SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date
of
Report: June 24, 2008
(Exact
name of registrant as specified in its charter)
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Colorado
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000-29621
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84-1384159
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(State
or other
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(Commission
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(IRS
Employer
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jurisdiction
of
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File
Number)
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Identification
No.)
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incorporation)
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65
Enterprise, Aliso Viejo, CA 92656
(New
address of principal executive offices) (Zip Code)
Registrant's
telephone number, including area code: (949) 330-8060
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act
(17
CFR 230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act
(17
CFR 240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the
Exchange
Act (17 CFR 240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the
Exchange
Act (17 CFR 240.13e-4(c))
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SECTION
8. Other Events
Letter
to XsunX Shareholders Providing Mid-Year Update to Business Development and
Multi- Megawatt Thin Film Solar Module Factory Initiative
We
would
like to start this letter by thanking you, our shareholders and clients, for
your continued interest and support in XsunX. The focus of this mid-year update
is to provide you with a review of the progress associated with our efforts
to
build and operate our first 25 mega watts (“MW”) of thin film photovoltaic
(TFPV) manufacturing capacities, and some comparison observations to other
solar
technologies and module designs.
A
Brief Recap
Our
business initiative to build TFPV manufacturing capabilities was first announced
in March 2007 and in just a little over one year we have;
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Completed
and validated the design of our TFPV solar module targeting utility
scale
applications.
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Designed
what we believe to be a best of breed TFPV manufacturing system to
produce
our TFPV modules.
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Qualified
the vendors and have begun placing orders for the components to our
manufacturing system
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Negotiated
supply agreements for the critical materials for assembling our TFPV
modules.
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Secured
financing commitments allowing us to place orders and begin building
the
systems.
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Developed
substantial market and brand awareness for our TFPV modules drawing
over
145MW of pre-sales reservations from solar
installers.
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Reduced
our dependence on third party research firms and the licensing of
technologies.
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Added
experienced TFPV manufacturing professionals to our staff, and
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We
have found a home for our new 25MW facilities to be located in the
City of
Wood Village just east of Portland, Oregon USA.
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Our
TFPV Module Design & Industry Hype
Sorting
through the hype and realities of the various solar technologies today can
be
challenging for the average person. Industry vernacular can present a confusing
battleground with terms such as CIGS, CadTel, cold roll process, plasma
deposition, amorphous, monolithic, multi-crystalline silicon, nano sciences,
framed and unframed module assemblies, substrates of foil, plastic, glass,
and
recently one manufacture claimed they plan to build their cells on plywood.
Adding to the confusion manufactured costs per watt are offered in the context
of a level playing field regardless of the type of module assembly or the true
costs per watt for an installed system accounting for actual power production.
Some manufacturers claim achieving unprecedented processing speeds but we
believe then fail to present that other aspects of their process still require
costly and time consuming techniques. The common thread among the design and
manufacturing costs for all of these solar technologies and manufacturing
methods is that ultimately a weather proof solar device of some type must be
assembled and include a way for the module to be safely connected to an
electrical system.
What
we
found is the majority of the costs in fabricating a solar module of any type
can
be greatly affected by what you choose as your substrate, the ultimate rated
power output of the module, and the true scaling potential of a technology.
While solar cells using flexible substrates such as plastics or foils may offer,
in some instances, lower initial per watt substrate costs, weatherproofing
these
types of modules requires the use of twice the amount of more costly
weatherproofing encapsulates. Costly common components such as the junction
box
or “J-Box” used to connect the wiring of the solar module to an electrical
system effect per watt manufacturing costs disproportionably. Smaller modules
providing less rated power have fewer watts divisible into the cost of the
“J-Box”.
Even
the
electrical current resistance produced by a particular solar technology can
ultimately reduce the amount of actual usable solar cell and power produced
in a
TFPV module. This occurs when the solar cells are segmented into larger or
smaller sections using lasers to remove material. Technologies such as tandem
junction amorphous silicon produce high electrical voltage and low current
which
requires fewer laser scribes to reduce resistance leaving more solar cell area
in the module. Other technologies such as CIGS, Microcrystalline or
Nanocrystalline, and Cadmium Telluride produce the opposite effect with low
voltage and higher currents requiring more laser scribes or segmentations to
reduce electrical resistance. Removing single or double digit percentages of
usable solar cell surface to minimize operating resistance ultimately can change
laboratory advertised potential by significant amounts in the final commercial
product. And the various solar absorbing technologies themselves each exhibit
different performance characteristics that significantly affect how many watts
of annualized power production each watt you purchase actually returns in real
world conditions.
