FORM 10-KSB

                         SECURITIES EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            Annual Report Pursuant to
                       the Securities Exchange Act of 1934

                  For the fiscal year ended September 30, 2005

                        Commission file number: 000-29621

                                   XSUNX, INC.

             (Exact name of registrant as specified in its charter)



       Colorado                                         84-1384159
------------------------                           --------------------
(State of incorporation)                    (I.R.S. Employer Identification No.)


                      65 Enterprise, Aliso Viejo, CA 92656
               (Address of principal executive offices) (Zip Code)

                  Registrant's telephone number: (949) 330-8060

           Securities registered pursuant to Section 12(b) of the Act:

    Title of each class: None Name of each exchange on which registered: N/A

           Securities registered pursuant to Section 12(g) of the Act:

                            Title of each class: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2)  has  been  subject  to the  filing
requirements for at least the past 90 days. Yes [X] No [ ]

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $0

Transitional Small Business Disclosure Format: Yes [_] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.  Yes [_]    No [X]

Aggregate market value of the authorized  voting stock held by non-affiliates of
the  registrant  as of September  30, 2005:  $36,816,026  based on the last sale
price at year end of $.36 as reported by OTCBB.

Number of authorized  outstanding shares of the registrant's no par value common
stock, as of January 9, 2005: 123,917,080


<PAGE>


<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

PART I                                                                     PAGE
<S>                                                                        <C>
  Item 1.   Description of Business                                          4
  Item 2.   Description of Property                                         14
  Item 3.   Legal Proceedings                                               14
  Item 4.   Submission of Matters to a Vote of Security Holders             14


PART II

  Item 5.   Market for Common Equity and Related Stockholder Matters        14
  Item 6.   Management's Discussion and Analysis or Plan of Operation       17
  Item 7.   Financial Statements                                            F-1 - F-14
  Item 8.   Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure                                        21
  Item 8A.  Controls and Procedures                                         21
  Item 8B.  Subsequent Events                                               21

PART III

  Item 9.   Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act               22
  Item 10.  Executive Compensation                                          24
  Item 11.  Security Ownership of Certain Beneficial Owners and Management  27
  Item 12.  Certain Relationships and Related Transactions                  28

PART IV

  Item 13.  Exhibits and Reports on Form 8-K                                30
  Item 14.  Principal Accountant Fees and Services                          31

SIGNATURES                                                                  33

CERTIFICATES
</TABLE>


                                       2
<PAGE>



              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains  forward-looking  statements  within the meaning of Section
21E of the  Securities  Exchange Act of 1934,  and Section 27A of the Securities
Act of 1933 that  reflect its  current  expectations  about its future  results,
performance,  prospects and opportunities.  These forward-looking statements are
subject to significant risks, uncertainties,  and other factors, including those
identified in Risk Factors (see Item 1 "Description of Business - Risk Factors")
below,  which may cause actual results to differ materially from those expressed
in,  or  implied  by,  any  forward-looking   statements.   The  forward-looking
statements  within  this  Form  10-KSB  may  be  identified  by  words  such  as
"believes,"  "anticipates,"  "expects,"  "intends,"  "may,"  "would," "will" and
other similar expressions.  However,  these words are not the exclusive means of
identifying  these  statements.  In  addition,  any  statements  that  refer  to
expectations,  projections  or  other  characterizations  of  future  events  or
circumstances are  forward-looking  statements.  Except as expressly required by
the federal  securities  laws, the Company  undertakes no obligation to publicly
update  or  revise  any   forward-looking   statements  to  reflect   events  or
circumstances  occurring  subsequent  to the filing of this Form 10-KSB with the
SEC or for any other  reason.  You  should  carefully  review and  consider  the
various  disclosures the Company make in this report and its other reports filed
with  the  SEC  that  attempt  to  advise  interested   parties  of  the  risks,
uncertainties and other factors that may affect its business.

For further information about these and other risks,  uncertainties and factors,
please review the  disclosure  included in this report under Item 1 "Description
of Business - Risk Factors and Item 6  "Management's  Discussion and Analysis or
Plan of Operation - Cautionary and Forward Looking Statements."


                                       3
<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

COMPANY HISTORY

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") with Xoptix, Inc., a California corporation.

Pursuant  to the Plan the  Company  acquired  the  following  three  patents 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.

GENERAL OVERVIEW

XsunX,  Inc. is developing new and  innovative  thin film solar cell designs and
manufacturing  process with the intent to provide commercially viable solar cell
designs that convert sun light into electrical energy. The process for producing
electricity from sunlight is known as Photovoltaics.  Photovoltaic ("PV") is the
science of capturing and converting sun light into electricity.

The Company is focusing  its research  and product  development  efforts on thin
film PV  devices in an effort to  capitalize  on what it  perceives  as cost and
application  diversity  advantages  to current rigid  multi-crystalline  silicon
wafer technologies.  The Company's current thin film cell designs employ between
..2 microns to 1.5 microns of material thickness as opposed to an approximate 400
microns  of  material  thickness  for   multi-crystalline   cell  designs.  This
significant  reduction in cell  thickness and  flexibility of the completed cell
structure  leads to the use of "thin film"  terminology  in describing the solar
cell design.

The focus of the  Company's  development  efforts is to deliver  two  aspects of
technologies in the form of an integrated  solution  providing,  a) commercially
scalable  manufactured   processes  and  equipment  designed  for  the  specific
manufacture of the Company's thin film solar  technologies,  and, b) proprietary
thin film solar cell designs that address new application  opportunities  in the
growing field of Building Integrated Photovoltaics.

Building  Integrated  Photovoltaics  ("BIPV"),  in concept,  allows photovoltaic
material,  in the form of  photoelectric  panels,  to be  incorporated  into the
design of building  materials;  thus,  providing a way to  integrate  additional
sources  of  power  production  into the  operation  of  buildings.  As the BIPV
category of the  photovoltaic  industry is beginning  its growth into the US and
worldwide markets, XsunX intends to attpemt to achieve commercialization of BIPV
through  a  combination  of  innovation  and  patented  thin  film  designs  and
manufacturing techniques.


                                       4
<PAGE>

BIPV  technology  might  eventually  enable every building to be a virtual power
plant by utilizing the power of the sun, through the skin of the building, in an
aesthetically  sound and  structurally  safe  environment  if its  economics and
productability can be proven.

PRODUCT DEVELOPMENT

The first of its product  development efforts is Power Glass(TM) - an innovative
thin  film  solar  technology  that is  intended  to allow  windows  to  produce
electricity  from  the  power  of the sun  without  significantly  altering  the
appearance or use of the window or transparent  surface.  Using  proprietary and
patented solar cell designs and manufacturing  processes, the Company is focused
on the development of thin film solar cell designs for semi-transparent coatings
on thin flexible  plastics that create large area monolithic in appearance solar
cell structures that you can see through.

The  design of the Power  Glass  solar  cell  provides  for the  manufacture  of
numerous  small  cells on thin  transparent  flexible  plastics.  As part of the
manufacturing  process numerous individual cells are produced  simultaneously on
rolls of thin plastic  substrates and  interconnected  using minimally  apparent
segmentations.  The result is a large area integrated  solar cell device that is
monolithic  or uniform in appearance  and  simulates  tinted solar control films
used in window shading applications.  The Company believes the advantages to the
use of its films in solar glass designs,  over current solar glass designs,  lie
in improved esthetic appearance, reduced manufacturing or assembly requirements,
and lower finished product costs.

These cells are single-junction  amorphous silicon based (a-Si) solar cells that
depending on the degree of light transmission, or transmisivity, are expected to
operate at 4% +  efficiencies.  That is  approximately 4 or more watts of direct
current  can be produced  per square  foot of Power  Glass film.  While lower in
efficiency   than  opaque  thin  film   multi-junction   amorphous   silicon  at
approximately  5-7%, and rigid silicon wafers at 12-15%  efficiencies  the Power
Glass films  benefit from cost  reductions  in the  manufacturing  process.  The
Company believes that the following combined attributes will provide Power Glass
films a competitive  advantage while at the same time  addressing  architectural
glass facade  applications  that have been under  utilized as a platform for the
integration of photovoltaic technologies;

         o Low temperature  processing  techniques of (<150C) allow the use less
           expensive plastic or polyester substrates that will not be exposed to
           higher   temperature   manufacturing   processes  of   multi-junction
           amorphous at (250C) and silicon wafer at (600-800C)

         o Significant  reductions  in the amount of  silicon  used with only .2
           microns for Power  Glass as  compared to 1 micron for  multi-junction
           amorphous, and 400 microns for silicon wafers.

         o Fully   integrated   large  area   solar   modules  as  part  of  the
           manufacturing  process  on  rolled  substrate  materials  that can be
           integrated into glass assemblies.


                                       5
<PAGE>

As part of the Company's plan to develop new and  innovative  solar cell designs
and use applications, the Company expanded its business focus in October 2005 to
include the development of thin film opaque solar cell designs and manufacturing
methods.   The  focus  of  this  product   development  will  be  aimed  at  the
commercialization   of  U.S.   Provisional   Patent  Application  serial  number
60/536,151 - three  terminal and four terminal  solar cells,  solar cell panels,
and method of  manufacture.  The Company refers to the design of this solar cell
as a 4  terminal  solar  cell and  believes  that it may  provide  a  number  of
improvements over current multi-junction solar cell deigns.

This  unique 4  terminal  solar  cell  design  uses a  combination  of thin film
transparent cell technology,  derived from the Company's Power Glass initiative,
with that of a thin film nano-crystalline  solar cell structure.  XsunX believes
that the  combination  of these two  technologies  into a single device holds an
opportunity to deliver low cost,  high  efficiency,  flexible,  and light weight
solar cells providing performance characteristics commonly found only in various
forms of expensive crystalline wafer technologies.

