for $5,000,000 in revenue to $15,000 bonus in excess of $25,000,000 of revenue. Vacation is set at fifteen (15) paid days per year. Health care reimbursement totals $400 per month. The agreement also contains provisions for six (6) months of salary to be paid within sixty (60) days should a sale of all or substantially all of the stock or assets of the company
which results in termination or relocation within one (1) year of the sale. The agreement calls for termination without notice for good cause and includes confidentiality provisions. Compensation increases, if any, during the term of this agreement are subject to approval by the Board of Directors. Additionally, the Company granted Mr. Huitt 500,000 options effective January 1, 2007 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system. This salary represents 73% of Mr. Huitts 2007 fiscal year compensation.
Mr. Joseph Grimes, COO:
The agreement is for two years commencing on January 1, 2007. It called for initial base salary of $150,000 with bonus opportunities should revenue be achieved during the term of the agreement ranging from $5,000 bonus for $5,000,000 in revenue to $15,000 bonus in excess of $25,000,000 of revenue. Vacation is set at fifteen (15) paid days per year. Health care reimbursement totals $400 per month. The agreement contains provisions for six (6) months of salary to be paid within sixty (60) days should a sale of all or substantially all of the stock or assets of the company which results in termination or
relocation within one year of the sale. The agreement calls for termination without notice for good cause and includes confidentiality provisions. Compensation increases, if any, during the term of this agreement are subject to approval by the Board of Directors. Additionally, the Company granted Mr. Grimes 500,000 options effective January 1, 2007 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system. This salary represents 42% of Mr. Grimes 2007 fiscal year compensation.
Mr. Robert Wendt, VP Engineering:
The agreement is for two (2) years commencing on January 1, 2007. It called for initial base salary of $150,000 with bonus opportunities should revenue be achieved during the term of the agreement ranging from $5,000 bonus for $5,000,000 in revenue to $15,000 bonus in excess of $25,000,000 of revenue. Vacation is set at fifteen (15) paid days per year. Health care reimbursement totals $300 per month. The agreement contains provisions for six months of salary to be paid within sixty (60) days should a sale of all or substantially all of the stock or assets of the company which
results in termination or relocation within one year of the sale. The agreement calls for termination without notice for good cause and includes confidentiality provisions. Compensation increases, if any, during the term of this agreement are subject to approval by the Board of Directors. Additionally, the Company granted Mr. Wendt 500,000 options effective January 1, 2007 at the then market price of $0.46. The option began vesting at the rate of 50,000 shares per calendar quarter up to a total of 400,000 shares. Another 50,000 shall vest and become exercisable upon each of the first two sales/licensure of an XsunX system. This salary represents 75% of Mr. Wendts 2007 fiscal year compensation.
62
TABLE OF CONTENTS
Dr. Guang Lin, Chief Scientist:
There is not an employment agreement with Dr. Lin, rather a Memorandum of Understanding that details an accepted offer letter. Dr. Lin is an at-will employee. His employment commenced on April 18, 2007 with a base salary of $100,000. There are no specific bonus opportunities currently offered. He is entitled to seven (7) days of vacations plus normal approved company holidays. Dr. Lin also receives a $300 per month allowance for health insurance. Dr. Lin is subject to non-compete and confidentiality agreements. This salary represents 94% of Dr. Lins 2007 fiscal year compensation.
Outstanding Equity Awards at Fiscal Year-End Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
|
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
|
Name
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
(#)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
Tom Djokovich, CEO
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jeff Huitt, CFO
|
|
|
112,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.69
|
|
|
|
4/5/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,000
|
|
|
|
148,000
|
|
|
|
0
|
|
|
$
|
0.51
|
|
|
|
7/20/2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Joe Grimes, COO
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Robert Wendt, VP
Engineering
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
112,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.69
|
|
|
|
4/5/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,000
|
|
|
|
148,000
|
|
|
|
0
|
|
|
$
|
0.51
|
|
|
|
7/20/2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guang Lin,
Chief Scientist
|
|
|
150,000
|
|
|
|
350,000
|
|
|
|
0
|
|
|
$
|
0.46
|
|
|
|
1/26/2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Option Exercises and Stock Vested Table
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of
Shares
Acquired on
Exercise
|
|
Value
Realized on
Exercise
|
|
Number of
Shares
Acquired on
Vesting
|
|
Value Realized
on Vesting
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
Tom Djokovich, CEO
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jeff Huitt, CFO
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Joe Grimes, COO
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Robert Wendt, VP Engineering
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Guang Lin, Chief Scientist
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
63
TABLE OF CONTENTS
Pension Benefits Table
None.
Nonqualified Deferred Compensation Table
None.
Potential Payments Upon Termination or Change-in-Control
The Company does have change-in-control obligations to its two (2) executive officers, Mr. Jeff Huitt and Mr. Joseph Grimes for six (6) months of base salary should a sale of all or substantially all of the Companys assets or stock occurs that results in termination of relocation of the officers within one year of the transaction. The payment shall be made within sixty (60) days of the transaction.
Compensation of Directors
In the fiscal period ended September 30, 2007, directors received no cash compensation for their service to the Company as directors, but were reimbursed for expenses actually incurred in connection with attending meetings of our Board of Directors.
Director Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
(S)
|
|
Total
(S)
|
Tom Djokovich
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
0
|
|
Thomas Anderson
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
0
|
|
Oz Fundingsland
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
0
|
|
Michael Russak
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
0
|
|
Compensation Committee Interlocks and Insider Participation
The Company does not currently have a compensation committee. Furthermore, only disinterested Directors participate in the compensation discussions and decisions regarding executive compensation. Messrs. Tom Anderson (Director) and Tom Djokovich (President, CEO and Director) participated in executive compensation decision during the previous fiscal year. Only Mr. Anderson made compensation decisions regarding Mr. Djokovich. Please see the section above entitled Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table for a complete description of all compensation transactions by and between the Company and
Mr. Djokovich.
64
TABLE OF CONTENTS
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares of our common stock offered through this Prospectus. This Prospectus is filed as a part of that registration statement and does not contain all of the information contained in the registration statement and exhibits. We refer you to our registration statement and each exhibit attached to it for a more complete description of matters involving us, and the statements we have made in this Prospectus are qualified in their entirety by reference to these additional materials. You may inspect the registration statement and exhibits and
schedules filed with the SEC at the SECs principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, Room 1580, 100 F Street NE, Washington DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a web site at
http://www.sec.gov
that contains reports, proxy statements and information regarding registrants that file electronically with the SEC. In addition, we will file electronic versions of our annual and quarterly reports on the SECs Electronic Data Gathering Analysis and Retrieval, or EDGAR System.
65
TABLE OF CONTENTS
XSUNX, INC.
TABLE OF CONTENTS
|
|
|
Financial Statements for the Years Ended September 31, 2007, 2006 and 2005
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
F-1 - F-2
|
|
Balance Sheet as of September 30, 2007
|
|
|
F-3
|
|
Statements of Operations for the years ended September 30, 2007, 2006 and 2005
|
|
|
F-4
|
|
Statements of Stockholders Equity (Deficit) for the years ended September 30, 2007,
2006 and 2005
|
|
|
F-6
|
|
Statements of Cash Flows for the years ended September 30, 2007, 2006 and 2005
|
|
|
F-8
|
|
Notes to Financial Statements
|
|
|
F-9 F-23
|
|
Financial Statements for the Periods Ended December 31, 2007 and 2006 (Unaudited)
|
|
|
|
|
Report of Independent Registered Accounting Firm
|
|
|
F-24
|
|
Balance Sheet (Unaudited).
|
|
|
F-25
|
|
Statements of Operations (Unaudited).
|
|
|
F-26
|
|
Statements of Stockholders Deficit (Unaudited)
|
|
|
F-28
|
|
Statements of Cash Flows (Unaudited).
|
|
|
F-30
|
|
Notes to Financial Statements (Unaudited)
|
|
|
F-31 F-36
|
|
F-i
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
XSUNX, INC.
Aliso Viejo, CA
We have audited the accompanying balance sheets of XSUNX, Inc., (formerly Sun River Mining, Inc.) (A Development Stage Company) as of September 30, 2004 and 2003, and the related statements of operations, cash flows, and stockholders' equity for the years ended September 30, 2004 and 2003 and for the period from February 25, 1997 (inception) to September 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) as outlined in PCAOB Auditing Standard No. 1. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XSUNX, INC., (formerly Sun River Mining, Inc.) at September 30, 2004 and 2003 and the results of their operations and their cash flows for the years ended September 30, 2004 and 2003 and for the period from February 25, 1997 (inception) to September 30, 2004 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, conditions exist which raise substantial doubt about the Company's ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
February 24, 2005
May 5, 2005
F-1
TABLE OF CONTENTS
FINANCIAL STATEMENTS
XSUNX, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
September 30, 2007, 2006 and 2005
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
9175 E. Kenyon Avenue, Suite 100
Denver, CO 80237
303-796-0099
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
Board of Directors
XSUNX, INC.
Aliso Viejo, CA
We have audited the accompanying balance sheets of XSUNX, Inc., (formerly Sun River Mining, Inc). (A Development Stage Company) as of September 30, 2005, 2006, and 2007, and the related statements of operations, cash flows, and stockholders equity for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XSUNX, INC., (formerly Sun River Mining, Inc.) at September 30, 2005, 2006, and 2007 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The financial statements for the period February 25, 1997 (inception) to September 30, 2004, were audited by other accountants, whose report dated May 5, 2005 expressed an unqualified opinion on those statements. They have not performed any auditing procedures since that date.
Denver, CO
December 28, 2007
/s/ Jaspers + Hall, PC
Jaspers + Hall, PC
Denver, Colorado
December 28, 2007
F-2
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Co.)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(Audited)
September 30,
2007
|
|
(Audited)
September 30,
2006
|
|
(Audited)
September 30,
2005
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,773,748
|
|
|
$
|
4,305,105
|
|
|
$
|
175,869
|
|
Prepaid Expenses
|
|
|
54,377
|
|
|
|
349,118
|
|
|
|
79,984
|
|
Total current assets
|
|
|
1,828,125
|
|
|
|
4,654,223
|
|
|
|
255,853
|
|
Fixed assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office & Misc. Equipment
|
|
|
39,437
|
|
|
|
9,774
|
|
|
|
2,270
|
|
Research and Development Equipment
|
|
|
532,795
|
|
|
|
392,301
|
|
|
|
181,995
|
|
Leasehold Improvement
|
|
|
89,825
|
|
|
|
80,492
|
|
Total Fixed Assets
|
|
|
662,057
|
|
|
|
482,567
|
|
|
|
184,265
|
|
Less Depreciation
|
|
|
(162,189
|
)
|
|
|
(84,941
|
)
|
|
|
(18,434
|
)
|
Total fixed assets
|
|
|
499,868
|
|
|
|
397,626
|
|
|
|
165,831
|
|
Other assets:
|
|
Patents/Trade Marks
|
|
|
|
|
|
|
40,000
|
|
|
|
20,000
|
|
Security Deposit
|
|
|
5,815
|
|
|
|
2,615
|
|
|
|
|
|
Accrued Interest Receivable
|
|
|
143,452
|
|
|
|
|
|
|
|
|
|
Note Receivable
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
Marketable Prototype
|
|
|
1,765,000
|
|
|
|
1,765,000
|
|
|
|
|
|
Total other assets
|
|
|
3,414,267
|
|
|
|
1,807,615
|
|
|
|
20,000
|
|
Total Assets
|
|
$
|
5,742,260
|
|
|
$
|
6,859,464
|
|
|
$
|
441,684
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
259,652
|
|
|
$
|
582,161
|
|
|
$
|
78,377
|
|
Accrued Expenses
|
|
|
53,036
|
|
|
|
6,538
|
|
|
|
45,856
|
|
Current Portion of Note Payable
|
|
|
|
|
|
|
|
|
|
|
850,000
|
|
Total current liabilities
|
|
|
312,688
|
|
|
|
588,699
|
|
|
|
974,233
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares issued and outstanding Treasury Stock, no par value; no shares where issued or outstanding Common Stock, no par value; 500,000,000 shares authorized; 157,919,856 shares issued and outstanding at September 30, 2007 and 157,019,856 shares were issued and outstanding at September 30, 2006
|
|
|
13,563,86
|
|
|
|
13,290,869
|
|
|
|
3,996,735
|
|
Paid in Capital Common Stock Warrants
|
|
|
2,326,553
|
|
|
|
2,151,250
|
|
|
|
1,200,000
|
|
Deficit accumulated during the development stage
|
|
|
(10,460,850
|
)
|
|
|
(9,171,354
|
)
|
|
|
(5,729,284
|
)
|
Total stockholders profit (deficit)
|
|
|
5,429,572
|
|
|
|
6,270,765
|
|
|
|
(532,549
|
)
|
Total Liabilities And Stockholders Equity
|
|
$
|
5,742,260
|
|
|
$
|
6,859,464
|
|
|
$
|
441,684
|
|
F-3
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Co.)