In
designing our ASI-125 amorphous silicon module we evaluated numerous different
designs in an effort to achieve low per watt manufacturing costs while
continuing to deliver our end customer superior per watt performance. Our choice
of amorphous silicon, and its various derivatives, is also supported in its
use
by other well known system manufacturers such as Applied Materials, Von Ardenne,
and Oerlikon in the turn key systems they market.
Amorphous
exhibits excellent solar absorbing properties and is a proven scalable
technology. While it’s rated per watt performance under factory test conditions
may appear to leave it lagging behind other thin film and silicon wafer
technologies, its actual return per watt in real world use applications proves
that amorphous often out performs all other technologies. A study available
on
our web site (http://www.xsunx.com/pdf/IBIS-XsunX-LCOE-report.pdf)
which
was performed by IBIS & Associates in February of this year offers more
detail into this phenomenon as it compares various different solar
technologies.
Investors
ask us whether thin films can compete with traditional silicon technology.
In
the arena of solar technologies today we believe thin films enjoy the least
expensive cost per potential watt for manufacturing the solar or photovoltaic
energy conversion layers, commonly referred to as the “solar cell” portion of
the thin film solar module. For XsunX the manufacturer of these layers will
cost
us approximately $.25 per watt in 2009, our first year of production, and we
believe that as we improve the efficiency of our factory this cost will reduce
further as output increases. The balance of our projected per watt costs to
assemble a TFPV module bring the total per watt manufactured costs in 2009
to
about $1.58 per watt including capital recovery and G&A costs which we
believe are not often accounted for by others when describing cost per watt
factory production. We have included the cost of an aluminum frame in our module
design and although we believe that this frame provides value and reductions
to
installation costs for end user/installers we could further reduce our per
watt
costs, similar to other thin film manufacturers, by elimination of this frame.
While
our
costs per watt may vary initially as we start, tune, and work to increase the
output of our factory we have experienced a strong initial demand for our
product and we feel confident that amorphous technologies can continue to
compete favorably in the overall solar market. We believe that this is evidenced
in the selection of amorphous technologies by some of the largest system
manufacturers entering the solar space today.
Manufacturing
System & Vendor Update
Turn-key
amorphous thin film manufacturing systems are available on the market today
from
several well known semiconductor system manufacturers with costs per factory
rated watt ranging from approximately $2.50 to $3 per watt for manufacturing
capacities usually staring at 25MW.
At
XsunX
we have designed our system utilizing a best of breed approach combining
material handling automation, cleaning, cell layer deposition technologies,
lasers, lamination and packaging systems from some of the premier vendors to
fit
the needs of our module design and not a force fed design from franchise type
system vendors. The costs for our initial 25MW system will run approximately
$1.56 per watt or about $39 million USD. We believe this provides our
shareholders with a superior long term value resulting from lower initial start
up costs, a reduction to the percentage of capital recovery costs for each
watt
of per watt operating costs, and the ability to leverage the knowledge base
we
develop in the production of this system in future manufacturing lines without
having to continue to pay premiums to franchise system vendors.
We
have
based our initial manufacturing capacity, and cost per watt for our system
as
described above, on only 58% system utilization of the factory during our first
year of production. As we fine tune and improve operations to a target goal
of
80% or better we believe that this first system can increase annual production
to over 30MW.
After
having validated our vendors from a list of several potential candidates in
each
category during our planning phase we have scheduled the placement of equipment
orders according to required lead times and the assembly timing of the tools.
As
of June we have placed orders for all of the major components associated with
the front end of our system which includes cleaning systems, plasma enhanced
chemical vapor deposition (“PECVD”), sputtering, and laser systems. We plan to
place an order in July for the back end portions used to install the wiring
systems and to encapsulate the modules for weatherproofing. Separately, we
have
been working with Concurrent Design Inc., an engineering firm based in Austin,
Texas to assist in the final design of the interoperation, automated material
handing, and custom installation aspects of our system. We have planned to
place
orders for these material handling and automation components in late summer.
Our
Chief
Operations Officer, VP of Engineering, and Chief Scientist travel monthly to
each of the vendors for on site progress reviews and conduct weekly
teleconferences with our vendors as well. This continuous monitoring and
communication with vendors is part of the commitment we required from each
vendor. Recently this continuous communication led to our ability to pair two
of
our vendors helping to expedite some of the engineering design elements of
a
vendor’s timeline.
To
provide for scaling and per watt manufacturing cost reduction, our PECVD system,
when running at full capacity, will process eight 1m X 1.6m glass panels
simultaneously. This provides 12.8 square meters of panel fabrication at one
time with a processing cycle of every 12 minutes. The balance of our system
is
sized to accommodate other fabrication steps such as laser scribing, lamination,
and the complete assembly of these panel volumes with each TFPV module requiring
approximately 3 hours from start to finish.