Preliminary  and rudimentary  laboratory  tests of this technology have produced
conversion  efficiencies of 9.9%. The Company  believes that through the further
refinement of the cell  structure  deposition  processes and enhanced  material,
open circuit  voltage,  and band gap  properties the 4 terminal thin film device
may provide  conversion  efficiencies  approaching  14-15%  although this is not
assured nor is it proven in lab tests.

The design of the 4 terminal thin film solar cell provides several advantages to
existing  multi-junction  solar cell  designs.  A primary  benefit is that the 4
terminal cell does not require  electrical  current  matching between each cell.
This circumvents a common problem plaguing multi-junction devices that can cause
reduced  overall solar cell power output.  Stability  issues are also  addressed
through  the  use  of low  band  gap  nano-crystalline  junction  materials  and
ultra-thin  amorphous  silicon  materials to create a stable and efficient solar
cell stack. Low temperature  processing  capabilities of this design may further
increase manufacturing efficiencies allowing the use of less expensive substrate
materials.

The decision to diversify the Company's product  development  efforts to include
opaque solar cell  designs was fueled by what the Company sees as  opportunities
for  domestic  and  international  demand  in opaque  solar  cell  products  and
applications. In countries such as China, Japan, Germany, and the U.S., there is
a growing trend supporting the increased use of green building designs promoting
the use of  integrated  solar  technologies  within  building  materials.  XsunX
believes that the development of a stable, high efficiency, thin film solar cell
could provide building material  manufacturers  with a preferred  alternative to
the use of lower  efficiency  multi-junction  thin  films  and the  more  costly
multi-crystalline solutions.

The process of integrating  renewable power generating  properties into building
materials  such as glass  and onto  buildings  is known as  Building  Integrated
Photovoltaics  or "BIPV." If its research efforts produce a design that provides
more  efficiency of power  production at economic  costs,  XsunX intends to be a
leader in the design and  delivery of BIPV thin film  designs and  manufacturing
methods.

The Company  believes that its thin film design  research may provide a solution
for the wide scale integration of BIPV energy producing products into living and
working  environments.  If the  Company  can  achieve  commercialization  of its
research  designs,  the Company  anticipates  the  majority of revenues  will be
derived from the sale and licensure of its  manufacturing  process equipment and
solar cell designs, rather than acting as a manufacturer of product.


                                       6
<PAGE>


COMPANY SPONSORED RESEARCH AND DEVELOPMENT

Management has established a plan under which the Company is conducting research
to  commercialize  its  technologies  and developing new technology  through the
contracting  for  research,   development  and  planning  for  commercialization
processes with certain  qualified  facilities  that  specialize in the Company's
technology.  Management  believes this product  development process provides the
Company  with the fastest  path to  marketable  products,  the  maximization  of
corporate  resources,  and, the broadest access to capable  device,  optical and
material engineering facilities, and technical expertise.

In June 2004 XsunX established,  and continues to maintain,  a primary strategic
relationship  with Colorado  based  MVSystems,  Inc. that designs,  builds,  and
delivers state-of-the-art manufacturing tools designed specifically for the thin
film semiconductor market.  MVSystems,  Inc. ("MVSystems") is equipped with both
the   technical   staff   and   tools   necessary   for  the   development   and
commercialization  of XsunX technologies.  The terms of the working relationship
provide XsunX with complete R&D facilities without mark-up for profit on the use
of staff and  equipment.  In return  MVSystems  has  received  warrants  for the
purchase of common  stock in XsunX.  The  objective  of this  ongoing plan is to
provide the Company with technical  expertise  necessary for the  development of
manufacturing techniques and thin film solar cell designs.

In September 2004 XsunX increased its patent and technology  assets by acquiring
an  exclusive  royalty  free  license  from  MVSystems to a suite of patents and
technologies  specific  to the design and  manufacture  of its  semi-transparent
solar electric glazing initiative, "Power Glass." In October of 2005 the Company
further  expanded its licensing  rights with MVSystems to include the design and
manufacture  of opaque solar cell  designs  which also  expanded  the  Company's
intended   product   design   base  to   include   both   semi-transparent   and
non-transparent  thin film solar cell designs, and manufacturing  methods,  (see
Item 8B  "Subsequent  Events - Expanded  License  and  Warrants").  The  Company
believes  that the  licensed  technologies  provide  them  with key  aspects  to
facilitate  development efforts, and which may enable designs for the commercial
viability of future products.

As part of the October 2005 license  expansion  with  MVSystems the Company also
received the benefit of equipment manufacturing services from MVSystems under an
"at cost, without mark up for profit, plus ten percent" pricing structure.  This
provided the Company with access to equipment  manufacturing  facilities and the
ability  to market  and  deliver  integrated  manufacturing  systems  capable of
producing  its thin film  solar  cell  designs.  During  its  operating  history
MVSystems has designed, constructed, installed, and provided support for over 70
systems  ranging from small research and development  systems to  multi-megawatt
production systems.

For the year ended September 30, 2005, the Company  committed 36% or $501,423 of
its operating  budget towards product  development and another $181,995 was used
for the addition of development  equipment.  The Company  intends to continue to
focus on the  development  and  refinement  of solar cell  designs,  proprietary
manufacturing  processes,  and  facilities  design that could be provided to its
future licensees as turnkey  solutions for the core  requirements  necessary for
the mass  production  of the Company's  thin film  designs.  A large part of the
Company's capital is used for on going product design development efforts.

At present the Company  continues to develop the XsunX Power  Glass(TM)  process
for  future  commercial  applications.  Areas  of  current  process  development
include:

         (a)  Process  development  on  thin-film  sheet  and  rolled  polymers,
              plastics, and metals
         (b)  Qualify  deposition  processes and  enhance material, open circuit
              voltage, and band gap properties
         (c)  Complete the  integration of  reel-to-reel processing systems into
              the manufacturing process; and
         (d)  Refine and integrate  cell segmentation process into manufacturing
              process


                                       7
<PAGE>

The  Company  has  and  continues  to make  investments  in the  development  of
intellectual  property  assets as part of its business plan. For the year ending
September 30, 2006 the Company has  developed a plan of operations  that commits
34% of its budget or $1,535,000 to research and development,  and another 37% of
its budget or $1,700,000 to the manufacture of its first  production line system
for eventual re-sale to future licensees. The purpose of these investments is to
develop and market patented and proprietary solar electric thin film designs and
manufacturing processes for sale and licensure to target markets.

PRODUCT DESIGN STRATEGY

The  Company's  development  effort  is  intended  to  deliver  two  aspects  of
marketable  technologies  in the form of an integrated  solution  providing,  a)
commercially  scalable  manufactured  processes and  equipment  designed for the
specific  manufacture  of the  Company's  thin film solar  technologies,  and b)
proprietary   thin  film  solar  cell  designs  that  address  new   application
opportunities.  The  manufacture and sale of these items as a system provide the
Company with the ability to deliver its thin films technologies as an integrated
licensable design.

The  Company's  manufacturing  systems  design is based upon its  licenses  from
MVSystems to combine the industry standards of in-line  roll-to-roll  processing
techniques with the exact processing  capabilities of vacuum deposition  cluster
tool systems.  While in-line roll-to-roll  processing systems are widely used in
the  manufacture of thin film solar cells,  their ability to provide higher unit
volumes  comes  at the  cost of  reduced  solar  cell  efficiency  due to  cross
contamination   of  materials,   the  inefficient   use  of  materials,   and  a
manufacturing  design that is rigid and not easily  adaptable to increased scale
and the introduction of new technologies.

Conversely,  multi-chamber  based  cluster  tool  systems  are modular in design
allowing for  expandability,  the introduction of new technologies,  provide the
extreme  control and  exacting  standards  necessary  to produce such high value
items as thin film  transistors,  and rigid crystalline solar cells, but cluster
tool systems sacrifice throughput resulting in lower unit volumes and yield.

The Company believes that the selective  integration of the better attributes of
each of these separate  system types provides a hybrid type of system for use in
the fabrication of an array of new thin film devices on flexible substrates.  It
is this design that the Company  has an  exclusive  license for from  MVSystems,
among other technology.  The Company believes that these patented  manufacturing
designs  may  offer  economies  of  increased   throughput  resulting  in  yield
advantages,  while providing expandability of manufacturing capabilities and the
introduction of new technologies at reduced cost from present models.

An additional benefit to the hybrid system is the ability to employ the use of a
smaller initial foot print, or facilities  area,  requiring less initial capital
expenditure.   As  production   requirements   increase,   the  efficiencies  of
replicating  only  portions  of the  systems  design  to  move  from  single  to
multi-megawatt     capabilities    may    provide,    in    theory,     improved
cost-competitiveness.  Ultimately,  multi-megawatt factories producing thin film
solar  cells  may  be an  enabling  factor  in  achieving  the  necessary  price
thresholds  required  for solar to compete  with  traditional  power  generation
choices.


                                       8
<PAGE>

TRADEMARK, PROPRIETARY TECHNOLOGY AND PATENTS

The Company  entered into an agreement  for the purchase of the U.S.  registered
trademark "Power Glass(TM)" and Internet domain name  PowerGlass.com in May 2004
from Western Gas and Electric Company, a California corporation. The Company has
not been issued  registered  trademarks  for its "XsunX" trade name. The Company
may file trademark and trade name  applications with the United States Office of
Patents and Trademarks for its proposed trade names and trademarks.