STATEMENT OF OPERATIONS
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30th
|
|
Feb. 25, 1997
(Inception) to
September 30,
2007
|
|
|
2007
|
|
2006
|
|
2005
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Income
|
|
$
|
6,880
|
|
|
$
|
8,000
|
|
|
|
|
|
|
$
|
14,880
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
6,880
|
|
|
|
8,000
|
|
|
|
|
|
|
|
14,880
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
47,573
|
|
|
|
9,050
|
|
|
|
3,979
|
|
|
|
60,602
|
|
Bank Charges
|
|
|
973
|
|
|
|
294
|
|
|
|
500
|
|
|
|
3,880
|
|
Conferences & Seminars
|
|
|
14,725
|
|
|
|
11,267
|
|
|
|
|
|
|
|
25,992
|
|
Consulting
|
|
|
117,751
|
|
|
|
47,850
|
|
|
|
320,944
|
|
|
|
1,510,584
|
|
Depreciation
|
|
|
77,248
|
|
|
|
82,941
|
|
|
|
18,435
|
|
|
|
181,802
|
|
Directors Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,983
|
|
Due Diligence
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,832
|
|
Equipment Rental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,733
|
|
Filing Fees
|
|
|
2,185
|
|
|
|
4,625
|
|
|
|
1,800
|
|
|
|
8,610
|
|
Impairment loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923,834
|
|
Insurance
|
|
|
66,856
|
|
|
|
2,705
|
|
|
|
758
|
|
|
|
70,319
|
|
Legal & Accounting
|
|
|
302,478
|
|
|
|
140,293
|
|
|
|
107,249
|
|
|
|
738,380
|
|
Licenses & Fees
|
|
|
90
|
|
|
|
20
|
|
|
|
25
|
|
|
|
6,545
|
|
Loan Fees
|
|
|
|
|
|
|
628,834
|
|
|
|
115,000
|
|
|
|
741,834
|
|
Meals & Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,119
|
|
Miscellaneous
|
|
|
1,691
|
|
|
|
1,882
|
|
|
|
1,675
|
|
|
|
7,378
|
|
Office Expenses
|
|
|
15,086
|
|
|
|
4,581
|
|
|
|
2,634
|
|
|
|
41,500
|
|
Patent Fees
|
|
|
1,181
|
|
|
|
625
|
|
|
|
663
|
|
|
|
2,469
|
|
Postage & Shipping
|
|
|
8,327
|
|
|
|
1,123
|
|
|
|
2,161
|
|
|
|
14,828
|
|
Printing
|
|
|
9,860
|
|
|
|
8,730
|
|
|
|
4,300
|
|
|
|
28,470
|
|
Public Relations
|
|
|
79,831
|
|
|
|
182,151
|
|
|
|
116,413
|
|
|
|
489,361
|
|
Recruitment Expenses
|
|
|
47,064
|
|
|
|
|
|
|
|
|
|
|
|
47,064
|
|
Research & Development
|
|
|
435,534
|
|
|
|
949,472
|
|
|
|
501,423
|
|
|
|
2,015,922
|
|
Rent
|
|
|
66,702
|
|
|
|
19,858
|
|
|
|
9,000
|
|
|
|
112,523
|
|
Salaries
|
|
|
828,711
|
|
|
|
275,089
|
|
|
|
155,236
|
|
|
|
1,759,122
|
|
Subscription Reports
|
|
|
6,103
|
|
|
|
2,895
|
|
|
|
860
|
|
|
|
9,858
|
|
Taxes
|
|
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
8,837
|
|
Telephone
|
|
|
22,301
|
|
|
|
12,318
|
|
|
|
5,489
|
|
|
|
74,923
|
|
Transfer Agent Expense
|
|
|
|
|
|
|
411
|
|
|
|
3,628
|
|
|
|
20,365
|
|
Travel, Meals & Entertainment
|
|
|
158,503
|
|
|
|
41,823
|
|
|
|
11,234
|
|
|
|
274,493
|
|
Utilities
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
|
|
8,103
|
|
Abandoned Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
808
|
|
Option/Warrant Expense
|
|
|
325,303
|
|
|
|
951,250
|
|
|
|
|
|
|
|
2,476,553
|
|
Total Operating Expenses
|
|
|
2,648,359
|
|
|
|
3,380,087
|
|
|
|
1,383,406
|
|
|
|
11,728,626
|
|
F-4
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30th
|
|
Feb. 25, 1997
(Inception) to
September 30,
2007
|
|
|
2007
|
|
2006
|
|
2005
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
1,197
|
|
|
|
158,333
|
|
|
|
17,433
|
|
|
|
248,560
|
|
Interest Income
|
|
|
(253,179
|
)
|
|
|
(88,480
|
)
|
|
|
|
|
|
|
(341,682
|
)
|
Legal Settlement
|
|
|
(1,100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,100,000
|
)
|
Forgiveness of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,773
|
)
|
Total Other Income/Expense
|
|
|
(1,351,982
|
)
|
|
|
69,853
|
|
|
|
17,433
|
|
|
|
(1,252,895
|
)
|
Net (Loss)
|
|
$
|
(1,289,497
|
)
|
|
$
|
(3,441,940
|
)
|
|
$
|
(1,400,839
|
)
|
|
$
|
(10,460,850
|
)
|
Per Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
156,680,076
|
|
|
|
138,005,964
|
|
|
|
123,854,733
|
|
|
|
|
|
Net Loss per Common Share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
F-5
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
September 30, 2007
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During the
Exploration
Stage
|
|
|
Treasury Stock
|
|
Common Stock
|
|
|
# of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Totals
|
Inception February 25, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
15,880
|
|
|
|
217,700
|
|
|
|
|
|
|
|
|
|
|
|
217,700
|
|
Issuance of stock to Founders
|
|
|
|
|
|
|
|
|
|
|
14,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for consolidation
|
|
|
|
|
|
|
|
|
|
|
445,000
|
|
|
|
312,106
|
|
|
|
|
|
|
|
|
|
|
|
312,106
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193,973
|
)
|
|
|
(193,973
|
)
|
Balance September 30, 1997
|
|
|
|
|
|
|
|
|
|
|
474,990
|
|
|
|
529,806
|
|
|
|
|
|
|
|
(193,973
|
)
|
|
|
335,834
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
50,200
|
|
|
|
204,000
|
|
|
|
|
|
|
|
|
|
|
|
204,000
|
|
Consolidation stock cancelled
|
|
|
|
|
|
|
|
|
|
|
(60,000
|
)
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(799,451
|
)
|
|
|
(799,451
|
)
|
Balance September 30, 1998
|
|
|
|
|
|
|
|
|
|
|
466,690
|
|
|
|
713,806
|
|
|
|
|
|
|
|
(993,424
|
)
|
|
|
(279,618
|
)
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
151,458
|
|
|
|
717,113
|
|
|
|
|
|
|
|
|
|
|
|
717,113
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
|
|
463,500
|
|
|
|
|
|
|
|
|
|
|
|
463,500
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,482,017
|
)
|
|
|
(1,482,017
|
)
|
Balance September 30, 1999
|
|
|
|
|
|
|
|
|
|
|
753,148
|
|
|
|
1,894,419
|
|
|
|
|
|
|
|
(2,475,441
|
)
|
|
|
(581,022
|
)
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,369
|
)
|
|
|
(118,369
|
)
|
Balance September 30, 2000
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
1,921,419
|
|
|
|
|
|
|
|
(2,593,810
|
)
|
|
|
(672,391
|
)
|
Extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337,887
|
|
|
|
|
|
|
|
|
|
|
|
337,887
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,402
|
)
|
|
|
(32,402
|
)
|
Balance September 30, 2001
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
2,259,306
|
|
|
|
|
|
|
|
(2,626,212
|
)
|
|
|
(366,906
|
)
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,297
|
)
|
|
|
(47,297
|
)
|
Balance September 30, 2002
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
2,259,306
|
|
|
|
|
|
|
|
(2,673,509
|
)
|
|
|
(414,203
|
)
|
Issuance of stock for Assets
|
|
|
|
|
|
|
|
|
|
|
70,000,000
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of stock for Cash
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
|
|
225,450
|
|
|
|
|
|
|
|
|
|
|
|
225,450
|
|
Issuance of stock for Debt
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
121,828
|
|
|
|
|
|
|
|
|
|
|
|
121,828
|
|
Issuance of stock for Expenses
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
89,939
|
|
|
|
|
|
|
|
|
|
|
|
89,939
|
|
Issuance of stock for Services
|
|
|
|
|
|
|
|
|
|
|
31,300,000
|
|
|
|
125,200
|
|
|
|
|
|
|
|
|
|
|
|
125,200
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,868
|
)
|
|
|
(145,868
|
)
|
Balance September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
111,298,148
|
|
|
|
2,821,726
|
|
|
|
|
|
|
|
(2,819,377
|
)
|
|
|
2,350
|
|
F-6
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During the
Exploration
Stage
|
|
|
Treasury Stock
|
|
Common Stock
|
|
|
# of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Totals
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
2,737,954
|
|
|
|
282,670
|
|
|
|
|
|
|
|
|
|
|
|
282,670
|
|
Issuance of Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
1,200,000
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,509,068
|
)
|
|
|
(1,509,068
|
)
|
Balance September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
114,036,102
|
|
|
|
3,104,396
|
|
|
|
1,200,000
|
|
|
|
(4,328,445
|
)
|
|
|
(24,049
|
)
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
6,747,037
|
|
|
|
531,395
|
|
|
|
|
|
|
|
|
|
|
|
531,395
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
3,093,500
|
|
|
|
360,945
|
|
|
|
|
|
|
|
|
|
|
|
360,945
|
|
Issuance of stock for collateral
|
|
|
26,798,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,400,839
|
)
|
|
|
(1,400,839
|
)
|
Balance September 30, 2005
|
|
|
26,798,418
|
|
|
|
|
|
|
|
123,876,639
|
|
|
|
3,996,735
|
|
|
|
1,200,000
|
|
|
|
(5,729,284
|
)
|
|
|
(532,549
|
)
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
72,366
|
|
|
|
31,500
|
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
Issuance of Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951,250
|
|
|
|
|
|
|
|
951,250
|
|
Issuance of stock for debenture conversion
|
|
|
|
|
|
|
|
|
|
|
21,657,895
|
|
|
|
5,850,000
|
|
|
|
|
|
|
|
|
|
|
|
5,850,000
|
|
Issuance of stock for interest expense
|
|
|
|
|
|
|
|
|
|
|
712,956
|
|
|
|
241,383
|
|
|
|
|
|
|
|
|
|
|
|
241,383
|
|
Issuance of stock for warrant conversion
|
|
|
|
|
|
|
|
|
|
|
10,850,000
|
|
|
|
3,171,250
|
|
|
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,441,940
|
)
|
|
|
(3,441,940
|
)
|
Balance September 30, 2006
|
|
|
26,798,418
|
|
|
|
|
|
|
|
157,169,856
|
|
|
|
13,290,869
|
|
|
|
2,151,250
|
|
|
|
(9,171,354
|
)
|
|
|
6,270,765
|
|
Cancellation of Stock for Services Returned
|
|
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,000
|
)
|
Release of Security Collateral
|
|
|
(26,798,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Stock for Warrants Jim Bentley
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
285,000
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
135,000
|
|
Stock Option/Warrant Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,303
|
|
|
|
|
|
|
|
325,303
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289,497
|
)
|
|
|
(1,289,497
|
)
|
Balance September 30, 2007
|
|
|
|
|
|
$
|
|
|
|
|
157,919,856
|
|
|
$
|
13,563,869
|
|
|
$
|
2,326,553
|
|
|
$
|
(10,460,850
|
)
|
|
|
5,429,572
|
|
F-7
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30
|
|
Feb. 25, 1997
(Inception)
to
September 30,
2007
|
|
|
|
2007
|
|
2006
|
|
2005
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,289,497
|
)
|
|
$
|
(3,441,940
|
)
|
|
$
|
(1,400,839
|
)
|
|
$
|
(10,460,850
|
)
|
Issuance of Common Stock for Services
|
|
|
(12,000
|
)
|
|
|
31,500
|
|
|
|
50,827
|
|
|
|
1,336,998
|
|
Issuance of Common Stock for Loan Inducement
|
|
|
|
|
|
|
|
|
|
|
310,117
|
|
|
|
310,117
|
|
Option/Warrant Expense
|
|
|
325,303
|
|
|
|
951,250
|
|
|
|
|
|
|
|
2,476,553
|
|
Issuance of Stock for Interest
|
|
|
|
|
|
|
241,383
|
|
|
|
|
|
|
|
241,383
|
|
Depreciation
|
|
|
77,248
|
|
|
|
82,941
|
|
|
|
18,435
|
|
|
|
162,189
|
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in Deferred Financing Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Security Deposit
|
|
|
(3,200
|
)
|
|
|
(2,615
|
)
|
|
|
|
|
|
|
(5,815
|
)
|
(Increase) in Prepaid Expense
|
|
|
294,741
|
|
|
|
(269,133
|
)
|
|
|
(60,115
|
)
|
|
|
(54,377
|
)
|
(Decrease) in Accounts Payable
|
|
|
(322,509
|
)
|
|
|
503,784
|
|
|
|
(10,653
|
)
|
|
|
259,652
|
|
Increase (Decrease) in Accrued Liabilities
|
|
|
86,498
|
|
|
|
(39,448
|
)
|
|
|
42,578
|
|
|
|
53,036
|
|
Net Cash Flows Used for Operating Activities
|
|
|
(843,416
|
)
|
|
|
(1,942,278
|
)
|
|
|
(1,049,650
|
)
|
|
|
(5,681,114
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Fixed Assets
|
|
|
(179,490
|
)
|
|
|
(314,736
|
)
|
|
|
(181,995
|
)
|
|
|
(662,057
|
)
|
Purchase of Marketable Prototype and Patent
|
|
|
|
|
|
|
(1,785,000
|
)
|
|
|
(10,000
|
)
|
|
|
(1,765,000
|
)
|
Note Receivable
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,500,000
|
)
|
Accrued Interest earned
|
|
|
(143,452
|
)
|
|
|
|
|
|
|
|
|
|
|
(143,452
|
)
|
Net Cash Flows Used for Investing Activities
|
|
|
(1,822,942
|
)
|
|
|
(2,099,736
|
)
|
|
|
(191,995
|
)
|
|
|
(4,070,509
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Notes Payable Stockholder
|
|
|
|
|
|
|
|
|
|
|
3,775
|
|
|
|
|
|
Payment for Note Payable Stockholder
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
Proceeds from Warrant Conversion
|
|
|
|
|
|
|
3,171,250
|
|
|
|
|
|
|
|
3,171,250
|
|
Proceeds from Debenture Conversion
|
|
|
|
|
|
|
5,000,000
|
|
|
|
|
|
|
|
5,000,000
|
|
Proceeds from Convertible Debt
|
|
|
|
|
|
|
|
|
|
|
850,000
|
|
|
|
|
|
Issuance of Common Stock for Warrants
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
Issuance of Common Stock for cash
|
|
|
|
|
|
|
|
|
|
|
531,395
|
|
|
|
3,219,121
|
|
Net Cash Flows Provided by Financing Activities
|
|
|
135,000
|
|
|
|
8,171,250
|
|
|
|
1,380,170
|
|
|
|
11,525,371
|
|
Net Increase (Decrease) in Cash
|
|
|
(2,531,358
|
)
|
|
|
4,129,236
|
|
|
|
138,525
|
|
|
|
1,773,748
|
|
Cash and cash equivalents Beginning of period
|
|
|
4,305,105
|
|
|
|
175,869
|
|
|
|
37,344
|
|
|
|
|
|
Cash and cash equivalents End of period
|
|
$
|
1,773,748
|
|
|
$
|
4,305,105
|
|
|
$
|
175,869
|
|
|
$
|
1,773,748
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,197
|
|
|
|
|
|
|
|
|
|
|
$
|
72,543
|
|
Income Taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-Cash Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued (returned) in exchange for services
|
|
$
|
(12,000
|
)
|
|
$
|
31,500
|
|
|
$
|
50,827
|
|
|
$
|
1,336,998
|
|
Conversion of debt for Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Loan Inducement
|
|
|
|
|
|
|
|
|
|
$
|
310,117
|
|
|
$
|
310,117
|
|
Common Stock Issued for Interest
|
|
|
|
|
|
$
|
241,383
|
|
|
|
|
|
|
$
|
241,383
|
|
F-8
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 1 Organization
XsunX, Inc. (XsunX, the Company or the issuer) is a Colorado corporation formerly known as Sun River Mining Inc. Sun River). The Company was originally incorporated in Colorado on February 25, 1997. Effective September 24, 2003, the Company completed a Plan of Reorganization and Asset Purchase Agreement (the Plan).