We
will
begin receiving various components to our system in September of 2008 and we
are
continuing to plan for final assembly and start up of our system in the first
quarter of calendar 2009. The thin film industry is placing significant pressure
on component vendors as orders for new equipment increase. For this reason
we
have elected to keep confidential certain of the vendors we have selected and
engaged.
While
we
have worked hard to validate the technology and capacities of our vendors,
unforeseen delays may occur and with our constant inspection and communication
policies we hope to mitigate any delays should they occur. We will continue
to
provide updates on the progress of our system and should we encounter
unanticipated material delays we will advise our shareholders.
Marketing,
Brand Awareness & Business Development
In
September 2007 we launched our Pre-Sales Reservation program and quickly drew
145 MW of reservation commitments for the purchase of our TFPV modules over
the
2009, 2010, and 2011 production periods. Having validated the market acceptance
and demand for our TFPV module we curtailed efforts to attract more clients
into
this program as of January 2008.
Longer
term we believe that the product of our product, the sale of the electrical
power produced by our modules, provides more long term revenue development
value
to our shareholders. To tap this added opportunity we are working to develop
business relationships directly with utilities working to meet renewable energy
mandates, and developers of power purchase associations “PPA”. Our goal is
provide turn key multi-mega watt installations to these groups selling initial
phases of these installations and working towards ownership and operation of
future power field installations. To that end in June 2008 we began
participating in answering requests for proposals from utilities and PPA’s.
As
we
navigate this new area of business development we have also begun working with
qualified and experienced electrical and engineering firms capable of assisting
us in the planning and installation of these projects. We will provide updates
on our progress as information develops over the coming months.
Reduction
on Third Party Resources
During
the early development stages of our Company we worked to leverage our capital
resources through extensive outsourcing with third party technology development
firms. We also attempted to leverage the licensing of promising technologies
to
hedge our efforts while working to establish a technology portfolio for use
in
future business development efforts. Beginning in June of 2007 we have worked
to
scale back our dependence of third party developers. As of this June 2008 we
no
longer support or rely on outsourced research efforts nor are we invested in
unproven and speculative technologies.
The
elimination of these outside resources, and cancellation of certain licensing
agreements, has resulted in the return of 14 million low priced warrants to
the
Company reducing future none cash operating expenses and potential further
capital dilution, and provided for the accelerated re-payment to XsunX of
approximately $1.67 million dollars USD. We are also working to market and
sell
a previously built small prototype production system to recoup approximately
another $1.4 million dollars USD for use in our current manufacturing facilities
build out.
We
continue to value the various technologies we have been granted patents to,
and
those that we continue to license, for their potential future use in cutting
edge applications such as flexible, semi-transparent, and multi-terminal solar
devices. What we have learned though in the pursuit of commercializing these
technologies is that while potentially offering cutting edge solar applications
these technologies do not always provide the basis for lower or the lowest
cost
per watt production. In the development of our current TFPV solar module designs
and manufacturing delivery systems we have focused on balancing the delivery
of
a high performance TFPV device meeting the needs of utility scale applications
which we believe offer exceptional growth opportunities for our shareholders.
We
believe that our current choice of technology, plans, and experienced
professionals provides us with a rapid and scalable path towards commercial
scale production within an expedited time frame relative to the time and costs
associated with the commercialization of unproven or cutting edge applications.
However, the XsunX team is continuously evaluating all of our strategic options
in the context of the evolving solar industry environment and we remain
committed to pursuing initiatives that maximize value for our
stockholders.
Experienced
TFPV Manufacturing Staff & Hiring Plans
Many
of
the scientists and engineers we had previously worked with provided extensive
laboratory experience yet lacked significant TFPV commercialization experience.
In 2007 we reached out into the professional community and successfully
attracted two additional experts to assist us in planning, building, and
operating our TFPV manufacturing operations. As Chief Scientist Dr. Guang Lin
provides us successful commercialization experience of tandem junction amorphous
silicon solar modules and is a recognized expert in the fields of thin film
deposition process development and the scaling and transfer of these
technologies into commercial product. As Vice President of Engineering, Mr.
Robert Wendt previously assisted in the design, development, complete facilities
build-out, and commercial production of one of the more difficult solar
technologies to scale, commercial grade thin film CIGS solar modules.