In September  2003 the Company was assigned the rights to three  patents as part
of an Asset Purchase Agreement with Xoptix Inc., a California  corporation.  The
patents  acquired were No.  6,180,871 for  Transparent  Solar Cell and Method of
Fabrication (Device), granted on January 30, 2001; No. 6,320,117 for Transparent
Solar  Cell and  Method of  Fabrication  (Method  of  Fabrication),  granted  on
November 20, 2001; and No.  6,509,204 for  Transparent  Solar Cell and Method of
Fabrication   (formed  with  a  Schottky   barrier   diode  and  method  of  its
manufacture), granted on January 21, 2003.

In addition,  XsunX licensed the patent and  technology  portfolio of MVSystems,
Inc.,  a Colorado  corporation  ("MVSystems")  in  September  2004.  The license
granted XsunX the royalty free exclusive  rights for use by XsunX in its attempt
to   establish  a   commercially   viable   process  for  the   manufacture   of
semi-transparent   solar  cells  and  solar  electric  glazing   processes  and,
accordingly,  included all MVSystems  technology,  know how, and resources which
are part of or related to the licensed  patents and technology  that was then or
may  become  applicable  or  beneficial  to  the  furtherance  of  the  business
objectives  of XsunX in the future.  The license was  exclusive as to technology
pertaining  to the  XsunX  field  of  use as it  pertains  to  the  business  of
developing,  commercializing  and  licensing  processes for the  manufacture  of
semi-transparent  (greater  than 5%  transparency)  solar cells or  photovoltaic
glazing technologies.

In October of 2005 the  Company  further  expanded  its  licensing  rights  with
MVSystems  to include the design and  manufacture  of opaque  solar cell designs
thereby  also  expanding  the  Company's  intended  product base to include both
semi-transparent   and  non-transparent   thin  film  solar  cell  designs,  and
manufacturing  methods,  (see Item 8B "Subsequent  Events - Expanded License and
Warrants").  The Company  believes that the licensed  technologies  provide them
with key aspects to successful  completion of its product  development  efforts,
the commercial  viability of future  products,  and the ability to deliver those
products.

The following are two of the patents licensed from MVSystems that are management
believes to be beneficial to the development of scalable manufacturing processes
for its thin film technology.  Semiconductor Vacuum Deposition System And Method
Having A Reel-To-Reel  Substrate  Cassette:  US6,  258,408 B1: July 10th,  2001.
(Method of Fabrication);  and US Provisional  Patent  Application  serial number
60/536,151- three terminal and four terminal solar cells, solar cell panels, and
method of manufacture. (Device and Method of Fabrication)

As part of the October 2005 license  expansion  with  MVSystems the Company also
received the benefit of equipment  manufacturing services from MVSystems under a
pricing structure of cost,  without mark up for profit,  plus ten percent.  This
provided the  Company with access  to initial equipment manufacturing facilities
and an initial ability to market and deliver  integrated  manufacturing  systems
capable of  producing  its thin film solar cell  designs.  During its  operating
history MVSystems has designed, constructed, installed, and provided support for
over  70  systems  ranging  from  small  research  and  development  systems  to
multi-megawatt  production  systems.  The  Company  may have to seek  additional
facilities if demand were to exceed MVSystems' delivery capacity.



                                       9
<PAGE>


The Company continues to develop additional  processes,  techniques,  and device
designs.  These  research and  development  efforts may provide the Company with
additional proprietary technology that may lead to the filing of new provisional
and patent applications.


APPLICATIONS FOR XSUNX PHOTOVOLTAIC THIN FILMS

The  Company's  thin film solar cell  designs are  intended to provide  benefits
associated with the use of light weight materials,  the use of low processing or
manufacturing   temperatures  providing  diversity  in  the  use  of  substrates
necessary to meet specific application requirements,  flexibility for molding to
shapes, and semi-transparency  provide characteristics  beneficial in the design
of diverse use applications.

The first of the Company's product  development  efforts is Power Glass(TM) - an
innovative  thin film solar  technology  that is  intended  to allow  windows to
produce electricity from the power of the sun without significantly altering the
appearance or use of the window or transparent  surface.  Using  proprietary and
patented solar cell designs and manufacturing  processes, the Company is focused
on the development of thin film solar cell designs for semi-transparent coatings
on thin flexible  plastics that create large area monolithic in appearance solar
cell  structures  that you can see  through.  The  Company  believes  that Power
Glass(TM) may have ubiquitous applications -- including, but not limited to:

                     Large Buildings - Architectural Glass:

Power  Glass thin films could be applied to the  windows in the  manufacture  of
large buildings,  turning these structures into virtual power plants. Electrical
power  generated  can be used to run  building  systems  augmenting  other power
sources.

  Industrial, Agricultural, and Public Facilities - Canopy, Skylight, & Roofs:

Power Glass thin films could be applied to the various  transparent  surfaces of
manufacturing,  green  house,  and  public  facilities  to  supply  a clean  and
renewable  portion of  electrical  power.  XsunX  believes  that these  types of
products and applications  will provide  economic  incentives for the wide scale
adoption of the integrated use of Power Glass(TM) thin film  technologies.  Film
produced  by Company  licensees  using the XsunX  process  could be  supplied to
building  material  manufacturers  worldwide for development and use in numerous
applications.

GROWTH, REVENUE AND DISTRIBUTION PLAN

The  Company  intends  to market  integrated  manufacturing  systems  as turnkey
solutions for the manufacture it's current and future PV thin films designs. The
manufacturing  systems  will be sold to  manufacureres  as modular  systems  and
licensed  for  use  in  the   manufacture   the  Company's  thin  film  designs.
Manufactureres  would in turn agree to manufacture  and distribute the Company's
PV thin films,  or  incorporate  the thin film PV technology  into their product
manufacturing process as an "original equipment manufacturer" (OEM) and sell the
finished product to their consumers. No licenses or contracts now exist with any
manufacturer.

The  Company  intends to also  target  customers  who are  developing  their own
technology  platforms in which the manufacture of or the integration of its thin
film solar  cells could play an  important  role.  The Company  intends to offer
non-exclusive manufacturing licenses and expects to earn a royalty on thin films
manufactured  under any  licenses.  In selling the  manufacturing  equipment and
licensing  the  technology  to  manufacturers,  the  Company  reduces  operating
expenses and saves capital in plant, property and equipment. As a result, should
the Company realize earnings it intends to reinvest its retained earnings in R&D
in an effort to  continuously  develop related new  technologies  that will help
achieve sustainable competitive advantages for the Company.


                                       10
<PAGE>

MARKET

The   Company's   thin  film  Power  Glass   technology,   upon   completion  of
commercialization,  may be  applied  to the  large  and  established  glass  and
building material  industries.  That is,  transparent  photovoltaic  glazing may
enable  solar  energy-production  to enter  mainstream  markets  because  it can
integral to the designs of  buildings.  Builders and  manufacturers  already use
glass,  plastic and other  materials,  so they may be  attracted to the economic
benefits of using the same materials that also produce electrical energy.

Three key attributes of photovoltaics as an electricity source are fueling world
interest in photovoltaics "PV":

               Environment:  PV is a clean,  emission-free  renewable electrical
               generation  technology,  with substantial  potential for a supply
               rate in the world's future energy demands.

               Technology:  PV is reliable,  manufacturable,  consumer-friendly,
               and can be deployed in a wide range of applications.

               National Interest:  PV is critical to energy security,  strategic
               technology,  and long-term  economic  growth.  As a "distributed"
               generation  source,  this  technology  acts as a  network--not  a
               grid--and is much less susceptible to large-scale  outages caused
               by  disasters  of  natural  or human  origin.  It  mitigates  its
               dependence on foreign energy supplies,  while providing  distinct
               benefits to its domestic economy.

According  to the Energy  Information  Administration  of the US  Department  of
Energy, the global photovoltaic industry reached $4.7 billion in worldwide sales
in 2003 and is  expected to grow at a rate in excess of 15-20% per year over the
next several decades.  The department  further  estimates that between the years
2000 and 2020 the demand for electrical  power in the United States will require
the addition of approximately 355 gigawatts of new energy  production  capacity.
This presents a 40% increase over present electrical energy production capacity.

In the long view, the Company believes solar energy  production is intrinsically
attractive, not only environmentally but also economically. Sunlight is readily,
regularly,  and widely available;  it is renewable;  and it is easily accessible
without the massive expense of mining,  drilling,  or constructing  huge dams or
other facilities. Tapping the sun directly, rather than through the solar energy
stored in fossil fuels,  wood, or ethanol,  makes too much economic sense not to
be inevitable.

MARKETING STRATEGY

The Company  intends to enhance  and  promote the idea that XsunX  manufacturing
systems and thin film technologies,  when ready to market,  present a compelling
and efficient  solution for the manufacture of photovoltaic thin films. In order
to create a favorable  environment  for sales,  the Company  plans to  undertake
advertising  and promotion  efforts.  These  efforts may be outsourced  and will
require the services of an  advertising  relations  firm.  The Company  plans to
interview  various  firms and select  those most  capable of  assisting  us with
comprehensive  advertising and promotion  plans. The Company intends to commence
building and staffing a marketing  department to accelerate these efforts in the
first part of 2006.  The Company has not yet finalized  the  potential  costs of
this marketing strategy.

The Company,  will invest in small test  campaigns  before  committing  to large
promotions or marketing  campaigns.  The initial marketing  strategy The Company
will  be  to  market  to  potential  manufacturer  partners  in  target  markets
representing   solar  device   manufactures,   glass,  and  building   materials
manufacturers.


BACKLOG OF ORDERS

There are currently no orders for sales at this time.

GOVERNMENT CONTRACTS

There are no government contracts at this time.