Pursuant to the Plan the Company acquired the following three patents from Xoptix, Inc., a California corporation for Seventy Million (70,000,000) shares (post reverse split one for twenty): No. 6,180,871 for Transparent Solar Cell and Method of Fabrication (Device), granted on January 30, 2001; No. 6,320,117 for Transparent Solar Cell and Method of Fabrication (Method of Fabrication), granted on November 20, 2001; and No. 6,509,204 for Transparent Solar Cell and Method of Fabrication (formed with a Schottky barrier diode and method of its manufacture), granted on January 21, 2003.
Pursuant to the Plan, the Company authorized the issuance of 110,530,000 (post reverse split) common shares. Prior to the Plan the Company had no tangible assets and insignificant liabilities. Subsequent to the Plan, the Company completed its name change from Sun River Mining, Inc. to XsunX, Inc. The transaction was completed on September 30, 2003.
XsunX, Inc. is a thin-film photovoltaic TFPV company that has spent the last three years in focused research with a photovoltaic material called Amorphous Silicon. During this time, the Company has developed the technical capabilities, qualified core staff, and market understanding that it believes will be necessary to complete the development of its products and establish product manufacturing infrastructure. The products that the Company intends to produce and market are amorphous silicon solar modules on glass panels.
Utilizing this experience and the collective body of intellectual property we have developed, or evaluated as suitable or advantageous for use, we have designed a 125 watt thin film amorphous silicon solar module and a proprietary semiconductor manufacturing system to produce these modules in commercial quantities. We anticipate the manufacture of our solar modules, employing the design of our high-throughput production lines in an automated continuous process, will provide manufacturing costs significantly less than those of traditional crystalline silicon solar module manufacturers, and be highly competitive with other thin film offerings.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation Development Stage Company
The Company has not earned any revenues from operations. Accordingly, the Companys activities have been accounted for as those of a Development Stage Enterprise as set forth in Financial Accounting Standards Board Statement No. 7 (SFAS 7). Among the disclosures required by SFAS 7 are that the Companys financial statements be identified as those of a development stage company, and that the statements of operations, stockholders equity (deficit) and cash flows disclose activity since the date of the Companys inception.
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates made in
F-9
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 2 Summary of Significant Accounting Policies (continued)
preparing these financial statements include the estimate for the useful life of property and equipment, and the fair value of stock warrants. Actual results could differ from those estimates
Fair Value of Financial Instruments
The Companys financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments. As of September 30, 2007, 2006 and 2005, the Companys notes payable have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments approximates their fair value.
Property and Equipment
Property and equipment are stated at cost, and are depreciated or amortized using the straight-line method over the following estimated useful lives:
|
|
|
Furniture, fixtures & equipment
|
|
|
5 years
|
|
Computer equipment
|
|
|
3 years
|
|
Commerce server
|
|
|
3 years
|
|
Computer software
|
|
|
3 years
|
|
Leasehold improvements
|
|
|
Length of the lease
|
|
The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased.
Net Earnings (Loss) per Share
Basic loss per share is computed on the basis of the weighted average number of common shares outstanding. For all periods, all of the Companys common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Companys net losses. There are 17,312,000 issued options / warrants outstanding as of September 30, 2007 that are potentially dilutive of which 8,768,167 are currently vested.
Advertising
Advertising costs are expensed as incurred. Total advertising costs were $47,573, $9,050 and $3,979 for the years ended September 30, 2007, 2006 and 2005, respectively.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $435,534, $949,472 and $501,423 for the years ended September 30, 2007, 2006 and 2005, respectively.
Other Comprehensive Income
The Company has no components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
Stock Based Compensation
XsunX records the fair value of stock-based compensation grants as an expense. In order to determine the fair value of stock options on the date of grant. XsunX applies the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment.
F-10
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 2 Summary of Significant Accounting Policies (continued)
XsunX uses an expected stock-price volatility assumption that is based on historical implied volatilities of the underlying stock which is obtained from public data sources. With regard to the weighted-average option life assumption. XsunX considers the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees. Forfeiture rates are based on the Companys historical data and future estimates for stock option forfeitures. There are 17,312,000 options and warrants issued of which 8,768,167 are vested. The exercise price range for the Companys
options and warrants are $0.15 to $1.69. The weighted average remaining life of the option and warrant grants range from .3 years to 4.9 years. We have based our expected volatility on the historical performance of our stock adjusted for extreme periods of volatility that resulted from unusual events. The range of volatility for our options and warrants is 53 to 86 based on the specific grant. The risk free interest rate used in our calculation was 3.54%. Total net stock-based compensation expense is attributable to the granting of and the remaining requisite service periods of stock options previously granted. Compensation expense attributable to net stock-based compensation in fiscal 2007 was $325,303, increasing basic loss $.002 per share.
Note 3 Federal Income Tax
The Company accounts for income taxes under SFAS No. 109, which requires the asset and liability approach to accounting for income taxes. Under this approach, deferred income taxes are determined based upon differences between the financial statement and tax bases of the Companys assets and liabilities and operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized if it is more likely than not that the future tax benefit will be realized. The Company is a Development Stage Company and the likelihood of its ability to utilize the deferred tax
asset that arises from the operating loss carry forwards cant be reasonably estimated. The company has created a valuation allowance equal to 100% of the deferred tax asset arising from the operating loss carryforwards as a result of this inability to estimate whether or not the asset can be utilized in future periods.
Significant components of the Companys deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
Deferred Tax Liability
|
|
$
|
4,384,288
|
|
|
$
|
3,858,490
|
|
|
$
|
2,291,714
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry forwards
Book/Tax Differences in Bases of Assets
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Valuation allowance
|
|
$
|
4,384,288
|
|
|
$
|
3,858,490
|
|
|
$
|
2,291,714
|
|
Net Deferred tax assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
At September 30, 2007, the Company had net operating loss carry forwards of approximately, $10,960,721 for federal income tax purposes. These carry forwards if not utilized to offset taxable income will begin to expire in 2010.
Note 4 Capital Stock Transactions
The authorized capital stock of the Company was established at 500,000,000 shares with no par value.
In the fiscal year ended September 30, 2005, the Company issued a total of 9,818,631 shares of common stock as follows: 6,735,137 shares of common stock were issued, raising gross proceeds of $531,396; 474,231 shares of common stock were issued in transactions for consulting services valued at $40,000; and 2,609,263 shares of common stock were issued in connection with the sale of an $850,000 secured convertible debenture by the Company.
F-11
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 4 Capital Stock Transactions (continued)
In the fiscal year ended September 30, 2006, the Company issued a total of 33,293,217 shares of common stock as follows: 33,120,851 shares of common stock registered pursuant to an effective registration statement were issued pursuant to the conversion of secured convertible debentures, raising gross proceeds of $9,294,133; 72,366 shares of common stock were issued for consulting services valued at $31,500; and 100,000 shares of common stock were issued in connection with the exercise of 100,000 warrants bearing an exercise price of $.15 each.
The following represents a detailed analysis of the 2007 capital stock transactions.
Return of Shares for Services In December 2006, the Company entered into a settlement agreement with a service provider in which the service provider returned to the Company 150,000 of the 300,000 shares of common stock issued to the service provider in the period ended March 31, 2005. The returned shares were received and cancelled effective January 2007. As a result of the return and cancellation of these shares, the Company recorded a credit to expenses in the amount of $12,000 and a debit to paid in capital of $12,000 for the period ending March 31, 2007.The $12,000 represents one half of the monetary value expensed by the
Company in the period in which the shares were issued.
Return of Security Shares In conjunction with the sale of convertible debentures in the amount of $850,000 and $5,000,000 in the fiscal periods ended December 31, 2005 and 2006 respectively, the Company issued and deposited into escrow 26,798,418 shares of common stock as part of a security structure for the above referenced obligations. As of September 30, 2006 the principal balance of the debentures had been reduced to $0.0. Subsequently the holder of the debentures provided the Company with a notice of release of its security interests and returned the security shares to the Company for cancellation. On January 18, 2007 the
above shares were cancelled on the Companys books.
Issuance of Shares Warrant Conversion In September 2007, a consultant exercised the remaining 900,000 of the 1,000,000 $.15 cent warrants granted to the consultant in September 2004. The amount of $135,000 was paid to XsunX by the consultant and 900,000 shares of unregistered common stock were issued.
Note 5 Employment and Consulting Agreements
Effective January 1, 2007, XSUNX, Inc. entered into two year Employment Agreements with the following individuals:
|
|
|
|
|
Joseph Grimes
|
|
|
Chief Operating Officer
|
|
|
$
|
150,000.00
|
|
Jeff Huitt
|
|
|
Chief Financial Officer
|
|
|
$
|
135,000.00
|
|
Robert Wendt
|
|
|
Vice President of Engineering
|
|
|
$
|
150,000.00
|
|
Kurt Laetz
|
|
|
Vice President of Global Sales
|
|
|
$
|
120,000.00
|
(1)
|
|
(1)
|
Effective September 2007 Kurt Laetz terminated his employment agreement and employment with the Company.
|
Effective January 26, 2007, XsunX entered into a two year Consulting and Advisory Agreement with Dr. John Moore to become the Chairman of the Companys Scientific Advisory Board. The Company compensates Dr. Moore $1,500 per month for his services.
Effective February 22, 2007, XsunX entered into a two year Consulting and Advisory Agreement with Dr. Edward Yu to become a member of the Companys Scientific Advisory Board. The Company compensates Dr. Moore $1,000 per month for his services.
F-12
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 5 Employment and Consulting Agreements (continued)
Effective April 23, 2007, XsunX entered into a two year Consulting and Advisory Agreement with Dr. Richard Ahrenkiel to become a member of the Companys Scientific Advisory Board. The Company compensates Dr. Moore $1,000 per month for his services.
Effective August 28, 2007, XsunX entered into a two year Consulting and Advisory Agreement with Dr. Michael Russak to become a member of the Companys Scientific Advisory Board. The Company compensates Dr. Moore $1,000 per month for his services.
Note 6 Stock Options and Warrants
Stock Option Plan
On January 5, 2007, the Board of Directors of XsunX resolved to establish the Companys 2007 Stock Option Plan to enable the Company to obtain and retain the services of the types of employees, consultants and directors who could contribute to the Companys long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company. A total of 20,000,000 shares of common stock are authorized under the plan.
Stock-Based Compensation
Effective September 30, 2007, XsunX adopted SFAS No. 123(R), Share-Based Payment (SFAS No. 123(R)). This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes APB No. 25. SFAS No. 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the grant. This statement was adopted using the modified prospective method of application, which requires us to recognize compensation expense on a prospective basis. Therefore, prior period financial statements have not been restated. Under this
method, in addition to reflecting compensation expense for new share-based grants, expense is also recognized to reflect the remaining service period of grants that had been included in pro-forma disclosures in prior periods.
XsunX records the fair value of stock-based compensation grants as an expense. In order to determine the fair value of stock options on the date of grant, XsunX applies the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment.
XsunX uses an expected stock-price volatility assumption that is based on historical implied volatilities of the underlying stock which is obtained from public data sources. With regard to the weighted-average option life assumption, XsunX considers the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees. Forfeiture rates are based on the Companys historical data and future estimates for stock option forfeitures. There are 17,312,000 options and warrants issued of which 8,768,167 are vested. The exercise price range for the Companys
options and warrants are $0.15 to $1.69. The weighted average remaining life of the option and warrant grants range from .3 years to 4.9 years. We have based our expected volatility on the historical performance of our stock adjusted for extreme period of volatility that resulted from unusual events. The range of volatility for our options and warrants is 53 to 86 based on the specific grant. The risk free interest rate used in our calculation was 3.54%. Total net stock-based compensation expense is attributable to the granting of and the remaining requisite service periods of stock options previously granted. Compensation expense attributable to net stock-based compensation in fiscal 2007 was $325,303, increasing basic loss $.002 per share.
F-13
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 6 Stock Options and Warrants (continued)
Warrant Grants
There were no Warrants issued by the Company in the year ended September 30, 2007.