Working
with the balance of our staff we are also preparing for the addition of
scientific, production management, and assembly technician personnel. Our newly
retained human resource manager, Ms. Cindy Taylor, is completing preparation
for
our first of several on-site job fairs which we plan to begin holding in October
2008. Prior to October we will be adding certain key staff as necessary to
provide adequate management for the larger staff additions beginning in the
Fall.
Preparation
and Progress of Our New Manufacturing Facilities
In
April
2008 we announced the selection of an existing 90,000 square foot building
located at 23365 NE Halsey St in the City of Wood Village, Oregon as the home
of
our new TFPV manufacturing facilities. Demolition work to remove unnecessary
and
obstructive existing improvements commenced the week of May 5th
and is
ahead of schedule with a planned completion for the week of July 14th.
Advantech
Facility Design Inc., a manufacturing and architectural design firm based in
Tucson, Arizona has been working with us for months now first assisting us
in
evaluation of proposed sites and is now working to complete the necessary design
drawings for our required improvements to our selected building. We plan to
submit structural and general tenant improvement drawings to the City of Wood
Village in early August. Our schedule for the completion of these improvements
is November/December 2008 and we will continue to provide updates on progress
as
it is warranted. Should we encounter unanticipated material delays we will
advise our shareholders.
For
shareholders who may not have seen previously released information related
to
the attributes and benefits of our new 90,000 square foot facilities I will
provide a brief review. Our TFPV manufacturing system requires approximately
500
lineal feet from start to finish for the module assembly. The rectangle
footprint of 200 feet by 450 feet of the selected building provided us with
the
ability to arrange the starting and ending points of the manufacturing process
on the same end of the building. This start and end point is located directly
adjacent to adequate shipping, receiving, and inventory portions of our
building. The size and shape of the building worked to our advantage.
As
an
unanticipated bonus we were also able to reduce our initial start up and
facility improvement costs when we purchased existing extensive, and in
excellent condition, industrial manufacturing infrastructure from the previous
tenant. These included multiple clean air management systems, emergency power
generation system, over 200 tons of water chilling capabilities, water
purification and vacuum systems for substrate cleaning, and extensive air
support systems to manage heat produced from TFPV manufacturing operations
for
approximately $112,000 USD. This purchase also included a host of other
industrial apparatus including support equipment such as office, networking,
and
telecommunications infrastructure.
The
City
of Wood Village, and surrounding sister cities, have welcomed us and are working
to assist us in multiple ways. Recently they approved our site for an Enterprise
Zone tax abatement which will help to reduce our initial operating costs during
our first three years of operations. Additional support for our efforts to
secure state incentives has also materialized through local government. And
while we still have to comply with building and safety requirements we’ve seen a
committed effort on the part of these communities to assist in streamlining
our
planning and permitting efforts.
Summary
During
the planning stages of our efforts to build a TFPV manufacturing facility our
message to the public focused on the use of words such as “planning”,
“anticipate”, and “believe”. We were in fact in a planning stage of development.
Now that we have begun work to execute our plan to deliver our shareholders
the
tangible realities of a 25MW TFPV manufacturing footprint we will strive to
provide reports and information related to our accomplishments as often as
practical or newsworthy.
We
continue to “believe” and work to transition from the build out phase to the
production phase of our plan. Nonetheless, this period of growth may continue
to
appear tedious to many investors as the significance of the many small battles
we are winning becomes lost in the larger effort to complete and begin TFPV
module production.
I
hope
that this mid-year letter reviewing our accomplishments, the status of our
plans, and our position relative to the balance of the solar community has
provided you with additional insight to our operations, plans, and
progress.
Thank
you
for your time and continued support. We are planning to conduct an open line
conference call slated for the week of July 7th,
2008
for the investment community to call in and discuss with our executive
management the topics of this letter and our efforts to establish our TFPV
manufacturing presence. We will release the Date, Time, conference call number,
and ID a few days prior to the call.
Thank
You,
Tom
M. Djokovich, CEO
XsunX,
Inc.
Safe
Harbor Statement: Matters discussed in this shareholder news letter contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this shareholder news letter, the
words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar
expressions identify such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of the Company
and are subject to a number of risks and uncertainties. These include, but
are
not limited to, risks and uncertainties associated with: the impact of economic,
competitive and other factors affecting the Company and its operations, markets,
product, and distributor performance, the impact on the national and local
economies resulting from terrorist actions, and U.S. actions subsequently;
and
other factors detailed in reports filed by the Company.
.
Item
9.01 Financial Statements and Exhibits.
(a) Not
applicable.
(b) Not
applicable.
(c) Not
applicable.
(d)
Not
applicable.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
June 24, 2008
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XSUNX,
INC.
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By:
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/s/
Tom Djokovich
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Tom
Djokovich, CEO/President
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