                                       11
<PAGE>

COMPETITIVE CONDITIONS

Currently,  management is not aware of other products  substantially  similar to
those of the company on the market. However, a number of solar cell technologies
have and are being developed by a number of companies. Such technologies include
amorphous silicon, cadmium telluride, copper-indium-gallium-selenide (CIGS), and
copper indium  diselenide as well as advanced  concepts in thin film crystalline
silicon,  and  the  use  of  organic  materials.  Given  the  benefit  of  time,
investment,  and advances in  manufacturing  technologies any of these competing
technologies  may achieve  manufacturing  costs per watt lower than the cost per
watt to manufacture its thin film solar cells.

In accessing the principal  competitive factors in the market for solar electric
power  products  the Company  uses price per watt,  stability  and  reliability,
conversion  efficiency,  diversity  in use  applications  and other  performance
metrics such as scalability of manufacturing  processes and the ability to adapt
new  technologies  into  cell  designs  and the  manufacturing  process  without
antiquation  of  existing  infrastructure.  If  the  Company  does  not  compete
successfully  with respect to these or other  factors,  it could  materially and
adversely affect its business, results of operations, and financial condition.

A  number  of  large  companies  are  actively   engaged  in  the   development,
manufacturing  and marketing of solar electric power products.  The five largest
PV cell  suppliers are Q-Cells Shell Solar,  Sharp  Corporation,  BP Solar,  and
Kyocera  Corporation,  which  together  supply  the  significant  portion of the
current PV cell market.  All of these companies have greater resources to devote
to research, development, manufacturing and marketing than the Company does.

Other competitive factors lie in the current use of other clean renewable energy
technologies  such as wind, ocean thermal,  ocean tidal,  and geo-thermal  power
sources,  and conventional  fossil fuel based technologies for the production of
electricity.  The Company  expects its  primary  competition  will be within the
solar cell marketplace itself. Barriers to entering the solar cell manufacturing
industry  include the  technical  know-how  required to produce solar cells that
maintain  acceptable  efficiency  rates and the design of efficient and scalable
manufacturing processes.

COMPLIANCE WITH ENVIROMENTAL LAWS AND REGULATIONS

The  operations of the Company are subject to local,  state and federal laws and
regulations  governing  environmental  quality and pollution  control.  To date,
compliance  with these  regulations by the Company has had no material effect on
the Company's operations,  capital,  earnings, or competitive position,  and the
cost of such  compliance has not been material.  The Company is unable to assess
or predict at this time what effect additional  regulations or legislation could
have on its activities.

ADMINISTRATIVE OFFICES

As of September 30, 2005 the Company  leased  administrative  office  facilities
located at 65 Enterprise,  Aliso Viejo CA 92656 for approximately $750 per month
pursuant  to a six  month  lease  agreement  renewable  in 6  month  or  greater
increments thereafter.


                                       12
<PAGE>

EMPLOYEES AND CONSULTANTS

The Company is a development  stage company and as of September 30, 2005 had one
salaried  employee.  Through a strategic  technology  sharing and facilities use
relationship with MVSystems, Inc. the Company uses the services of 15 additional
technologists  and support staff. The Company retains its current  President and
Chief  Executive  Officer,  Mr. Tom M.  Djokovich,  since  October 1, 2003.  The
Company  projects  that  during the next 12 months the  Company's  workforce  is
likely to increase to 8, with 3 of the new  employees  being in  Administrative,
and 4 in marketing and sales  positions.  It is anticipated  that MVSystems will
also  expand  the  number of  employees  by 2. In  addition  to the  anticipated
retention  of new  employees  the  Company  expects to  continue  to use outside
consultants,  subcontract labor, attorneys and accountants as necessary, and may
find a need to engage additional full-time employees as necessary.

ADVISORY BOARD

In September 2004 the Company established the XsunX Scientific Advisory Board to
attract   qualified   specialists   from  the  fields  of  material  and  device
engineering,  and, industry specialists representing expertise in manufacturing,
design,  certification  and  applications  associated  with glass,  plastics and
building  materials.  It is anticipated that panel members will be engaged for a
period of two years.  The advisory board retained a chairman,  Dr. Arun Madan to
lead  the  panel,  advise  the  development  process  and  recommend  additional
candidates for inclusion on the panel.

In  February  and March of 2005 the  Company  added a total of three  additional
members to the Scientific Advisory Board representing  specialists in the fields
of material sciences specific to the its thin films  development  efforts,  (see
Item 5 "Market for Registrants Common Equity and Related  Stockholder  Matters -
Grant of Options/Warrants"). The qualifications and biographical information for
the members of the panel are as follows:

Dr. Arun Madan, Chairman Scientific Advisory Board
     Dr. Madan is a Research  Professor in the Department of  Metallurgical  and
     Materials  Engineering  at The  Colorado  School  of  Mines,  President  of
     MVSystems  Inc.  and an adjunct  professor at The  University  of Waterloo,
     Canada. He became one of the originators of Amorphous Silicon  technologies
     in 1970 and fabricated the first TFT (thin film  transistor) as part of his
     Ph.D thesis. With over 30 years of leading edge scientific  accomplishments
     he has  published  well over one  hundred  scientific  papers,  published a
     textbook now in use at several  universities  and holds fourteen patents on
     thin film semiconductor technology as well as advanced vacuum semiconductor
     deposition systems. In addition to his recognized  leadership in the fields
     of thin film  semiconductors  and solar  cells,  he is the  founder  of two
     firms, Glasstech Solar Inc. in 1985 and MVSystems, Inc. in 1989. As founder
     of these firms he has gained over twenty years of  international  business,
     marketing and management experience  successfully  establishing  technology
     sales exceeding $150 million dollars.  Leveraging his extensive scientific,
     business   and    leadership    capabilities    he   has   led   teams   of
     scientists/engineers  in  multi-disciplinary  programs  providing  contract
     research and development work for a multitude of domestic and international
     agencies and firms  including  the  National  Renewable  Energy  Laboratory
     (USA),  BP-Solar (USA),  Shell (The  Netherlands),  Kovio (USA),  Zettacore
     (USA),  QinetiQ (UK),  ENEA (Italy) and Pacific Solar  (Australia)  etc. Dr
     Madan received his Ph.D. - Physics from the University of Dundee, Scotland.


                                       13
<PAGE>

 Dr. John Moore, Member Scientific Advisory Board

     Dr.  John J.  Moore is a  Materials  Scientist  who holds the  position  of
     Trustees'  Professor and Head of Department of Metallurgical  and Materials
     Engineering at the Colorado School of Mines.  Dr. Moore is also Director of
     the interdisciplinary graduate program in Materials Science and Director of
     the Advanced  Coatings and Surface  Engineering  Laboratory,  ACSEL, at the
     Colorado  School of Mines in Golden.  Dr.  Moore  established  the Advanced
     Coatings and Surface Engineering  Laboratory (ACSEL) at the Colorado School
     of Mines in 1994.  The main  objective  of ACSEL is to perform  fundamental
     research in advanced PVD and CVD systems that will aid the U.S. thin films,
     coatings  and  surface  engineering  industry.  ACSEL  is  a  national  and
     international leader in research on advanced coatings,  surface engineering
     and thin film  processing.  Dr.  Moore was  awarded  a B.Sc.  in  Materials
     Science and Engineering from the University of Surrey, UK, in 1966, a Ph.D.
     in Industrial  Metallurgy  from the University of Birmingham,  UK, in 1969,
     and a D.Eng.  from the School of Materials of the University of Birmingham,
     UK, in 1996.

  Dr. Arokia Nathan, Member Scientific Advisory Board
     Arokia Nathan (SM) is a Professor in Electrical  and Computer  Engineering,
     University of Waterloo,  and holds the Canada  Research  Chair in Nanoscale
     Elastic  Circuits.  He is  also  the  chief  technology  officer  of  Ignis
     Innovation  Inc.,  Waterloo,  Canada, a company he founded to commercialize
     technology  on thin film  silicon  backplanes  and driving  algorithms  for
     active  matrix  organic  light  emitting  diode  displays.  Dr.  Nathan has
     extensive  experience  in  device  physics  and  modeling,   and  materials
     processing and  integration.  He has published  extensively in the field of
     sensor  technology and CAD, and thin film transistor  electronics,  and has
     over  15  patents   filed/awarded.   He  is  a  co-author   of  two  books,
     Microtransducer  CAD and CCD Image  Sensors  in  Deep-Ultraviolet.  He is a
     Senior  Member of the IEEE and a member of the American  Physical  Society,
     Electrochemical   Society,   Materials   Research   Society,   Society  for
     Information Displays,  International  Society for Optical Engineering,  and
     the Institute of Electrical  Engineers (UK). He chairs the 2005 IEEE Lasers
     and Electro-Optics Society Technical Committee on Displays and the Displays
     Sub-Committee in both 2004 and 2005. He serves as co-chair of the Fall 2005
     Materials  Research Society Symposium M: Flexible and Printed  Electronics,
     Photonics, and Biomaterials,  and is currently a Guest Editor for a Special
     Issue on Flexible Electronics  Technology in IEEE Proceedings.  He received
     his PhD in Electrical Engineering from the University of Alberta, Edmonton,
     Alberta, Canada, in 1988.