Stock Option Plan Grants
During the year ended September 30, 2007 the board of directors authorized the grant of options to purchase an aggregate of 2,200,000 shares of the Companys common stock of which 1,950,000 remain authorized. Such options are exercisable at prices ranging from $.41 to $.53 per share, and expire at various times through August 2012.
The following represents a detailed analysis of the 2007 stock option grants.
Consulting Incentive Options: In connection with entering into a Consulting and Advisory Agreement effective January 26, 2007 with Dr. John Moore for two years service as Chairman of the Companys Scientific Advisory Board, the Company issued to Dr. Moore 150,000 options under the terms of a Stock Option Agreement, with an exercise price of $.46 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of April 26, 2007. Thereafter, the Option shall vest become exercisable at the rate of 18,750 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Employment Incentive Options In connection with entering into an Employment Agreement effective January 1, 2007 with Jeff Huitt for two years service as Chief Financial Officer, the Company issued to Mr. Huitt 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $.46 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two sales/licensure of an XsunX system.
|
Employment Incentive Options In connection with entering into an Employment Agreement effective January 1, 2007 with Robert Wendt for two years service as Vice President of Engineering, the Company issued to Mr. Wendt 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $.46 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two sales/licensure of an XsunX system.
|
Employment Incentive Options In connection with entering into an Employment Agreement effective January 1, 2007 with Kurt Laetz for two years service as Vice President of Sales, the Company issued to Mr. Laetz 250,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $.46 per share. As of September 30, 2007 Mr. Laetz no longer worked for the Company and
F-14
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 6 Stock Options and Warrants (continued)
the above referenced option grant was terminated and the available options were returned to the pool of available options under the XsunX 2007 Stock Option Plan.
Employment Incentive Options In connection with entering into an Employment Agreement effective January 1, 2007 with Joseph Grimes for two years service as Chief Operating Officer, the Company issued to Mr. Grimes 500,000 options under the terms of a Stock Option Agreement effective January 26, 2007, with an exercise price of $.46 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 50,000 shares upon the First Vesting Date of April 1, 2007. Thereafter, the Option shall vest and become exercisable at the rate of 50,000 Shares per calendar quarter up to a total of 400,000 shares.
|
|
(b)
|
This Option shall also become exercisable in the amount of 50,000 shares for each of the first two sales/licensure of an XsunX system.
|
Consulting Incentive Options: In conjunction with entering into a Consulting and Advisory Agreement effective February 22, 2007 with Dr. Edward Yu for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $.53 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of May 23, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Consulting Incentive Options: In conjunction with entering into a Consulting and Advisory Agreement effective April 23, 2007 with Dr. Richard Ahrenkiel for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $.45 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of July 24, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
Consulting Incentive Options: In conjunction with entering into a Consulting and Advisory Agreement effective August 28, 2007 with Dr. Michael Russak for two years service as a member of the Companys Scientific Advisory Board, the Company issued to Dr. Russak 100,000 options under the terms of a Stock Option Agreement, with an exercise price of $.41 per share. The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The Option became exercisable in the amount of 12,500 shares upon the First Vesting Date of November 29, 2007. Thereafter, the Option shall vest become exercisable at the rate of 12,500 Shares per calendar quarter, or any apportioned amount thereof, during the term of engagement of the Optionee by XsunX.
|
The total charged in expense for the 2007 fiscal year was $325,303 for the issuance of the above described warrants and stock options.
F-15
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 6 Stock Options and Warrants (continued)
A summary of option and warrant activity for the years ended September 30, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Accrued
Options/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise Price
|
Outstanding, September 30, 2004
|
|
|
8,000,000
|
|
|
$
|
0.15
|
|
|
|
5,500,000
|
|
|
$
|
0.15
|
|
Granted 2005
|
|
|
7,125,000
|
|
|
$
|
0.17
|
|
|
|
6,708,334
|
|
|
$
|
0.17
|
|
Exercisable from 2004 in 2005
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
0.15
|
|
Outstanding, September 30, 2005
|
|
|
15,125,000
|
|
|
$
|
0.16
|
|
|
|
13,408,334
|
|
|
$
|
0.16
|
|
Granted 2006
|
|
|
11,987,000
|
|
|
$
|
0.36
|
|
|
|
5,543,000
|
|
|
$
|
0.46
|
|
Exercised 2006
|
|
|
(4,375,000
|
)
|
|
$
|
0.48
|
|
|
|
(4,375,000
|
)
|
|
$
|
0.48
|
|
Exercised from 2004 in 2006
|
|
|
(100,000
|
)
|
|
$
|
0.15
|
|
|
|
(100,000
|
)
|
|
$
|
0.15
|
|
Exercised from 2005 in 2006
|
|
|
(6,375,000
|
)
|
|
$
|
0.17
|
|
|
|
(6,375,000
|
)
|
|
$
|
0.17
|
|
Exercisable from 2004 in 2006
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
0.15
|
|
Exercisable from 2005 in 2006
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
0.20
|
|
Outstanding, September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
|
|
8,701,334
|
|
|
|
|
|
Granted 2007
|
|
|
1,950,000
|
|
|
$
|
0.46
|
|
|
|
554,167
|
|
|
$
|
0.46
|
|
Exercised 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised from 2004 in 2007
|
|
|
(900,000
|
)
|
|
$
|
0.15
|
|
|
|
(900,000
|
)
|
|
$
|
0.15
|
|
Exercised from 2005 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised from 2006 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable from 2004 in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable from 2005 in 2007
|
|
|
|
|
|
|
|
|
|
|
116,666
|
|
|
$
|
0.20
|
|
Exercisable from 2006 in 2007
|
|
|
|
|
|
|
|
|
|
|
296,000
|
|
|
$
|
0.51
|
|
Outstanding, September 30, 2007
|
|
|
17,312,000
|
|
|
$
|
0.33
|
|
|
|
8,768,167
|
|
|
$
|
0.22
|
|
At September 30, 2007, the range of option/ warrant prices for shares under options/ warrants not exercised and the weighted-average remaining contractual life is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/Warrants Outstanding
|
|
Options/Warrants Exercisable
|
Range of Option/
Warrant Prices
|
|
Number of
Options/
Warrants
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Life(yr)
|
|
Number of
Options/
Warrants
|
|
Weighted-Average
Exercise Price
|
$ 0.15
|
|
|
7,000,000
|
|
|
$
|
0.15
|
|
|
|
1.9
|
|
|
|
6,000,000
|
|
|
$
|
0.15
|
|
$ 0.20
|
|
|
750,000
|
|
|
$
|
0.20
|
|
|
|
0.3
|
|
|
|
750,000
|
|
|
$
|
0.20
|
|
$ 0.25
|
|
|
7,000,000
|
|
|
$
|
0.25
|
|
|
|
3.0
|
|
|
|
1,000,000
|
|
|
$
|
0.25
|
|
$ 0.41
|
|
|
100,000
|
|
|
$
|
0.41
|
|
|
|
4.9
|
|
|
|
4,167
|
|
|
$
|
0.41
|
|
$ 0.45
|
|
|
100,000
|
|
|
$
|
0.45
|
|
|
|
4.6
|
|
|
|
20,833
|
|
|
$
|
0.45
|
|
$ 0.46
|
|
|
1,650,000
|
|
|
$
|
0.46
|
|
|
|
4.3
|
|
|
|
500,000
|
|
|
$
|
0.46
|
|
$ 0.51
|
|
|
500,000
|
|
|
$
|
0.51
|
|
|
|
3.8
|
|
|
|
352,000
|
|
|
$
|
0.51
|
|
$ 0.53
|
|
|
100,000
|
|
|
$
|
0.53
|
|
|
|
4.4
|
|
|
|
29,167
|
|
|
$
|
0.53
|
|
$ 1.69
|
|
|
112,000
|
|
|
$
|
1.69
|
|
|
|
3.5
|
|
|
|
112,000
|
|
|
$
|
1.69
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
|
F-16
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 7 Marketable Production Machine Acquisition
Subject to the terms of the Expanded Use License Agreement dated October 12, 2005 between XsunX and MVSystems, Inc. the parties are building a first run production machine for the purpose of proofing and demonstrating certain thin film solar cell manufacturing technology. This production machine is used to proof, develop, and prepare for market certain thin film solar cell manufacturing technology. During this period of use, the production machine is being depreciated over five years using the straight line method. Depreciation on this production machine began in mid September 2007. Upon completion of this phase of the production machine usage, the
parties intend to sell this first machine and have agreed to a 50/50 split of the net proceeds of the sale of this machine excluding production costs and reasonable marketing expenses. Upon the sale of the production machine, the asset will be treated as inventory at the depreciated asset value at the time of the sale. The valuation of this asset is based on the contracted delivery price in the Expanded Use License Agreement dated October 12, 2005. The valuation is reviewed quarterly using replacement cost and estimated potential sales price estimates. It is the policy of the Company to write down the value of this asset if these estimates are less than the current book value.
Note 8 Notes, Commitments, and Contingencies
Trademark Transfer Agreement
In November 2007, the Company elected not to complete the trademark transfer agreement for POWER GLASS. The value of the Trademark is minimal given the Companys expanded focus on manufacturing. As a result, $40,000 previous recorded as an asset associated with this Trademark were written off effective September 30, 2007 and recorded in research and development expense.
Operating Leases
In April 2006 the Company entered into a three year lease for operations facilities in Golden, CO. The Company provided a $2,615 security deposit and expensed $79,867 in costs associated with tenant improvements to the facilities in preparation for occupancy. The following is a schedule, by years, of the minimum base payments required under this operating lease for facilities. An additional $905 monthly is also due as a pro rata share equaling 4.12% of the operating costs for real estate taxes, assessments, and the expenses of operating and maintaining common areas within the commercial grounds surrounding the leased facilities.
|
|
|
|
|
|
|
Rent Schedule
|
|
Annual
Rate/sf
|
|
Annualized
Rent
|
|
Monthly Rent
|
7/1/06 6/30/07
|
|
$
|
6.75
|
|
|
$
|
20,250.00
|
|
|
$
|
1,687.50
|
|
7/1/07 6/30/08
|
|
$
|
6.95
|
|
|
$
|
20,850.00
|
|
|
$
|
1,737.50
|
|
7/1/08 6/30/09
|
|
$
|
7.16
|
|
|
$
|
21,480.00
|
|
|
$
|
1,790.00
|
|
Agreement for the Sale of Equipment
The Company has entered into agreements for the sale to a buyer of certain vacuum deposition technology equipment valued at $41,800,000, excluding royalty payments based on per watt annualized production totals. The agreements, consisting of a systems sale and a royalty based manufacturing license agreement, provide for thin film photovoltaic production equipment and two product development tools specializing in the fabrication of micro-crystalline and amorphous thin film silicon solar cells. Manufacture of the product development tools was scheduled to begin in June 2007 upon receipt of initial payments from the buyer. The Company extended the down
payment requirement by three months on July 17, 2007. The down payment was not received by the due date. As of the date of this report, the Company has notified the buyer of the termination of the purchase and license agreement.
F-17
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 9 Planned Expansion of Business Operations
In March XsunX launched efforts to expand the scope of business development efforts to include the planned establishment of a solar energy module manufacturing facility to be located in Oregon, USA. The Company intends to finance the associated costs for the build out of new facilities in a series of debt and/or equity financings.
Note 10 Note Receivable
On January 1, 2007, XSUNX, Inc. issued a secured, seven year, 10% note to Sencera, LLC in the amount up to $1,500,000. Under the terms, the Company provided Sencera, LLC with $400,000 at the time of signing and $137,500 per month for up to eight months. These funds are to be used to develop technology and obtain licenses in agreement with the Technology Development and License Agreement between Sencera and XsunX, Inc also signed on January 1, 2007. The note may be converted into a membership interest in Sencera, LLP and an extension of the license for a period of three years. The security consists of the license rights, the ability to exercise the
conversion and all other rights and remedies provided by law.
On September 7, 2007, XsunX initiated the final funding of disbursements under a Promissory Note and Loan Agreement dated January 1, 2007, between XsunX and a private technology development firm. Under the Promissory Note and Loan Agreement XsunX has funded and extended the principal amount of $1,500,000 dollars to the private firm.
Use of the licensed plasma technology by XsunX in any of its planned or future processes or products has and continues to be subject to completion of development by Sencera, LLC, substantiation of intended performance criteria under the agreements, and determination of commercial application suitability by XsunX.
As of September 30, 2007 the current balance of the note receivable was $1,500,000 plus accrued interest earned of $143,452.
Note 11 Other Income Legal Settlement
Effective March 23, 2007 XsunX entered into a binding letter of intent (LOI) with a manufacturer (the Seller) of photovoltaic products for the purchase of certain net assets of the manufacturer for the amount of five million dollars ($5,000,000) USD in a cash transaction.
On or about April 27, 2007 the Company was notified by the Seller of a change in direction and decision not to complete the sale of assets under the LOI agreement. XsunX filed a complaint (Lawsuit) against the Seller and related entities in the United States District Court for the District of Massachusetts on May 10th, 2007, alleging breach of contract and other claims.
On August 23, 2007 the Seller and XsunX entered into a settlement agreement (Settlement). The Settlement became effective upon the transfer by the Seller to XsunX of one million one hundred thousand dollars USD ($1,100,000) on August 27, 2007.
Upon the effectiveness of the Settlement counsel for each of the parties filed with the United States District Court for the District of Massachusetts a Stipulation of Dismissal with Prejudice thereby dismissing the Lawsuit with prejudice. Each of the parties has unconditionally and irrevocably released, waived, and forever discharged each other from claims related to the LOI and the Lawsuit.
Note 12 Subsequent Events
Financing
On November 1, 2007, XsunX signed a $21 million common stock purchase agreement with Fusion Capital Fund II, LLC, an Illinois limited liability Company (Fusion Capital). Upon signing the agreement, XsunX received $1,000,000 from Fusion Capital as an initial purchase under the $21 million commitment in
F-18
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 12 Subsequent Events (continued)
exchange for 3,333,332 shares of our common stock. Concurrently with entering into the common stock purchase agreement, we entered into a registration rights agreement with Fusion Capital. Under the registration rights agreement, we agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (SEC) covering the shares that have been issued or may be issued to Fusion Capital under the common stock purchase agreement. After the SEC has declared effective the registration statement related to the transaction we have the right over a 25-month period to sell our shares of common stock to
Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions as set forth in the agreement, up to the full aggregate commitment of $21 million.