Dr. Richard Rocheleau, Member Scientific Advisory Board
     Dr. Rocheleau is the director of the Hawaii Natural Energy Institute (HNEI)
     of the University of Hawaii  designated as a US Department of Energy Center
     of Excellence.  At HNEI Dr.  Rocheleau has  established the HNEI Thin Films
     Laboratory  and  developed  a  research   program   focused  on  thin  film
     photovoltaics   and  renewable   hydrogen   production   having   near-term
     applications  in both the commercial and military  sectors.  Dr.  Rocheleau
     also serves as the PI of several  programs  including the Hawaii Energy and
     Environmental Technology Initiative; and the Hawaii Hydrogen Center for the
     Development and Deployment of Distributed Energy Systems.  He is the author
     of over 30  publications  in peer reviewed  journals and over 20 conference
     proceedings in the areas of photovoltaics,  photo electrochemical  hydrogen
     production,  and thin-film electronic  materials.  Dr. Rocheleau also holds
     six  patents  and  three  patent  disclosures.   Leveraging  his  extensive
     scientific   and   leadership    capabilities   he   has   led   teams   of
     scientists/engineers  in  multi-disciplinary  programs  providing  contract
     research and development of PV and  semiconductor  manufacturing  processes
     for a  number  of  domestic  and  international  firms  including,  Chronar
     Corporation,  Solarex, First Solar, Trex Enterprises, and Global Solar Inc.
     Dr. Rocheleau received his BChE and PhD (1980) in Chemical Engineering from
     the University of Delaware and a M.S. in Ocean Engineering  (1977) from the
     University of Hawaii.


                                       14
<PAGE>

RISK FACTORS

Need For  Additional  Financing.  The Company has very limited  funds,  and such
funds may not be adequate to develop the Company's  current  business  plan. The
ultimate  success of the Company may depend upon its ability to raise additional
capital. If additional capital is needed,  there is no assurance that funds will
be  available  from any source or, if  available,  that they can be  obtained on
terms acceptable to the Company. If not available, the Company's operations will
be limited to those that can be financed with its modest capital.

Regulation  of Penny  Stocks.  The  Company's  securities,  when  available  for
trading,  will be subject to a  Securities  and  Exchange  Commission  rule that
imposes special sales practice  requirements upon  broker-dealers  who sell such
securities to persons other than established  customers or accredited investors.
For purposes of the rule, the phrase  "accredited  investors"  means, in general
terms, institutions with assets in excess of $5,000,000, or individuals having a
net worth in excess of  $1,000,000  or  having  an annual  income  that  exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000).  For
transactions  covered  by the  rule,  the  broker-dealer  must  make  a  special
suitability  determination for the purchaser and receive the purchaser's written
agreement  to the  transaction  prior to the  sale.  Consequently,  the rule may
affect the ability of broker-dealers  to sell the Company's  securities and also
may affect the ability of purchasers  in this offering to sell their  securities
in any market that might develop therefore.

In addition,  the  Securities  and Exchange  Commission  has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3,  15g-4,  15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act
of 1934, as amended. Because the securities of the Company may constitute "penny
stocks"  within the  meaning of the rules,  the rules would apply to the Company
and to its  securities.  The rules may  further  affect the ability of owners of
Shares to sell the  securities  of the Company in any market that might  develop
for them.

Shareholders  should  be  aware  that,  according  to  Securities  and  Exchange
Commission,  the  market  for penny  stocks has  suffered  in recent  years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the  security  by one or a few  broker-dealers  that are  often  related  to the
promoter or issuer; (ii) manipulation of prices through prearranged  matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices   involving   high-pressure   sales  tactics  and  unrealistic   price
projections  by  inexperienced  sales persons;  (iv)  excessive and  undisclosed
bid-ask  differentials  and  markups  by  selling  broker-dealers;  and  (v) the
wholesale dumping of the same securities by promoters and  broker-dealers  after
prices  have been  manipulated  to a desired  level,  along  with the  resulting
inevitable  collapse of those prices and with consequent  investor  losses.  The
Company's  management is aware of the abuses that have occurred  historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of  broker-dealers  who  participate in
the market,  management will strive within the confines of practical limitations
to prevent the  described  patterns from being  established  with respect to the
Company's securities.

Lack of Profitable Operating History. The Company was formed in 1997 and has had
an unprofitable  operating history.  The  re-organization of the Company and the
acquisition of solar electric glazing  technology have provided the Company with
a new opportunity for business development which carries continued special risks
inherent in a new business opportunity. The Company must be regarded as a new or
start-up  venture with all of the  unforeseen  costs,  expenses,  problems,  and
difficulties to which such ventures are subject.


                                       15
<PAGE>

No Assurance of Success or Profitability. There is no assurance that the Company
will successfully commercialize its proprietary technology.  Even if the Company
should  successfully  commercialize  its  proprietary  technology,  there  is no
assurance  that it will generate  significant  revenues or profits,  or that the
market price of the Company's common stock will be increased thereby.

Lack of  Diversification.  Because of the limited  financial  resources that the
Company  has, it is  unlikely  that the Company  will be able to  diversify  its
operations.  The Company's  probable  inability to diversify its activities into
more than one area will  subject the Company to economic  fluctuations  within a
particular business or industry and therefore increase the risks associated with
the Company's operations.

Dependence upon Management.  The Company  currently has only two (2) individuals
who are serving as its officers and three (3) persons as directors.  The Company
will be heavily dependent upon their skills, talents, and abilities to implement
its business plan.

Indemnification of Officers and Directors. The Colorado Business Corporation Act
provides for the  indemnification  of its directors,  officers,  employees,  and
agents, under certain circumstances,  against attorney's fees and other expenses
incurred by them in any  litigation  to which they become a party  arising  from
their association with or activities on behalf of the Company.  The Company will
also bear the expenses of such  litigation for any of its  directors,  officers,
employees,  or agents, upon such person's promise to repay the Company therefore
if it is ultimately determined that any such person shall not have been entitled
to  indemnification.  This  indemnification  policy could result in  substantial
expenditures by the Company which it will be unable to recoup.

Directors'  Liability  Limited.  The Colorado Business  Corporation Act excludes
personal  liability  of its  directors to the Company and its  stockholders  for
monetary  damages  for breach of  fiduciary  duty  except in  certain  specified
circumstances.  Accordingly,  the Company will have a much more limited right of
action against its directors than  otherwise  would be the case.  This provision
does not affect the liability of any director under federal or applicable  state
securities laws.

Dependence upon Outside Advisors.  To supplement the business  experience of its
officers and directors,  the Company employ's  accountants,  technical  experts,
appraisers,  attorneys,  or other consultants or advisors.  The selection of any
such  advisors will be made by the  Company's  President  without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing  fiduciary or other  obligation to the
Company.  In the event the  President  of the Company  considers it necessary to
hire outside advisors, he may elect to hire persons who are affiliates,  if they
are able to provide the required services.

Competition.  The Company  expects to be at a  disadvantage  when competing with
many firms that have  substantially  greater financial and management  resources
and capabilities than the Company.

No Foreseeable Dividends. The Company has not paid dividends on its common stock
and does not anticipate paying such dividends in the foreseeable future.

Limited Public  Market.  There is only a limited public market for the Company's
common stock,  and no assurance can be given that a market will continue or that
a shareholder ever will be able to liquidate his investment without considerable
delay, if at all. If a market should continue, the price may be highly volatile.
Factors  such as those  discussed  in this  "Risk  Factors"  section  may have a
significant  impact upon the market price of the securities  offered hereby. Due
to the low price of the  securities,  many brokerage firms may not be willing to
effect  transactions  in the  securities.  Even if a  purchaser  finds a  broker
willing  to  effect  a  transaction  in these  securities,  the  combination  of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such securities as collateral for any loans.


                                       16
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

As of September 30, 2005 the Company  leased  administrative  office  facilities
located at 65 Enterprise,  Aliso Viejo CA 92656 for approximately $750 per month
pursuant to a six month lease agreement. The Company owns no real property.

ITEM 3. LEGAL PROCEEDINGS

The Company is not  currently a party to any pending legal  proceedings,  nor is
its property subject to such proceedings, at January 10, 2006.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None in the period ended September 30, 2005.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The  Company's  common stock  trades on the OTC Bulletin  Board under the symbol
"XSNX." The range of high,  low and close  trade  quotations  for the  Company's
common stock by fiscal quarter within the last two fiscal years,  as reported by
the National Quotation Bureau Incorporated, was as follows:


Year Ended September 30, 2005             HIGH         LOW             CLOSE
-----------------------------

First Quarter ended December 31, 2004     $.51         $.33            $.33
Second Quarter ended March 31, 2005       $.40         $.08            $.11
Third Quarter ended June 30, 2005         $.19         $.08            $.15
Fourth Quarter ended September 30, 2005   $.30         $.13            $.36


Year Ended September 30, 2004

First Quarter ended December 31, 2003     $2.50        $.025           $.51
Second Quarter ended March 31, 2004       $1.00        $.25            $.47
Third Quarter ended June 30, 2004         $ .95        $.40            $.60
Fourth Quarter ended September 30, 2004   $ .65        $.30            $.45

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 September 30, 2005,  there were  approximately  612 record  holders of the
Company's  common stock,  not counting shares held in "street name" in brokerage
accounts which is unknown.  As of September 30, 2005,  there were  approximately
123,876,639  shares of common  stock  outstanding  on record with the  Company's
stock transfer agent,  Mountain Share  Transfer.  On September 30, 2005 the last
reported sales price of its common stock on the OTCBB was $.36 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.


                                       17
<PAGE>

                         SALE OF UNREGISTERED SECURITIES

GRANT OF OPTIONS/WARRANTS

1. A Consultancy  and Advisory  agreement with Dr. Arokia Nathan for services to
the Company as a member of the  Scientific  Advisory  Board was  approved by the
Board on February 1, 2005. The Board issued a warrant agreement for the purchase
of common stock to Dr. Arokia Nathan in  accordance  with the  provisions of the
Consulting and Advisory  Agreement totaling two hundred fifty thousand (250,000)
warrants exercisable at $.20 each. The Warrant carries a three (3) year exercise
term and is subject to  conditional  vesting in  accordance  with the  following
provisions:

        (1)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was  February 1, 2005.  Thereafter,  the Warrant will vest at the
               rate of 25,000 Shares per calendar  quarter,  or any  apportioned
               amount  thereof,  during the term of two (2) year  engagement  by
               XsunX, Inc. of Dr. Arokia Nathan.

2. A  Consultancy  and  Advisory  agreement  with Dr  Richard E.  Rocheleau  for
services  to the  Company  as a member  of the  Scientific  Advisory  Board  was
approved by the Board on February 1, 2005. The Board issued a warrant  agreement
for the purchase of common stock to Dr. Richard E. Rocheleau in accordance  with
the  provisions of the Consulting  and Advisory  Agreement  totaling two hundred
fifty thousand (250,000) warrants  exercisable at $.20 each. The Warrant carries
a three  (3) year  exercise  term  and is  subject  to  conditional  vesting  in
accordance with the following provisions:

        (1)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was  February 1, 2005.  Thereafter,  the Warrant will vest at the
               rate of 25,000 Shares per calendar  quarter,  or any  apportioned
               amount  thereof,  during the term of two (2) year  engagement  by
               XsunX, Inc. of Dr. Richard Rocheleau.

3. A Consultancy  and Advisory  agreement  with Dr John J. Moore for services to
the Company as a member of the  Scientific  Advisory  Board was  approved by the
Board on March 8, 2005. The Board issued a warrant agreement for the purchase of
common  stock to Dr.  John J. Moore in  accordance  with the  provisions  of the
Consulting and Advisory  Agreement totaling two hundred fifty thousand (250,000)
warrants exercisable at $.20 each. The Warrant carries a three (3) year exercise
term and is subject to  conditional  vesting in  accordance  with the  following
provisions:

        (1)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was March 8, 2005. Thereafter,  the Warrant will vest at the rate
               of 25,000 Shares per calendar quarter,  or any apportioned amount
               thereof,  during  the term of two (2) year  engagement  by XsunX,
               Inc. of Dr. John Moore.

4.  Warrant to Purchase  Common Stock  Cornell - On July 14,  2005,  the Company
consummated a Securities  Purchase  Agreement  (the "Purchase  Agreement")  with
Cornell  providing  for the sale by the  Company to  Cornell of its 12%  secured
convertible debentures in the aggregate principal amount of $850,000.  Under the
Purchase  Agreement,  the Company also issued to Cornell  five-year  warrants to
purchase  4,250,000  and  2,125,000  shares of Common  Stock at $0.15 and $0.20,
respectively (collectively, the "Warrants").

During the years ended  September 30, 2004, and September 30, 2005, the board of
directors  approved  the  issuance  of warrants  to  purchase  an  aggregate  of
15,125,000  shares of the Company's common stock.  Such warrants are exercisable
at prices  ranging  from $.15 to $.20 per  share,  vest  over  periods  up to 60
months, and expire at various times through June 2010.

During the years ended  September 30, 2004, and September 30, 20005,  no warrant
holders exercised warrants to purchase the Company's common stock.


                                       18
<PAGE>

<TABLE>
<CAPTION>

A summary of warrant  activity for the year ended September 30, 2004 and 2005 is
as follows:

                                                            Weighted-                           Weighted-
                                         Number of          Average                             Average
                                         Warrants           Exercise         Warrants           Exercise
                                                            Price            Exercisable        Price
                                         --------------     -------------    ---------------    --------------
<S>                                      <C>                <C>              <C>                <C>
Outstanding, September 30, 2003          0                  $0.0             0                  $0.0
    Granted 2004                         8,000,000          $.15             6,700,000          $.15
    Exercised 2004                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2004          8,000,000          $.15             6,700,000          $.15

    Granted 2005                         7,125,000          $.17             6,725,000          $.17
    Exercised 2005                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2005          15,125,000         $.1595           14,450,000         $.1595
                                         ==============
</TABLE>

<TABLE>
<CAPTION>

At September 30, 2005, the range of warrant prices for shares under warrants and
the weighted-average remaining contractual life is as follows:

                                 Warrants Outstanding                                  Warrants Exercisable
                        --------------------------------------------------    ---------------------------------
                                                          Weighted-
                                        Weighted-         Average                                 Weighted-
         Range of       Number of       Average           Remaining           Number              Average
Warrant                 Warrants        Exercise          Contractual         Of                  Exercise
Exercise Price                          Price             Life                Warrants            Price
--------------------    ------------    --------------    ----------------    ----------------    -------------
<S>                     <C>             <C>               <C>                 <C>                 <C>
$.15                      8,000,000     $ .15               2                   6,700,000         $ .15
 .17                      7,125,000       .17             2.8                   6,725,000           .17
                        ------------                                          ----------------
                         15,125.000                                            14,450,000
                        ============                                          ================
</TABLE>

SALES OF SHARES AND DEBENTURE

In a private placement of the Company's common stock pursuant to Regulation S of
the Act on  November  8, 2004,  the  Company  accepted  an offer for the sale of
1,543,500  shares at a price of $.11 per share,  which raised gross  proceeds of
$169,785.00. This offer and sale was completed on November 8, 2004.

In a private  placement of the  Company's  common stock made by the Company that
began on December  19, 2003  pursuant to  Regulation  S of the Act at a variable
price  equal to 27% of the five (5) day average  closing bid price,  the Company
raised gross  proceeds of $108,518.77  from the sale of 1,636,800  shares during
the quarter ending  December 31, 2004. The offering was terminated on January 3,
2005.

In a private placement of the Company's common stock pursuant to Regulation S of
the Act that began on August 26,  2004 at a variable  price  equal to 25% of the
previous days closing bid price on the date of the purchase,  the Company raised
gross proceeds of $192,764.35  from the sale 2,727,237  shares during the period
ending December 31, 2004. This offering was terminated on December 1, 2004.

                                       19

In a private placement of the Company's common stock pursuant to Regulation S of
the Act on or about  January 3, 2005 the Company  accepted an offer for the sale
of 66,500 shares at a price of $.0944 per share,  which raised gross proceeds of
$6,284.25. This offer and sale was completed on January 3, 2005.

On or about  February 4, 2005 the Company  issued 300,000 shares of common stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for seven months
of services to be rendered to the company.  The shares were valued at the market
price of the Company's  common stock at the time of issuance which was $0.08 per
share for a total compensated value of $24,000.00.

In a private placement of the Company's common stock pursuant to Regulation S of
the Act on or about  February  19, 2005,  the Company  accepted an offer for the
sale of  234,000  shares at a price of $.0589  per  share,  which  raised  gross
proceeds of $13,782.60. This offer and sale was completed on February 19, 2005.

In a private placement of the Company's common stock pursuant to Regulation S of
the Act on or about April 1, 2005, the Company accepted an offer for the sale of
327,000  shares at a price of $.0764 per share,  which raised gross  proceeds of
$24,980. This offer and sale was completed on April 1, 2005.

On or about May 5,  2005 the  Company  issued  125,000  shares  of common  stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services to be rendered to the company.  The shares were valued at the market
price of the Company's  common stock at the time of issuance which was $0.08 per
share for a total compensated value of $10,000.00.

In a private placement of the Company's common stock pursuant to Regulation S of
the Act on or about May 12, 2005, the Company  accepted an offer for the sale of
200,000  shares at a price of $.0764 per share,  which raised gross  proceeds of
$15,280. This offer and sale was completed on May 12, 2005.

On or about July 21,  2005 the  Company  issued  49,231  shares of common  stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services that had been rendered to the company. The shares were valued at the
average market price of the Company's common stock over the previous three month
period of services which was $0.1219 per share for a total  compensated value of
$6,000.00.

In July 2005, the Company issued  secured  convertible  debentures for aggregate
proceeds of $850,000.  In  connection  with this  transaction,  the Company also
issued  2,609,263  shares of common  stock and  five-year  warrants  to purchase
4,250,000  shares and  2,125,000  shares at $0.15 and $0.20,  respectively.  All
securities  were issued  pursuant to Section 4(2) of the Securities Act of 1933,
as amended. The Company's  obligations under the Debenture Agreement are secured
by  substantially  all of the  Company's  assets.  As further  security  for its
obligations thereunder,  the Company has deposited into escrow 26,798,418 shares
of Common Stock.  In addition,  Tom  Djokovich,  the Company's  Chief  Executive
Officer,  has granted a security interest in 925,000 shares of Common Stock that
he owns.


                                       19
<PAGE>

In July 2005,  in  association  with the above  referenced  secured  convertible
debenture the Company entered into a Standby Equity Distribution  Agreement (the
"Distribution  Agreement") with an investor  providing for the sale and issuance
of up to  $10,000,000 of Common Stock over a period of up to 24 months after the
signing of the Distribution  Agreement.  Under the Distribution  Agreement,  the
Company  may sell up to  $250,000  in shares of its common  stock  (the  "Common
Stock") once every five trading days at a price of 96% of the lowest closing bid
price (as reported by  Bloomberg  L.P.),  of the Common  Stock on the  principal
market  where the Common Stock is traded for the five  consecutive  trading days
following  a notice by the  Company to the  investor  of its  intention  to sell
shares.  The Company will also pay a 5% commitment  fee upon each sale of shares
under the  Distribution  Agreement.  The investor has agreed not to short any of
the shares of Common Stock. In connection with the Distribution  Agreement,  the
Company  has  issued to the  investor  2,544,031  shares  of  Common  Stock as a
commitment  fee. It also  issued  65,232  shares of Common  Stock to a placement
agent as compensation for its services as the exclusive  placement agent for the
sale of the Common Stock under the Distribution Agreement.