The purchase price of the shares related to the $20 million balance of future funding will be based on the prevailing market prices of the Companys shares at the time of sales without any fixed discount, and the Company will control the timing and amount of any sale of shares to Fusion Capital. There are no upper limits to the price Fusion Capital may pay to purchase our common stock. However, Fusion Capital shall not be obligated to purchase any shares of our common stock on any business day that the price of our common stock is below $0.20. There are no negative covenants, restrictions on future funding(s), penalties or liquidated damages in
the agreement. The common stock purchase agreement may be terminated by us at any time at our discretion without any cost to us.
In consideration for entering into the $21 million agreement we agreed to issue to Fusion Capital 3,500,000 shares of our common stock as financing commitment shares which Fusion Capital has agreed to hold for the term of the common stock purchase agreement. Additionally, under the stock purchase agreement we granted Fusion Capital common stock purchase warrants to purchase 1,666,666 shares of our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75. The shares underlying the warrant grants do not carry mandatory registration requirements under the terms of the common stock purchase agreement and registration rights agreement.
The proceeds received by the Company under the common stock purchase agreement are expected to be used to build an initial base production system delivering full size commercial quality solar modules, and initiate the manufacture of the first of four (4) planned 25 megawatt systems under the Companys planned 100 megawatt thin film solar module production facility. Proceeds may also be used to lease and prepare manufacturing facilities with the necessary support systems for the manufacturing line, inventory, staff, and general working capital.
Changes/Additions to the Board of Directors
On November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland as Director, effective November 12, 2007. Mr. Fundingsland brings over forty years of sales, marketing, executive business management, finance, and corporate governance experience to XsunX. His professional and business experience principally originated with his tenure, commencing in 1964, at Applied Magnetics Corp., a disk drive and data storage company. Prior to his retirement from Applied Magnetics in 1994, Mr. Fundingsland served as an Executive Officer and Vice President of Sales and Marketing for 11 years directing sales growth from $50 million to over $550
million. Commencing in 1993 through 2003 Mr. Fundingsland served as a member of the board of directors for the International Disk Drive Equipment Manufacturers Association IDEMA where he retired emeritus, and continues to serve as an advisor to the board. For the last 13 years, Mr. Fundingsland has provided consulting services assisting with sales, marketing, and management to a host of companies within the disk drive, optical, software, and LED industries.
On November 28, 2007, the Company announced the appointment of Dr. Michael A. Russak as a Director, effective November 26, 2007. Dr. Russak is also a member of the Companys Scientific Advisory Board. Dr. Russak has over thirty five years of industrial experience progressing from a research scientist to senior executive officer of two public companies. He has expertise in thin film materials and devices for magnetic
F-19
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 12 Subsequent Events (continued)
recording, photovoltaic, solar thermal applications, semiconductor devices as well as glass, glass-ceramic and ceramic materials. He also has over twelve years experience at the executive management level of public companies with significant off shore development and manufacturing functions. He received his B.S. in Ceramic Engineering in 1968 and Ph.D. in Materials Science in 1971, both from Rutgers University in New Brunswick, NJ. During his career, he has been a contributing scientist and program manager at the Grumman Aerospace Corporation, a Research Staff Member and technical manager in the areas of thin film materials and processes at the
Research Division of the IBM Corporation at the T.J. Watson Research Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film disks for magnetic storage, as Vice President of Research and Development. His responsibilities included new product design and introduction. Dr. Russak became Chief Technical Officer of HMT and held that position until 2000 when HMT merged with Komag Inc. Dr. Russak was appointed President and Chief Technical Officer of the combined company. He continued to set technical, operational and business direction for Komag until his retirement at the end of 2006. Dr. Russak is currently Executive Director of IDEMA-US, the trade association for the Hard Disk Drive Industry. He has published over 90 technical papers, and holds 23 U.S. patents.
Executive Compensation
The Board of Directors of the Company Authorized Salary Increases effective November 6, 2007 for the following individuals:
|
|
|
|
|
Tom Djokovich
|
|
Chief Executive Officer
|
|
$70,000.00 Increase to $220,000.00
|
Joseph Grimes
|
|
Chief Operating Officer
|
|
$60,000.00 Increase to $210,000.00
|
Jeff Huitt
|
|
Chief Financial Officer
|
|
$20,000.00 Increase to $155,000.00
|
Stock Option Plan Grants
As part of a plan for the Company to provide stock based incentives to employees and consultants, and attract new employees and members to its board of directors, the Company engages in a policy of providing stock option grants. Between the period beginning October 1, 2007 and the date of this report, the board of directors authorized the grant of options to purchase an aggregate of 3,800,000 shares of the Companys common stock. Such options are exercisable at the price of $.36 per share, and expire at various times through November 2012.
Employment Incentive Option Grants In connection with the start of the Companys efforts to prepare, install, and operate solar module manufacturing capabilities the Company authorized employment incentive option grants to the following employees on October 23rd 2007 at an exercise price per share of $0.36. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The options have a 5 year exercise term and vest in conjunction with a performance milestone based vesting schedule as described below:
|
|
|
Joseph Grimes
|
|
500,000 Option Shares
|
Robert G. Wendt
|
|
500,000 Option Shares
|
Dr. Guang Lin
|
|
300,000 Option Shares
|
The vesting schedule for Mr. Grimes and Mr. Wendt is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee(s) of the following performance milestones as they may relate to the Companys phased build out plan for a solar module manufacturing facility:
|
(a)
|
100,000 shares upon the assembly and commissioning of the base line production system.
|
F-20
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 12 Subsequent Events (continued)
|
(b)
|
100,000 shares upon the production of a commercial size working sample of the Companys planned tandem junction amorphous silicon solar module.
|
|
(c)
|
300,000 shares upon the assembly and commissioning of the initial 25 mega watt production system as contemplated within the Companys phased build out plan for a solar module manufacturing facility.
|
The vesting schedule for Dr. Guang is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following performance milestones as they may relate to the Companys phased build out plan for a solar module manufacturing facility:
|
(a)
|
100,000 shares upon the assembly and commissioning of the base line production system.
|
|
(b)
|
150,000 shares upon the production of a commercial size working sample of the Companys planned tandem junction amorphous silicon solar module.
|
|
(c)
|
50,000 shares upon the assembly and commissioning of the initial 25 mega watt production system as contemplated within the Companys phased build out plan for a solar module manufacturing facility.
|
Board of Directors Incentive Option Grants In furtherance of the Companys policy to compensate current members, and attract new members, to its Board of Directors, the Company authorized incentive option grants to the following Directors at an exercise price per share of $0.36. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
The options carry 5 year exercise terms and vest as described below:
|
|
|
|
|
Thomas Anderson
|
|
October 23, 2007
|
|
1,500,000 Option Shares*
|
Oz Fundingsland
|
|
November 11, 2007
|
|
500,000 Option Shares
|
Dr. Michael Russak
|
|
November 26, 2007
|
|
500,000 Option Shares
|
The vesting schedule for Mr. Anderson:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
The Option became exercisable in the amount of 1,000,000 shares upon the effective date of the grant for services rendered as a member of the Company Board of Directors from the period beginning October 1, 2003 through September 30, 2007.
|
|
*
|
Amendment to Stock Option Grant On November 12, 2007 the Company entered into an agreement amending the terms of a stock option grant dated October 23, 2007 between the Company and Mr. Thomas Anderson, a member of the XsunX Board of Directors. The amendment provided for an increase of 250,000 options to the pool of options available within the vesting provisions of the grant. All other provision of the stock option grant remained the same. The vesting schedule for item (b) was amended as follows:
|
|
(b)
|
Beginning October 1, 2007 the Option shall vest and become exercisable at the rate of 62,500 Shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Company Board of Directors up to a total of 500,000 shares.
|
F-21
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 12 Subsequent Events (continued)
|
(c)
|
Beginning October 1, 2007, the Option shall vest and become exercisable at the rate of 62,500 Shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Company Board of Directors up to a total of 250,000 shares.
|
The vesting schedule for Mr. Fundingsland is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning November 12, 2007, the Option shall vest and become exercisable at the rate of 62,500 Shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Company Board of Directors up to a total of 500,000 shares.
|
The vesting schedule for Dr. Russak is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning November 26, 2007 the Option shall vest and become exercisable at the rate of 62,500 Shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Company Board of Directors up to a total of 500,000 shares.
|
Note 13 Financial Accounting Developments
Recently Issued Accounting Pronouncements
SFAS 155 Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140
This Statement, issued in February 2006, amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement:
|
(a)
|
Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation
|
|
(b)
|
Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133
|
|
(c)
|
Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation
|
|
(d)
|
Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives
|
|
(e)
|
Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.
|
This Statement is effective for all financial instruments acquired or issued after the beginning of our first fiscal year that begins after September 15, 2006.
F-22
TABLE OF CONTENTS
XSUNX
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
Note 13 Financial Accounting Developments (continued)
The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of our fiscal year, provided we have not yet issued financial statements, including financial statements for any interim period, for that fiscal year. Provisions of this Statement may be applied to instruments that we hold at the date of adoption on an instrument-by-instrument basis.
The Company is currently reviewing the effects of adoption of this statement but it is not expected to have a material impact on our financial statements.
SFAS 156 Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140
This Statement, issued in March 2006, amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:
|
(1)
|
Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations.
|
|
(2)
|
Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
|
|
(3)
|
Permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities.
|
|
(4)
|
At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entitys exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.
|
|
(5)
|
Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.
|
Adoption of this Statement is required as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this statement is not expected to have a material impact on our financial statements.
F-23
TABLE OF CONTENTS
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
9175 E. Kenyon Avenue, Suite 100
Denver, CO 80237
303-796-0099
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
XSUNX, INC.
Aliso Viejo, CA
We have reviewed the accompanying balance sheet of XSUNX, INC. (a development stage company) as of December 31, 2007, and the related statements of operations, stockholders equity (deficit), and cash flows for the three-month period then ended. These financial statements are the responsibility of the Companys management.
We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). The review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States.
Jaspers + Hall, PC
Denver, CO
February 14, 2008
/s/ Jaspers + Hall, PC
Jaspers + Hall, PC
Denver, Colorado
February 14, 2008
F-24
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
BALANCE SHEETS
|
|
|
|
|
|
|
December 31,
2007
|
|
September 30,
2007
|
|
|
(Unaudited)
|
|
(Audited)
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,188,260
|
|
|
$
|
1,773,748
|
|
Prepaid Expenses
|
|
|
6,481
|
|
|
|
54,377
|
|
Total current assets
|
|
|
2,194,741
|
|
|
|
1,828,125
|
|
Fixed assets:
|
|
|
|
|
|
|
|
|
Office & Misc. Equipment
|
|
|
39,450
|
|
|
|
39,437
|
|
Research and Development Equipment
|
|
|
634,907
|
|
|
|
532,795
|
|
Leasehold Improvement
|
|
|
89,825
|
|
|
|
89,825
|
|
Total Fixed Assets
|
|
|
764,182
|
|
|
|
662,057
|
|
Less Depreciation
|
|
|
(292,147 )
|
|
|
|
(162,189
|
)
|
Total fixed assets
|
|
|
472,035
|
|
|
|
499,868
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Patents/Trade Marks
|
|
|
|
|
|
|
|
|
Security Deposit
|
|
|
5,815
|
|
|
|
5,815
|
|
Accrued Interest Receivable
|
|
|
234,192
|
|
|
|
143,452
|
|
Note Receivable
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Marketable Prototype
|
|
|
1,765,000
|
|
|
|
1,765,000
|
|
Total other assets
|
|
|
3,505,007
|
|
|
|
3,414,267
|
|
Total Assets
|
|
$
|
6,171,783
|
|
|
$
|
5,742,260
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
238,897
|
|
|
$
|
259,652
|
|
Accrued Expenses
|
|
|
55,077
|
|
|
|
53,036
|
|
Current Portion of Note Payable
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
293,974
|
|
|
|
312,688
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Treasury Stock, no par value; no shares where issued or outstanding
|
|
|
|
|
|
|
|
|
Common Stock, no par value; 500,000,000 shares authorized; 164,753,188 shares issued and outstanding at December 31, 2007 and 157,919,856 shares were issued and outstanding at September 30, 2007
|
|
|
15,669,169
|
|
|
|
13,563,869
|
|
Paid in Capital Common Stock Warrants & Fees
|
|
|
3,635,418
|
|
|
|
2,326,553
|
|
Deferred Stock Compensation
|
|
|
(1,051,000
|
)
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(12,375,778
|
)
|
|
|
(10,460,850
|
)
|
Total stockholders profit (deficit)
|
|
|
5,877,809
|
|
|
|
5,429,572
|
|
Total Liabilities and Stockholders Equity
|
|
|
6,171,783
|
|
|
|
5,742,260
|
|
See Accountants Review Report.