In regard to the above referenced  Distribution  Agreement the Company agreed to
file a registration  statement  registering the Common Stock issuable upon sales
under the Distribution  Agreement and for the underlying  shares associated with
the sale of a Convertible Secured 12% Debenture, (see above). On August 17, 2005
the Company filed a registration statement with the U.S. Securities and Exchange
Commission.  On  December 9, 2005 the  Company  and the  investor  agreed to the
termination of the  Distribution  Agreement and  withdrawal of the  registration
statement  as part of a  subsequent  financing  agreement,  (see  Item 8B "Other
Information - Funding  Agreement").  No shares were sold under the  Distribution
Agreement prior to its termination.

On or about  December 5, 2005 the Company  issued  40,441 shares of common stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services that had been  rendered to the company for the periods  between July
7, 2005 and October 6, 2005.  The shares were valued at the average market price
of the Company's  common stock over the three month period of services which was
$0.18559 per share for a total compensated value of $7,500.00.

USES OF PROCEEDS FROM SALES OF UNREGISTERED SECURITIES

The proceeds from the above sales of unregistered securities were used primarily
to fund the research and developments  efforts and day-to-day  operations of the
Company and to pay the accrued liabilities associated with these operations.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CAUTIONARY AND FORWARD LOOKING STATEMENTS

In  addition  to  statements  of  historical  fact,  this Form  10-KSB  contains
forward-looking  statements.  The presentation of future aspects of XsunX,  Inc.
("XsunX," the "Company" or "issuer")  found in these  statements is subject to a
number of risks and  uncertainties  that could  cause  actual  results to differ
materially from those reflected in such statements. Readers are cautioned not to
place  undue  reliance  on  these  forward-looking  statements,   which  reflect
management's  analysis  only  as  of  the  date  hereof.  Without  limiting  the
generality of the foregoing,  words such as "may," "will," "expect,"  "believe,"
"anticipate,"  "intend,"  or  "could"  or the  negative  variations  thereof  or
comparable terminology are intended to identify forward-looking statements.

These forward-looking statements are subject to numerous assumptions,  risks and
uncertainties  that may cause XsunX's actual results to be materially  different
from any future  results  expressed  or  implied  by XsunX in those  statements.
Important  facts  that  could  prevent  XsunX from  achieving  any stated  goals
include, but are not limited to, the following:


                                       20
<PAGE>

Some of these risks might include, but are not limited to, the following:

(a) volatility or decline of the Company's stock price;

(b) potential fluctuation in quarterly results;

(c) failure of the Company to earn revenues or profits;

(d) inadequate capital to continue or expand its business, inability to raise
    additional capital or financing to implement its business plans;

(e) failure to commercialize its technology or to make sales;

(f) rapid and significant changes in markets;

(g) litigation with or legal claims and allegations by outside parties;

(h) insufficient revenues to cover operating costs.

There is no assurance that the Company will be  profitable,  the Company may not
be able to successfully develop, manage or market its products and services, the
Company may not be able to attract or retain qualified executives and technology
personnel,  the Company's products and services may become obsolete,  government
regulation may hinder the Company's business, additional dilution in outstanding
stock ownership may be incurred due to the issuance of more shares, warrants and
stock options,  or the exercise of warrants and stock  options,  and other risks
inherent in the Company's businesses.

The Company  undertakes no obligation to publicly  revise these  forward-looking
statements to reflect events or circumstances  that arise after the date hereof.
Readers should  carefully  review the factors  described in other  documents the
Company  files from time to time with the  Securities  and Exchange  Commission,
including the Quarterly  Reports on Form 10-QSB and Annual Report on Form 10-KSB
filed by the Company in 2005 and 2004 and any Current  Reports on Form 8-K filed
by the Company.

For the year ended September 30, 2005, the Company had and continues to focus on
the  development  and refinement of  commercially  appealing solar cell designs,
proprietary manufacturing processes and facilities design that could be provided
to its future  licensees as turn-key  solutions for the mass production of Power
Glass(TM) thin films. A large part of the Company's capital was used for product
development.  However,  this may begin to shift towards  marketing,  sales,  and
business development in this new fiscal year ending September 30, 2006.

GROWTH, REVENUE AND DISTRIBUTION PLAN

The Company  intends to market its integrated  manufacturing  systems as turnkey
solutions for the  manufacture  of its current and future PV thin films designs.
The  manufacturing  systems will be sold to manufacturers as modular systems and
licensed  for  use  in  the   manufacture   the  Company's  thin  film  designs.
Manufacturers would in turn agree to manufacture and distribute the Company's PV
thin  films,  or  incorporate  the thin film PV  technology  into their  product
manufacturing process as an "original equipment manufacturer" (OEM) and sell the
finished product to their consumers. No licenses or contracts now exist with any
manufacturer.

The Company intends to target  customers who are developing their own technology
platforms in which the  manufacture of or the integration of its thin film solar
cells  could play an  important  role.  The  Company  will  offer  non-exclusive
manufacturing licenses and expects to earn a royalty on thin films manufactured.
In  selling  the  manufacturing   equipment  and  licensing  the  technology  to
manufacturers,  the Company  reduces  operating  expenses  and saves  capital in
plant, property and equipment. As a result, should the Company realize earnings,
it intends to reinvest its retained earnings in R&D in an effort to continuously
develop related new technologies that will help achieve sustainable  competitive
advantages for the Company.


                                       21
<PAGE>

MARKETING STRATEGY

The  Company  intends  to  enhance,  promote  and  support  the idea that  XsunX
manufacturing  systems  and thin  film  technologies  present a  compelling  and
efficient  solution for the scalable  manufacture of diverse  photovoltaic  thin
films. In order to create a favorable  environment for sales,  the Company plans
to undertake advertising and promotion efforts.  These efforts may be outsourced
and will  require the services of an  advertising  relations  firm.  The Company
plans to interview  various  firms and select those most capable of assisting us
with  comprehensive  advertising  and promotion  plans.  The Company  intends to
commence  building and staffing its marketing  department  to  accelerate  these
efforts  in the  first  part of 2006.  The  Company  has not yet  finalized  the
potential costs of its marketing strategy.

The  Company  will invest in small test  campaigns  before  committing  to large
promotions or marketing  campaigns.  The initial marketing  strategy the Company
will be to market to  potential  manufacturer  partners  in its  target  markets
representing   solar  device   manufactures,   glass,  and  building   materials
manufacturers.

PLAN OF OPERATIONS

XsunX anticipates the 12-month capital  operational  requirements of the company
to be $4,500,000  dollars.  Since the reorganization of the Company on September
30, 2003 the Company has raised amounts necessary to finance  operations through
the placement of equity capital in the form of one or more private offering's of
common stock to accredited investors. On July 14, 2005 and December 12, 2005 the
Company  issued  convertible  debentures in the amount of $850,000,  (see Item 5
"Market for Registrants Common Equity and Related  Stockholder Matters - Sale of
Shares and Debenture") and $5,000,000, (see Item 8B "Subsequent Events - Funding
Agreement")  respectively to an accredited  investor.  The net proceeds from the
placement of equity capital and the  debentures  will be applied to its 12 month
plan of operations as follows:  (i)  approximately  $550,000 will be used to pay
costs  associated with  completion of product  development of the Power Glass(R)
product under its Phase III development plan, (ii)  approximately  $675,000 will
be  used  to  pay  costs   associated  with  the  development  of  a  4-Terminal
nano-crystalline  solar  cell  patent  for  commercialization   purposes,  (iii)
approximately  $1,700,000  will be  used  for the  manufacture  of a  marketable
commercial scale manufacturing system, (iv) approximately  $210,000 will be used
for  the  engineering  and  adaptation  of  certain  manufacturing  devices  and
techniques to provide  product  manufacturing  demonstration  capabilities,  (v)
approximately $50,000 will be used to purchase testing and development equipment
or expand existing facilities,  (vi) approximately  $100,000 will be used to pay
for  third  party  engineering,   testing,   and  consulting   services,   (vii)
approximately  $485,000 will be used to pay salaries and general  administrative
costs, and for intellectual property protection,  (viii) approximately  $225,000
will be used  to pay for  sales  and  market  development,  general  competitive
research and publicity  costs, and (v)  approximately  $505,000 will be used for
general working capital.

The Company may change any or all of the budget  categories  in the execution of
its  business  attempts.  None  of  the  items  is to  be  considered  fixed  or
unchangeable.

The Company will need substantial  additional capital to support its budget. The
Company  has no  revenues.  No  representation  is made that any  funds  will be
available  when needed.  In the event funds  cannot be raised when  needed,  the
Company may not be able to carry out its business  plan, may never achieve sales
or  royalty   income,   and  could  fail  in  business  as  a  result  of  these
uncertainties.

The Company will need to seek additional  financing for this budget.  (See "Risk
Factors" at p. 14.


                                       22
<PAGE>

Management  believes  the  summary  data and  audit  presented  herein is a fair
presentation of the Company's  results of operations for the periods  presented.
These  historical  results may not  necessarily  be  indicative of results to be
expected  for any future  period.  As such,  future  results of the  Company may
differ significantly from previous periods.


RESULTS OF OPERATIONS  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005, COMPARED TO
FISCAL YEAR ENDED SEPTEMBER 30, 2004

The Company generated no revenues in the period ended September 30, 2005 as well
as for the same period in 2004.

The Company incurred expenses totaling $1,383,406 in 2005 compared to $1,528,193
in 2004.  The  decrease  of  $144,787  resulted  from the  absence of a one time
non-cash  warrant  issuance  expense of $900,000  for the  licensure  of patents
accounted for in the period ended  September 30, 2004.  Excluding  this non-cash
warrant  expense in the comparative  analysis  between the periods results in an
increase of $755,213 in normal and customary operational expenses for the period
ending September 30, 2005 as compared to the same period 2004.