F-25
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Feb. 25, 1997
(Inception) to
December 31,
2007
|
|
|
2007
|
|
2006
|
Revenue:
|
|
|
|
|
|
|
|
|
Service Income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,880
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
14,880
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
4,530
|
|
|
|
16,747
|
|
|
|
65,132
|
|
Bank Charges
|
|
|
531
|
|
|
|
25
|
|
|
|
4,411
|
|
Conferences & Seminars
|
|
|
3,715
|
|
|
|
9,271
|
|
|
|
29,707
|
|
Consulting
|
|
|
27,277
|
|
|
|
35,982
|
|
|
|
1,537,861
|
|
Depreciation
|
|
|
129,958
|
|
|
|
27,047
|
|
|
|
311,760
|
|
Directors Fees
|
|
|
|
|
|
|
|
|
|
|
11,983
|
|
Due Diligence
|
|
|
|
|
|
|
|
|
|
|
45,832
|
|
Dues and Subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Rental
|
|
|
|
|
|
|
|
|
|
|
1,733
|
|
Filing Fees
|
|
|
|
|
|
|
|
|
|
|
8,610
|
|
Impairment loss
|
|
|
|
|
|
|
|
|
|
|
923,834
|
|
Insurance
|
|
|
22,164
|
|
|
|
3,535
|
|
|
|
92,483
|
|
Legal & Accounting
|
|
|
59,039
|
|
|
|
77,418
|
|
|
|
797,419
|
|
Licenses & Fees
|
|
|
618
|
|
|
|
20
|
|
|
|
7,163
|
|
Commitment and Loan Fees
|
|
|
89,300
|
|
|
|
|
|
|
|
831,134
|
|
Meals & Entertainment
|
|
|
|
|
|
|
|
|
|
|
4,119
|
|
Miscellaneous
|
|
|
100
|
|
|
|
2,135
|
|
|
|
7,478
|
|
Office Expenses
|
|
|
3,794
|
|
|
|
6,229
|
|
|
|
45,294
|
|
Patent Fees
|
|
|
|
|
|
|
1,181
|
|
|
|
2,469
|
|
Postage & Shipping
|
|
|
1,375
|
|
|
|
688
|
|
|
|
16,203
|
|
Printing
|
|
|
408
|
|
|
|
6,911
|
|
|
|
28,878
|
|
Public Relations
|
|
|
68,674
|
|
|
|
26,630
|
|
|
|
558,035
|
|
Recruitment Expenses
|
|
|
1,403
|
|
|
|
|
|
|
|
48,467
|
|
Research & Development
|
|
|
6,406
|
|
|
|
209,945
|
|
|
|
2,022,328
|
|
Rent
|
|
|
17,208
|
|
|
|
14,860
|
|
|
|
129,731
|
|
Salaries
|
|
|
235,585
|
|
|
|
140,615
|
|
|
|
1,994,707
|
|
Subscription Reports
|
|
|
|
|
|
|
10
|
|
|
|
9,858
|
|
Taxes
|
|
|
1,666
|
|
|
|
|
|
|
|
10,503
|
|
Telephone
|
|
|
4,987
|
|
|
|
7,162
|
|
|
|
79,910
|
|
Transfer Agent Expense
|
|
|
|
|
|
|
283
|
|
|
|
20,365
|
|
Travel, Meals & Entertainment
|
|
|
31,376
|
|
|
|
29,829
|
|
|
|
305,869
|
|
Utilities
|
|
|
2,408
|
|
|
|
|
|
|
|
10,511
|
|
Abandoned Equipment
|
|
|
|
|
|
|
|
|
|
|
808
|
|
Option/Warrant Expense
|
|
|
1,308,865
|
|
|
|
|
|
|
|
3,785,418
|
|
Total Operating Expenses
|
|
|
2,021,387
|
|
|
|
616,523
|
|
|
|
13,750,013
|
|
See Accountants Review Report.
F-26
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Feb. 25, 1997
(Inception) to
December 31,
2007
|
|
|
2007
|
|
2006
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
395
|
|
|
|
|
|
|
|
248,955
|
|
Interest Income
|
|
|
(106,854 )
|
|
|
|
(32,843 )
|
|
|
|
(448,536 )
|
|
Legal Settlement
|
|
|
|
|
|
|
|
|
|
|
(1,100,000 )
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness of Debt
|
|
|
|
|
|
|
|
|
|
|
(59,773 )
|
|
Total Other Income/Expense
|
|
|
(106,459 )
|
|
|
|
(32,843 )
|
|
|
|
(1,359,354 )
|
|
Net (Loss)
|
|
|
(1,914,928
|
)
|
|
|
(583,680 )
|
|
|
|
(12,375,778
|
)
|
Per Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
163,724,263
|
|
|
|
157,169,856
|
|
|
|
|
|
Net Loss per Common Share
|
|
|
(0.01
|
)
|
|
|
(0.004
|
)
|
|
|
|
|
See Accountants Review Report.
F-27
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
December 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
Common Stock
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During the
Exploration
Stage
|
|
Totals
|
|
|
# of
Shares
|
|
Amount
|
|
# of
Shares
|
|
Amount
|
Inception February 25, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
15,880
|
|
|
|
217,700
|
|
|
|
|
|
|
|
|
|
|
|
217,700
|
|
Issuance of stock to Founders
|
|
|
|
|
|
|
|
|
|
|
14,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for consolidation
|
|
|
|
|
|
|
|
|
|
|
445,000
|
|
|
|
312,106
|
|
|
|
|
|
|
|
|
|
|
|
312,106
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193,973 )
|
|
|
|
(193,973 )
|
|
Balance September 30, 1997
|
|
|
|
|
|
|
|
|
|
|
474,990
|
|
|
|
529,806
|
|
|
|
|
|
|
|
(193,973 )
|
|
|
|
335,834
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
50,200
|
|
|
|
204,000
|
|
|
|
|
|
|
|
|
|
|
|
204,000
|
|
Consolidation stock cancelled
|
|
|
|
|
|
|
|
|
|
|
(60,000 )
|
|
|
|
(50,000 )
|
|
|
|
|
|
|
|
|
|
|
|
(50,000 )
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(799,451 )
|
|
|
|
(799,451 )
|
|
Balance September 30, 1998
|
|
|
|
|
|
|
|
|
|
|
466,690
|
|
|
|
713,806
|
|
|
|
|
|
|
|
(993,424 )
|
|
|
|
(279,618 )
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
151,458
|
|
|
|
717,113
|
|
|
|
|
|
|
|
|
|
|
|
717,113
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
|
|
463,500
|
|
|
|
|
|
|
|
|
|
|
|
463,500
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,482,017
|
)
|
|
|
(1,482,017 )
|
|
Balance September 30, 1999
|
|
|
|
|
|
|
|
|
|
|
753,148
|
|
|
|
1,894,419
|
|
|
|
|
|
|
|
(2,475,441
|
)
|
|
|
(581,022 )
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,369 )
|
|
|
|
(118,369 )
|
|
Balance September 30, 2000
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
1,921,419
|
|
|
|
|
|
|
|
(2,593,810
|
)
|
|
|
(672,391 )
|
|
Extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337,887
|
|
|
|
|
|
|
|
|
|
|
|
337,887
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,402 )
|
|
|
|
(32,402 )
|
|
Balance September 30, 2001
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
2,259,306
|
|
|
|
|
|
|
|
(2,626,212
|
)
|
|
|
(366,906 )
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,297 )
|
|
|
|
(47,297 )
|
|
Balance September 30, 2002
|
|
|
|
|
|
|
|
|
|
|
768,148
|
|
|
|
2,259,306
|
|
|
|
|
|
|
|
(2,673,509
|
)
|
|
|
(414,203 )
|
|
Issuance of stock for Assets
|
|
|
|
|
|
|
|
|
|
|
70,000,000
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of stock for Cash
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
|
|
225,450
|
|
|
|
|
|
|
|
|
|
|
|
225,450
|
|
Issuance of stock for Debt
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
121,828
|
|
|
|
|
|
|
|
|
|
|
|
121,828
|
|
Issuance of stock for Expenses
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
|
|
89,939
|
|
|
|
|
|
|
|
|
|
|
|
89,939
|
|
Issuance of stock for Services
|
|
|
|
|
|
|
|
|
|
|
31,300,000
|
|
|
|
125,200
|
|
|
|
|
|
|
|
|
|
|
|
125,200
|
|
Net Loss for year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,868 )
|
|
|
|
(145,868 )
|
|
See Accountants Review Report.
F-28
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
Common Stock
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During the
Exploration
Stage
|
|
Totals
|
|
|
# of
Shares
|
|
Amount
|
|
# of
Shares
|
|
Amount
|
Balance September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
111,298,148
|
|
|
|
2,821,726
|
|
|
|
|
|
|
|
(2,819,377
|
)
|
|
|
2,350
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
2,737,954
|
|
|
|
282,670
|
|
|
|
|
|
|
|
|
|
|
|
282,670
|
|
Issuance of Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
1,200,000
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,509,068
|
)
|
|
|
(1,509,068 )
|
|
Balance September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
114,036,102
|
|
|
|
3,104,396
|
|
|
|
1,200,000
|
|
|
|
(4,328,445
|
)
|
|
|
(24,049 )
|
|
Issuance of stock for cash
|
|
|
|
|
|
|
|
|
|
|
6,747,037
|
|
|
|
531,395
|
|
|
|
|
|
|
|
|
|
|
|
531,395
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
3,093,500
|
|
|
|
360,945
|
|
|
|
|
|
|
|
|
|
|
|
360,945
|
|
Issuance of stock for collateral
|
|
|
26,798,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,400,839
|
)
|
|
|
(1,400,839
|
)
|
Balance September 30, 2005
|
|
|
26,798,418
|
|
|
|
|
|
|
|
123,876,639
|
|
|
|
3,996,735
|
|
|
|
1,200,000
|
|
|
|
(5,729,284
|
)
|
|
|
(532,549 )
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
|
|
72,366
|
|
|
|
31,500
|
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
Issuance of Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951,250
|
|
|
|
|
|
|
|
951,250
|
|
Issuance of stock for debenture conversion
|
|
|
|
|
|
|
|
|
|
|
21,657,895
|
|
|
|
5,850,000
|
|
|
|
|
|
|
|
|
|
|
|
5,850,000
|
|
Issuance of stock for interest expense
|
|
|
|
|
|
|
|
|
|
|
712,956
|
|
|
|
241,383
|
|
|
|
|
|
|
|
|
|
|
|
241,383
|
|
Issuance of stock for warrant conversion
|
|
|
|
|
|
|
|
|
|
|
10,850,000
|
|
|
|
3,171,250
|
|
|
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,441,940
|
)
|
|
|
(3,441,940 )
|
|
Balance September 30, 2006
|
|
|
26,798,418
|
|
|
|
|
|
|
|
157,169,856
|
|
|
|
13,290,869
|
|
|
|
2,151,250
|
|
|
|
(9,171,354
|
)
|
|
|
6,270,765
|
|
Cancelation of Stock for Services Returned
|
|
|
|
|
|
|
|
|
|
|
(150,000 )
|
|
|
|
(12,000 )
|
|
|
|
|
|
|
|
|
|
|
|
(12,000 )
|
|
Release of Security Collateral
|
|
|
(26,798,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Stock for Warrants Jim Bentley
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
285,000
|
|
|
|
(150,000 )
|
|
|
|
|
|
|
|
135,000
|
|
Stock Option/Warrant Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,303
|
|
|
|
|
|
|
|
325,303
|
|
Net Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289,497
|
)
|
|
|
(1,289,497
|
)
|
Balance September 30, 2007
|
|
|
|
|
|
$
|
|
|
|
|
157,919,856
|
|
|
$
|
13,563,869
|
|
|
$
|
2,326,553
|
|
|
$
|
(10,460,850
|
)
|
|
|
5,429,572
|
|
Issuance of Stock for Cash
|
|
|
|
|
|
|
|
|
|
|
3,333,332
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
Issuance of Common Stock for Services
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
1,105,300
|
|
|
|
1,308,865
|
|
|
|
|
|
|
|
2,414,165
|
|
Deferred Stock Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,051,000
|
)
|
Net Loss for the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,914,928
|
)
|
|
|
(1,914,928
|
)
|
Balance December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
164,753,188
|
|
|
$
|
15,669,169
|
|
|
$
|
3,635,418
|
|
|
$
|
(12,375,778
|
)
|
|
|
5,877,809
|
|
See Accountants Review Report.
F-29
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Feb. 25, 1997
(Inception) to
December 31,
2007
|
|
|
2007
|
|
2006
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,914,928
|
)
|
|
$
|
(583,680
|
)
|
|
$
|
(12,375,778
|
)
|
Issuance of Common Stock for Services
|
|
|
|
|
|
|
|
|
|
|
1,336,999
|
|
Issuance of Common Stock for Commitment Fee
|
|
|
|
|
|
|
|
|
|
|
310,117
|
|
Amortization of Common Stock for Commitment Fee
|
|
|
54,300
|
|
|
|
|
|
|
|
54,300
|
|
Option/Warrant Expense
|
|
|
1,308,865
|
|
|
|
|
|
|
|
3,785,418
|
|
Issuance of Stock for Interest
|
|
|
|
|
|
|
|
|
|
|
241,383
|
|
Depreciation
|
|
|
129,958
|
|
|
|
27,047
|
|
|
|
292,147
|
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in Deferred Financing Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Security Deposit
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
(5,815
|
)
|
(Increase) in Prepaid Expense
|
|
|
47,896
|
|
|
|
|
|
|
|
(6,481
|
)
|
(Decrease) in Accounts Payable
|
|
|
(20,755
|
)
|
|
|
449,880
|
|
|
|
238,897
|
|
Increase (Decrease) in Accrued Liabilities
|
|
|
2,041
|
|
|
|
(476,153
|
)
|
|
|
55,077
|
|
Net Cash Flows Used for Operating Activities
|
|
|
(392,623
|
)
|
|
|
(584,606
|
)
|
|
|
(6,073,736
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Fixed Assets
|
|
|
(102,125
|
)
|
|
|
(28,360
|
)
|
|
|
(764,183
|
)
|
Purchase of Marktable Prototype and Patent
|
|
|
|
|
|
|
|
|
|
|
(1,765,000 )
|
|
Note Receivable
|
|
|
|
|
|
|
|
|
|
|
(1,500,000 )
|
|
Accrued Interest earned
|
|
|
(90,740
|
)
|
|
|
|
|
|
|
(234,192
|
)
|
Net Cash Flows Used for Investing Activities
|
|
|
(192,865
|
)
|
|
|
(28,360
|
)
|
|
|
(4,263,375
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Warrant Conversion
|
|
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Procceds from Debenture Conversion
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
Proceeds from Convertible Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock for Warrants
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
Issuance of Common Stock for cash
|
|
|
1,000,000
|
|
|
|
|
|
|
|
4,219,121
|
|
Net Cash Flows Provided by Financing Activities
|
|
|
1,000,000
|
|
|
|
|
|
|
|
12,525,371
|
|
Net Increase (Decrease) in Cash
|
|
|
414,512
|
|
|
|
(612,966
|
)
|
|
|
2,188,260
|
|
Cash and cash equivalents Beginning of period
|
|
|
1,773,748
|
|
|
|
4,305,105
|
|
|
|
|
|
Cash and cash equivalents End of period
|
|
$
|
2,188,260
|
|
|
$
|
3,692,139
|
|
|
$
|
2,188,260
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
395
|
|
|
|
|
|
|
$
|
72,938
|
|
Income Taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-Cash Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued (returned) in exchange for services
|
|
|
|
|
|
|
|
|
|
$
|
1,336,998
|
|
Conversion of debt for Stock
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Common Stock Issued for Commitment Fee
|
|
$
|
54,300
|
|
|
|
|
|
|
$
|
364,417
|
|
Common Stock Issued for Interest
|
|
|
|
|
|
|
|
|
|
$
|
241,383
|
|
See Accountants Review Report.
F-30
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 1 Presentation of Interim Information
In the opinion of the management of XSUNX, Inc., (the Company) the accompanying unaudited financial statements include all normal adjustments considered necessary to present fairly the financial position as of December 31, 2007 and the results of operations for the three months ended December 31, 2007 and 2006 and for the period February 25, 1997 (inception) to December 31, 2007, and cash flows for the three-months ended December 31, 2007 and 2006 and for the period February 25, 1997 (inception) to December 31, 2007. Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Companys audited financial statements and notes for the fiscal year ended September 30, 2007.
Note 2 Lease Golden Suite
As of July 1, 2006 a new lease was signed for the Golden Office in the amount of $1,687.50 per month plus a fee of $825.00 for utilities. The rent increased to $1,738 per month on July 1, 2007 and will increase to$1,790.00 per month on July 1, 2008. The lease expires on June 30, 2009.
Note 3 Financing
On November 1, 2007, XsunX signed a $21 million common stock purchase agreement with Fusion Capital Fund II, LLC, an Illinois limited liability Company (Fusion Capital). Upon signing the agreement, XsunX received $1,000,000 from Fusion Capital as an initial purchase under the $21 million commitment in exchange for 3,333,332 shares of our common stock. Concurrently with entering into the common stock purchase agreement, we entered into a registration rights agreement with Fusion Capital. Under the registration rights agreement, we agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange
Commission (SEC) covering the shares that have been issued or may be issued to Fusion Capital under the common stock purchase agreement. After the SEC has declared effective the registration statement related to the transaction we have the right over a 25-month period to sell our shares of common stock to Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions as set forth in the common stock purchase agreement, up to the full aggregate commitment of $21 million.
The purchase price of the shares related to the $20 million balance of future funding will be based on the prevailing market prices of the Companys shares at the time of sales without any fixed discount, and the Company will control the timing and amount of any sale of shares to Fusion Capital. There are no upper limits to the price Fusion Capital may pay to purchase our common stock. However, Fusion Capital shall not be obligated to purchase any shares of our common stock on any business day that the price of our common stock is below $0.20. There are no negative covenants, restrictions on future funding(s), penalties or liquidated damages in
the agreement. The common stock purchase agreement may be terminated by us at any time at our discretion without any cost to us.
In consideration for entering into the $21 million agreement we agreed to issue to Fusion Capital 3,500,000 shares of our common stock, valued at $1,105,300 or approx. $0.32 per share as financing commitment shares which Fusion Capital has agreed to hold for the term of the common stock purchase agreement. This commitment fee will be amortized ratably as the Company sells additional shares. The commitment fee related to the first $1,000,000 sale is $54,300. Should the agreement be terminated, the remaining unamortized portion of the commitment fee will be expensed. Additionally, under the stock purchase agreement we granted Fusion Capital common
stock purchase warrants to purchase 1,666,666 shares of our common stock at $0.50,
F-31
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 3 Financing (continued)
and 1,666,666 shares of our common stock at $0.75. The shares underlying the warrant grants do not carry mandatory registration requirements under the terms of the common stock purchase agreement and registration rights agreement.
The proceeds received by the Company under the common stock purchase agreement are expected to be used to build an initial base production system delivering full size commercial quality solar modules, and initiate the manufacture of the first of four (4) planned 25 megawatt systems under the Companys planned 100 megawatt thin film solar module production facility. Proceeds may also be used to lease and prepare manufacturing facilities with the necessary support systems for the manufacturing line, inventory, staff, and general working capital.
Note 4 Technology Development and Licensing Agreement
On January 1, 2007, XsunX, Inc. issued a secured, seven year, 10% note to Sencera, LLC in the amount up to $1,500,000. Under the terms, the Company provided Sencera, LLC with $400,000 at the time of signing and $137,500 per month for up to eight months. These funds are to be used to develop technology and obtain licenses in agreement with the Technology Development and License Agreement between Sencera and XsunX, Inc also signed on January 1, 2007. The License Agreement provides XsunX with licensing rights to plasma deposition technologies for future use by XsunX in solar product manufacturing technologies. The note may be converted into a membership
interest in Sencera, LLP and an extension of the license for a period of three years. The security consists of the license rights, the ability to exercise the conversion and all other rights and remedies provided by law.
On September 7, 2007, XsunX initiated the final funding of disbursements under the Promissory Note and Loan Agreement dated January 1, 2007, between XsunX and Sencera, LLC. Under the Promissory Note and Loan Agreement, XsunX has funded and extended the principal amount of $1,500,000 dollars to Sencera, LLC.
Use of the licensed plasma technology by XsunX in any of its planned or future processes or products has and continues to be subject to completion of development by Sencera, LLC, substantiation of intended performance criteria under the agreements, and determination of commercial application suitability by XsunX. As of December 31, 2007, the current balance of the note receivable was $1,500,000 plus accrued interest earned of $234,192.
Note 5 Employment and Consulting Agreements
The Company authorized employment incentive option grants to the following employees on October 23rd 2007 at an exercise price per share of $0.36 in conjunction with a performance milestone based vesting schedule as described below:
|
|
|
Joseph Grimes
|
|
500,000 Option Shares
|
Robert G. Wendt
|
|
500,000 Option Shares
|
Dr. Guang Lin
|
|
300,000 Option Shares
|
The vesting schedule for Mr. Grimes and Mr. Wendt is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee(s) of the following performance milestones as they may relate to the Companys phased build out plan for a solar module manufacturing facility:
F-32
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 5 Employment and Consulting Agreements (continued)
|
(a)
|
100,000 shares upon the assembly and commissioning of the base line production system.
|
|
(b)
|
100,000 shares upon the production of a commercial size working sample of the Companys planned tandem junction amorphous silicon solar module.
|
|
(c)
|
300,000 shares upon the assembly and commissioning of the initial 25 mega watt production system as contemplated within the Companys phased build out plan for a solar module manufacturing facility.
|
The vesting schedule for Dr. Guang is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following performance milestones as they may relate to the Companys phased build out plan for a solar module manufacturing facility:
|
(a)
|
100,000 shares upon the assembly and commissioning of the base line production system.
|
|
(b)
|
150,000 shares upon the production of a commercial size working sample of the Companys planned tandem junction amorphous silicon solar module.
|
|
(c)
|
50,000 shares upon the assembly and commissioning of the initial 25 mega watt production system as contemplated within the Companys phased build out plan for a solar module manufacturing facility.
|
Note 6 Changes/Additions to the Board of Directors
Addition Mr. Oz Fundingsland as Director
On November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland as Director, effective November 12, 2007. Mr. Fundingsland brings over forty years of sales, marketing, executive business management, finance, and corporate governance experience to XsunX. His professional and business experience principally originated with his tenure, commencing in 1964, at Applied Magnetics Corp., a disk drive and data storage company. Prior to his retirement from Applied Magnetics in 1994, Mr. Fundingsland served as an Executive Officer and Vice President of Sales and Marketing for 11 years directing sales growth from $50 million to over $550
million. Commencing in 1993 through 2003 Mr. Fundingsland served as a member of the board of directors for the International Disk Drive Equipment Manufacturers Association IDEMA where he retired emeritus, and continues to serve as an advisor to the board. For the last 13 years, Mr. Fundingsland has provided consulting services assisting with sales, marketing, and management to a host of companies within the disk drive, optical, software, and LED industries.
Addition Dr. Michael A. Russak as Director
On November 28, 2007, the Company announced the appointment of Dr. Michael A. Russak as a Director, effective November 26, 2007. Dr. Russak is also a member of the Companys Scientific Advisory Board. Dr. Russak has over thirty five years of industrial experience progressing from a research scientist to senior executive officer of two public companies. He has expertise in thin film materials and devices for magnetic recording, photovoltaic, solar thermal applications, semiconductor devices as well as glass, glass-ceramic and ceramic materials. He also has over twelve years experience at the executive management level of public companies with
significant off shore development and manufacturing functions. He received his B.S. in Ceramic Engineering in 1968 and Ph.D. in Materials Science in 1971, both from Rutgers University in New Brunswick, NJ. During his career, he has been a contributing scientist and program manager at the Grumman Aerospace Corporation, a Research Staff Member and technical manager in the areas of thin film materials and processes at the Research Division of the IBM Corporation at the T.J. Watson Research
F-33
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 6 Changes/Additions to the Board of Directors (continued)
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film disks for magnetic storage, as Vice President of Research and Development. His responsibilities included new product design and introduction. Dr. Russak became Chief Technical Officer of HMT and held that position until 2000 when HMT merged with Komag Inc. Dr. Russak was appointed President and Chief Technical Officer of the combined company. He continued to set technical, operational and business direction for Komag until his retirement at the end of 2006. Dr. Russak is currently Executive Director of IDEMA-US, the trade association for the Hard Disk Drive Industry. He has
published over 90 technical papers, and holds 23 U.S. patents.
Board of Directors Incentive Option Grants In furtherance of the Companys policy to compensate current members, and attract new members, to its Board of Directors, the Company authorized incentive option grants to the following Directors at an exercise price per share of $0.36. The options were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The options carry 5 year exercise terms and vest as described below:
|
|
|
|
|
Thomas Anderson
|
|
October 23, 2007
|
|
1,500,000 Option Shares*
|
Oz Fundingsland
|
|
November 11, 2007
|
|
500,000 Option Shares
|
Dr. Michael Russak
|
|
November 26, 2007
|
|
500,000 Option Shares
|
The vesting schedule for Mr. Anderson is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
The Option became exercisable in the amount of 1,000,000 shares upon the effective date of the grant for services rendered as a member of the Company Board of Directors from the period beginning October 1, 2003 through September 30, 2007.
|
|
(b)
|
Beginning October 1, 2007, the Option shall vest and become exercisable at the rate of 62,500 shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Companys Board of Directors up to a total of 250,000 shares.
|
The vesting schedule for Mr. Fundingsland is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning November 12, 2007, the Option shall vest and become exercisable at the rate of 62,500
|
|
*
|
Amendment to Stock Option Grant On November 12, 2007 the Company entered into an agreement amending the terms of a stock option grant dated October 23, 2007 between the Company and Mr. Thomas Anderson, a member of the XsunX Board of Directors. The amendment provided for an increase of 250,000 options to the pool of options available within the vesting provisions of the grant. All other provision of the stock option grant remained the same. The vesting schedule for item (b) was amended as follows:
|
|
(b)
|
Beginning October 1, 2007 the Option shall vest and become exercisable at the rate of 62,500 Shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Company Board of Directors up to a total of 500,000 shares.
|
F-34
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 6 Changes/Additions to the Board of Directors (continued)
|
|
shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Companys Board of Directors up to a total of 500,000 shares.
|
The vesting schedule for Dr. Russak is:
The Option shall become exercisable in the following amounts upon the delivery and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning November 26, 2007 the Option shall vest and become exercisable at the rate of 62,500 shares upon the anniversary of each calendar quarter of continuous service as a Director, or prorated portion thereof, for services rendered as a member of the Companys Board of Directors up to a total of 500,000 shares.
|
Note 7 Legal
On December 7, 2007, the Company filed an action for breach of contract and declaratory relief in the Superior Court of Orange County, California, against Wharton Capital Partners, Ltd, Wharton Capital Markets LLC, and Capitoline Financial Group LLC. The action is captioned XsunX, Inc. v. Wharton Capital Partners, Ltd, et al., and is pending in the above Court as case no. 07CC12772 (XsunX Action). The XsunX Action was brought to seek a court determination that the Company does not owe any fees to the above defendants by reason of the Fusion Capital transaction, (see Note. 3 Financing). The Company believes that no
agreement between Wharton and the Company was executed and therefore no valid agreement between the parties exists. The XsunX Action also seeks return of confidential materials from the above defendants. On January 3, 2008, Wharton Capital Partners, Ltd, and Wharton Capital Markets LLC, filed an action in the U.S. District Court for the Southern District of New York against the Company stemming from the same matter. That action is captioned Wharton Capital Partners Ltd, and Wharton Capital Markets LLC v. XsunX, Inc., and is pending in the above Court as case no. 080CV0056 (Wharton Action). The Wharton Action seeks fees in an amount equal to 7% of the gross proceeds received by the Company under the Fusion financing agreement. The Company asserts that no fees are owed to Wharton Capital Partners, Ltd, Wharton Capital Markets LLC, or Capitoline Financial Group LLC. The Company intends to vigorously prosecute the XsunX Action and to vigorously defend the Wharton Action. In the
event that the Company does not prevail we may be required to provide Wharton a payment of up to 7% of any proceeds received by the Company under the Fusion financing agreement.
Note 8 Subsequent Events
Executive Compensation
The Board of Directors of the Company Authorized Salary Increases in January 2008 for the following individuals:
|
|
|
|
|
Tom Djokovich
|
|
Chief Executive Office
|
|
$70,000 Increase to $220,000
|
Joseph Grimes
|
|
Chief Operating Officer
|
|
$60,000 Increase to $210,000
|
Jeff Huitt
|
|
Chief Financial Officer
|
|
$20,000 Increase to $155,000
|
Robert Wendt
|
|
Vice President of Engineering
|
|
$50,000 Increase to $200,000
|
F-35
TABLE OF CONTENTS
XSUNX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
(Unaudited)
Note 8 Subsequent Events (continued)
Directors Compensation
Beginning October 2007, the Company elected to provide its Board of Directors with a monthly stipend of $1,500. The decision was driven by the Companys efforts to attract and retain qualified members, and provide compensation during a period of expansion of operations while the Company works to establish manufacturing facilities.
Financing
On January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Companys restricted common stock in a private transaction for total proceeds of $2,500,000. The Company agreed to register the 8,650,000 shares purchased by Cumorah Capital. Cumorah Capital is a Nevada corporation and an Accredited Investor, as defined in Rule 501(a) of Regulation D as promulgated by the SEC.
Form S-1 Registration Statement
On January 18, 2008, XsunX, Inc. filed a Registration Statement on Form S-1 with the Securities and Exchange Commission as required in our financing agreements with Fusion Capital Fund II, LLC and Cumorah Capital.
F-36
TABLE OF CONTENTS
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
, 2008, 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.
48,650,000 Shares of Common Stock
XSUNX INC.
PROSPECTUS
March 4, 2008
TABLE OF CONTENTS
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
|
|
|
SEC registration fee
|
|
$
|
1,042
|
|
Printing Expenses
|
|
|
5,000
|
|
Accounting fees and expenses
|
|
|
20,000
|
|
Legal fees and expense
|
|
|
35,000
|
|
Miscellaneous
|
|
|
8,958
|
|
Total
|
|
$
|
70,000
|
|
All amounts are estimates. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the Selling Stockholder. The Selling Stockholder, however, will pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
Item 14. Indemnification of Directors and Officers
The Colorado Statutes provide for the indemnification of officers, directors, employees, and agents. A corporation may 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, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable or did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful.
We have agreed to indemnify each of our directors and certain officers against certain 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 pursuant to the provisions described above, or otherwise, we have 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 our payment of expenses incurred or paid by our director,
officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection 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 of 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.
In October 2006, the Company originally purchased Director/Officer Liability Insurance coverage in the aggregate amount of $2,000,000.00. The company subsequently renewed such insurance coverage in 2007. There are retentions ranging from $50,000 to $75,000 for each claim under the policy. It is effective from October 12, 2007 through October 12, 2008. The premium on this policy for fiscal year 2007 was $37,500 and the premium for fiscal 2008 is $35,000.
Item 15. Recent Sales of Unregistered Securities
In the fiscal year ended September 30, 2005, the Company issued a total of 9,818,631 shares of common stock as follows: 6,735,137 shares of common stock were issued pursuant to Regulation S promulgated under the Securities Act, raising gross proceeds of $531,396; 474,231 shares of common stock were issued in transactions exempt from registration pursuant to Section 4(2) of the Securities Act, for consulting services valued
II-1
TABLE OF CONTENTS
at $40,000; and 2,609,263 shares of common stock were issued pursuant to an exemption under Section 4(2) of the Securities Act, in connection with the sale of an $850,000 secured convertible debenture by the Company.
In the fiscal year ended September 30, 2006, the Company issued a total of 33,293,217 shares of common stock as follows: 33,120,851 shares of common stock registered pursuant to an effective registration statement were issued pursuant to the conversion of secured convertible debentures, raising gross proceeds of $9,294,133; 72,366 shares of common stock were issued in transactions exempt from registration pursuant to Section 4(2) of the Securities Act, for consulting services valued at $31,500; and 100,000 shares of common stock were issued pursuant to an exemption under Section 4(2) of the Securities Act, in connection with the exercise of 100,000
warrants bearing an exercise price of $0.15 each.
In December 2006, the Company entered into a settlement agreement with a service provider in which the service provider returned to the Company 150,000 of the 300,000 shares of common stock issued to the service provider in the period ended March 31, 2005. The shares were originally issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act. The returned shares were received and cancelled effective January 2007. As a result of the return and cancellation of these shares, the Company recorded a credit to expenses in the amount of $12,000 and a debit to paid in capital of $12,000 for the period ending March 31,
2007.The $12,000 represents one half of the monetary value expensed by the Company in the period in which the shares were issued.
In conjunction with the sale of convertible debentures in the amount of $850,000 and $5,000,000 in the fiscal periods ended December 31, 2005 and 2006 respectively, the Company issued and deposited into escrow 26,798,418 shares of common stock as part of a security structure for the above referenced obligations. As of September 30, 2006 the principal balance of the debentures had been reduced to $0.0. Subsequently the holder of the debentures provided the Company with a notice of release of its security interests and returned the security shares to the Company for cancellation. On January 18, 2007, the above shares were cancelled on the
Companys books.
In September 2007, a consultant exercised the remaining 900,000 of the 1,000,000 $0.15 warrants granted to the consultant in September 2004. The amount of $135,000 dollars was paid to XsunX by the consultant and 900,000 shares of unregistered common stock were issued. The shares were issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act.
On November 1, 2007, XsunX signed its $21 million Purchase Agreement with Fusion Capital pursuant to which XsunX received $1,000,000 from Fusion Capital as an initial purchase in exchange for 3,333,332 shares of our common stock. Concurrently with entering into the Purchase Agreement, we entered into a registration rights agreement with Fusion Capital pursuant to which we agreed to file a registration statement covering the shares that have been issued or may be issued to Fusion Capital under the Purchase Agreement. After the SEC has declared effective the registration statement related to the transaction we have the right over a twenty-five (25)
month period to sell our shares of common stock to Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions as set forth in the agreement, up to the full aggregate commitment of $21 million.
The purchase price of the shares related to the $20 million balance of future funding will be based on the prevailing market prices of the Company's shares at the time of sales without any fixed discount, and the Company will control the timing and amount of any sale of shares to Fusion Capital. There are no upper limits to the price Fusion Capital may pay to purchase our common stock. However, Fusion Capital shall not be obligated to purchase any shares of our common stock on any business day that the price of our common stock is below $0.20. There are no negative covenants, restrictions on future fundings, penalties or liquidated damages in the
agreement. The common stock purchase agreement may be terminated by us at any time at our discretion without any cost to us.
In consideration for entering into the $21 million agreement we agreed to issue to Fusion Capital 3,500,000 shares of our common stock as financing commitment shares which Fusion Capital has agreed to hold for the term of the Purchase Agreement. Additionally, we granted Fusion Capital common stock purchase warrants to purchase 1,666,666 shares of our common stock at $0.50, and 1,666,666 shares of our common
II-2
TABLE OF CONTENTS
stock at $0.75. The shares underlying the warrant grants do not carry mandatory registration requirements under the terms of the Purchase Agreement and registration rights agreement.
On January 16, 2008, Cumorah Capital purchased 8,650,000 shares of the Companys restricted common stock in a private transaction for total proceeds of $2,500,000.
Use of Proceeds from the Sale of Securities
The proceeds from the above sales of securities are used primarily to fund the product developments efforts and day-to-day operations of the Company and to pay the accrued liabilities associated with these operations.
Item 27. Exhibits
|
|
|
Exhibit
No.
|
|
Description
|
3.1
|
|
Articles of Incorporation
(1)
|
3.2
|
|
Bylaws
(2)
|
5.1
|
|
Opinion re: Legality
(19)
|
10.1
|
|
XsunX Plan of Reorganization and Asset Purchase Agreement, dated September 23, 2003.
(3)
|
10.2
|
|
MVSystems, Inc. Technology License Agreement, dated September 2004.
(4)
|
10.3
|
|
MVSystems, Inc. Expanded Technology License Agreement, dated October 2005.
(5)
|
10.4
|
|
Sencera, LLC, Technology Development and License Agreement, dated January 1, 2007.
(6)
|
10.5
|
|
Sencera, LLC, 10% secured Promissory Note and Loan Agreement, dated January 1, 2007
(6)
|
10.6
|
|
XsunX 2007 Stock Option Plan, dated January 5, 2007.
(7)
|
10.7
|
|
Dr. John Moore, Scientific Advisory Board Consulting Agreement, dated January 26, 2007.
(8)
|
10.8
|
|
Dr. John Moore, Stock Option Grant, dated January 26, 2007.
(8)
|
10.9
|
|
Jeff Huitt, Employment Agreement, dated January 26, 2007.
(8)
|
10.10
|
|
Jeff Huitt, Stock Option Grant, dated January 26, 2007.
(8)
|
10.11
|
|
Robert Wendt, Employment Agreement, dated January 26, 2007.
(8)
|
10.12
|
|
Robert Wendt, Stock Option Grant, dated January 26, 2007.
(8)
|
10.13
|
|
Joseph Grimes, Employment Agreement, dated January 26, 2007.
(8)
|
10.14
|
|
Joseph Grimes, Stock Option Grant, dated January 26, 2007.
(8)
|
10.15
|
|
Dr. Edward Yu, Scientific Advisory Board Consulting Agreement, dated February 22, 2007.
(9)
|
10.16
|
|
Dr. Edward Yu, Stock Option Grant, dated February 22, 2007.
(9)
|
10.17
|
|
Binding Letter of Intent to purchase solar module manufacturing assets, dated March 23, 2007.
(10)
|
10.18
|
|
Details of $1.1 million dollar settlement received by XsunX, dated August 27, 2007.
(11)
|
10.19
|
|
Dr. Richard Ahrenkiel, Scientific Advisory Board Consulting Agreement, dated April 23, 2007.
(12)
|
10.20
|
|
Dr. Richard Ahrenkiel, Stock Option Grant, dated April 23, 2007.
(12)
|
10.21
|
|
Dr. Michael Russak, Scientific Advisory Board Consulting Agreement, dated August 28, 2007.
(13)
|
10.22
|
|
Dr. Michael Russak, Stock Option Grant, dated August 28, 2007.
(13)
|
10.23
|
|
Fusion Capital Fund II, LLC, Stock Purchase Agreement, dated November 1, 2007.
(14)
|
10.24
|
|
Fusion Capital Fund II, LLC, Registration Rights Agreement, dated November 1, 2007.
(14)
|
10.25
|
|
Fusion Capital Fund II, LLC, $.50 Warrant Agreement, dated November 1, 2007.
(14)
|
10.26
|
|
Fusion Capital Fund II, LLC, $.75 Warrant Agreement, dated November 1, 2007.
(14)
|
10.27
|
|
Oz Fundingsland, Stock Option Grant Agreement, dated November 12, 2007.
(15)
|
10.28
|
|
Dr. Michael Russak, Stock Option Grant Agreement, dated November 28, 2007.
(16)
|
II-3
TABLE OF CONTENTS
|
|
|
Exhibit
No.
|
|
Description
|
10.29
|
|
Joseph Grimes, Incentive Stock Option Grant, dated October 23, 2007.
(17)
|
10.30
|
|
Robert Wendt, Incentive Stock Option Grant, dated October 23, 2007.
(17)
|
10.31
|
|
Dr. Guang Lin, Incentive Stock Option Grant, dated October 23, 2007.
(17)
|
10.32
|
|
Thomas Anderson, Stock Option Grant, dated October 23, 2007.
(18)
|
10.33
|
|
Stock Purchase Agreement, dated January 16, 2008 by and between the Company and
Cumorah Capital, Inc.
|
23.1
|
|
Consent of Jasper & Hall
(19)
|
23.2
|
|
Consent of Michael Littman (included in Exhibit 5.1)
|
|
(1)
|
Incorporated by reference to Registration Statement Form 10SB12G #000-29621 dated February 18, 2000 and by reference to exhibits included with the Companys 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 Companys 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 Companys prior Report on Form 10-KSB filed with the Securities and Exchange Commission dated January 18, 2005.
|
|
(5)
|
Incorporated by reference to exhibits included with the Companys prior Report on Form 10-KSB filed with the Securities and Exchange Commission dated January 11, 2006.
|
|
(6)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated January 3, 2007.
|
|
(7)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated January 5, 2007.
|
|
(8)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated February 13, 2007.
|
|
(9)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated February 28, 2007.
|
|
(10)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated March 28, 2007.
|
|
(11)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated August 28, 2007.
|
|
(12)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated April 25, 2007.
|
|
(13)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated August 23, 2007.
|
|
(14)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K/A filed with the Securities and Exchange Commission dated November 5, 2007.
|
|
(15)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated November 14, 2007.
|
|
(16)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated November 28, 2007.
|
|
(17)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated October 29, 2007.
|
|
(18)
|
Incorporated by reference to exhibits included with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission dated October 29, 2007.
|
II-4
TABLE OF CONTENTS
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;
(b) To reflect in the Prospectus any facts or events arising after the effective date of this Registration Statement, or most recent post-effective amendment, which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and 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 SEC 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, 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 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 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.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have 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 us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or
controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
II-5
TABLE OF CONTENTS
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this Amendment No. 1 to the Companys Registration Statement on Form S-1 to be signed on our behalf by the undersigned, on March 4, 2008.
XSUNX, INC.
|
By:
|
/s/ Tom Djokovich
|
|
Titles:
|
Principal Executive Officer and President
|
Date: March 4, 2008
|
By:
|
/s/ Jeff Huitt
|
|
Titles:
|
Principal Financial and Accounting Officer
and Chief Financial Officer
|
In accordance with the Securities Act, this Amendment No. 1 to Form S-1 has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates stated.
DIRECTORS
|
|
|
/s/ Tom Djokovich
Tom Djokovich, Director
|
|
March 4, 2008
|
/s/ Thomas Anderson
Thomas Anderson, Director
|
|
March 4, 2008
|
/s/ Oz Fundingsland
Oz Fundingsland, Director
|
|
March 4, 2008
|
/s/ Michael Russak
Michael Russak, Director
|
|
March 4, 2008
|
II-6