Primary sources for the increase to operating  expense of $755,213  include:  an
increase of $371,930 in Research and Development activities totaling $501,423 as
compared  to  $129,493  incurred  for the same  period in 2004,  an  increase of
$109,773 in Public Relations  activity totaling $116,413 as compared to activity
totaling  $6,640 for the same period in 2004, an increase of $35,900 in Salaries
totaling  $155,236 as compared to Salaries totaling $119,336 for the same period
in 2004, an increase in consulting fees of $301,000 to $320,944 in the period in
2005  compared to $19,900 in the period in 2004, an increase of $80,046 in Legal
and Accounting  expenses  totaling  $107,249 as compared to Legal and Accounting
totaling  $27,203 for the same period in 2004,  an increase of $115,000 for Loan
Origination  and Service  fees as compared to $0 expenses for the same period in
2004, and an increase of $42,564 in General and Administrative  expenses related
to an increase in travel,  advertising,  depreciation  and business  development
expenses.  The $1,383,406 in operating  expenses  includes  non-cash  charges of
$360,944 for the issuance of unregistered  stock for public relations,  advisory
services,  and financing fees in lieu of cash payment for services and financing
fees.

For the twelve months ended September 30, 2005, the Company's  consolidated  net
loss was $(1,400,839)  including an interest expense of $17,433 as compared to a
consolidated  net loss of  $(1,509,068)  for the same period ended September 30,
2004 including an interest  expense of $251.  The decrease of $108,229  resulted
from the absence of a one time non-cash warrant issuance expense of $900,000 for
the licensure of patents  accounted for in the period ended  September 30, 2004.
Excluding this one time non-cash  warrant expense,  in the comparative  analysis
between  the  period's,  results in an  increase of $791,771 in net loss for the
period ended  September  30, 2005 as compared to the same period  2004.  The net
loss per share was less than $(0.02) for the twelve month period ended September
30, 2005 compared to ($.01) per share loss in the prior year.


                                       23
<PAGE>

Due to the Company's  change in primary  business  focus in October 2003 and the
developing nature of its business opportunities these historical results may not
necessarily  be indicative of results to be expected for any future  period.  As
such,  future  results of the Company  may differ  significantly  from  previous
periods.  Since inception in 1997 the Company has accumulated  deficits totaling
($6,204,284) to September 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Working  capital  (deficit) at September 30, 2005 was  $(718,380) as compared to
$(38,819) at September 30, 2004.

During the year ended,  September 30, 2005, the Company used $1,049,650 net cash
in operating  activities as compared to using  $1,436,630  net cash for the year
ended, September 30, 2004. The decrease of $386,980 resulted from the absence of
a one time non-cash  warrant  issuance  expense of $900,000 for the licensure of
patents accounted for in the period ended September 30, 2004. Excluding this one
time non-cash warrant expense, in the comparative analysis between the period's,
results in an increase of $513,020 in net cash used in operations for the period
ended  September  30,  2005.This  increase  of net cash used in  operations  was
primarily  a result of an increase  of  $371,930  in  Research  and  Development
activities and an increase to operational  costs associated with the development
of the Company's business plan.

For the twelve months ended,  September  30, 2005,  the Company's  capital needs
have  primarily  been met from the  proceeds of (i) private  placement of common
stock made by the Company  pursuant to  Regulation S of the Act, as amended (the
"Act"), to an accredited investor at $0.15 per share which raised gross proceeds
of  $169,785;  (ii)  private  placements  of common  stock  made by the  Company
pursuant to Regulation S of the Act, at a variable price ranging from 25% to 30%
of the closing bid price on the date of the purchase of the stock,  which raised
gross proceeds of $301,283; (iii) private placements of common stock made by the
Company  pursuant to  Regulation S of the Act, at prices  ranging from $.0944 to
$.0589,  which  raised gross  proceeds of $60,327;  (iv) loans to the Company of
$3,775  with a  remaining  balance  of  $0.0;  and  (v) the  sale  of a  secured
convertible  12%  debenture  in the amount of $850,000.  Total cash  provided by
financing  activities  during the year ended  September  30, 2005  increased  to
$1,385,170  from  $283,895  during the period  ended  September  30,  2004.  The
increase of $1,101,275 was mainly attributable to an increase of $248,725 in the
sale of unregistered  securities and the sale of a $850,000 secured  convertible
12% debenture by the Company.

Cash Flows

There were no cash flows  provided by operations  during the twelve months ended
September 30, 2005.

Cash and cash  equivalents at September 30, 2005 were  $255,853,  an increase of
$198,509 from September 30, 2004.

During the year ended,  September  30,  2005,  the  Company  used  $191,995  for
investing  activities  as compared to $12,267 for the year ended  September  30,
2004.  The  increased  use of cash for  investing  activities  resulted  from an
increase in the  acquisition  of assets in the form of equipment  and  trademark
rights.

The Company had, at September 30, 2005, working capital of $255,853. The Company
anticipates  that there will not be sufficient cash generated from operations in
the  current  year   necessary  to  fund  its  current  and   anticipated   cash
requirements.  The Company plans to obtain additional  financing from equity and
debt  placements.  The  Company  has been able to raise  capital  in a series of
equity and debt offerings in the past.  While there can be no assurances that it
will be able to obtain such additional financing,  on terms acceptable to us and
at the times required,  or at all, the Company believes that sufficient  capital
can be raised in the foreseeable future. On December 12, 2005 the Company sold a
secured 10%  convertible  debenture  in the amount of  $5,000,000  (see "Item 8B
"Subsequent Events - Funding Agreement").


                                       24
<PAGE>

NET OPERATING LOSS

For federal  income tax  purposes,  the Company  have net  operating  loss carry
forwards of  approximately  $6,204,284  as of September  30,  2005.  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.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Please refer to pages F-1 through F-14.


ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Michael Johnson & Co., LLC, formerly auditors for the Company,  was dismissed as
auditor  on July 18,  2005.  Jaspers + Hall,  PC were  engaged as  auditors  for
Company on July 18, 2005.

The Change of  Accountants  was  approved  by the Board of  Directors.  No audit
committee exists other than the members of the Board of Directors.

In connection  with audit of the two most recent  fiscal years,  and through the
date of termination of the accountants,  no disagreements  exist with any former
accountant  on any  matter of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope of procedure, which disagreements if not
resolved to the satisfaction of the former  accountant would have caused them to
make   reference  in   connection   with  his  report  to  the  subject  of  the
disagreement(s).

The audit report by Michael  Johnson & Co., LLC. for the periods ended September
30, 2004 and September 30, 2003  contained an opinion which included a paragraph
discussing  uncertainties  related to  continuation of the Registrant as a going
concern.  Otherwise,  the audit  reports by Michael  Johnson & Co.,  LLC for the
period  September  30,  2004 and  September  30, 2003 did not contain an adverse
opinion  or  disclaimer  of  opinion,  nor  was  qualified  or  modified  as  to
uncertainty, audit scope, or accounting principles.

ITEM 8A. CONTROLS AND PROCEEDURES

The  management of the Company has evaluated the  effectiveness  of the issuer's
disclosure  controls and  procedures as of the end of the period  covered by the
report  (evaluation  date) and have concluded  that the disclosure  controls and
procedures  are adequate and  effective  based upon their  evaluation  as of the
evaluation date.

There were no material  changes in  disclosure  controls  and  procedures  or in
internal  controls or in other  factors that could  materially affect disclosure
controls  and  procedures  or internal  controls in the fourth  fiscal  quarter,
including  any  corrective  actions  with  regard to material  deficiencies  and
material weaknesses.

ITEM 8B. OTHER INFORMATION

On December 12, 2005, the Company  consummated a Securities  Purchase  Agreement
(the "Purchase Agreement") dated December 12, 2005 with Cornell Capital Partners
L.P.  ("Cornell")  providing  for the sale by the  Company to Cornell of its 10%
secured  convertible  debentures in the aggregate principal amount of $5,000,000
(the  "Debentures")  of which  $2,000,000 was advanced  immediately.  The second
installment of $2,000,000  will be advanced  immediately  prior to the filing by

                                       25

<PAGE>

the Company with the Securities and Exchange  Commission (the  "Commissions") of
the  Registration   Statement  (as  defined  below).  The  last  installment  of
$1,000,000  will be  advanced  three  days  prior to the  date the  Registration
Statement is declared effective by the Commission.

The  Debentures  mature on the third  anniversary  of the date of issuance  (the
"Maturity  Date") and the Company is not required to make any payments until the
Maturity Date.

Holders  (the  "Holders")  of the  Debentures  may  convert at any time  amounts
outstanding under the Debentures into shares of Common Stock of the Company (the
"Common Stock") at a conversion  price per share equal to the lesser of $0.38 or
95% of the lowest daily volume  weighted  average price of the Common Stock,  as
quoted by Bloomberg,  LP, for the 30 trading days immediately preceding the date
of conversion (the "Variable Market Price").  Unless waived by the Company,  the
Holders may not, together with their affiliates,  convert more than an aggregate
of $350,000 in any 30-day  period of principal  amount of the  Debentures at the
Variable  Market  Price.  Cornell  has  agreed not to short any of the shares of
Common Stock.

The Company has the right to redeem a portion or all amounts  outstanding  under
the Debenture  prior to the Maturity Date at a 15% redemption  premium  provided
that the closing bid price of the Common Stock is less than $0.38.

Under the  Purchase  Agreement,  the Company  also  issued to Cornell  five-year
warrants to purchase 3,125,000 and 1,250,000 shares of Common Stock at $0.45 and
$0.55, respectively (collectively, the "Warrants").

In  connection  with the  Purchase  Agreement,  the Company  also entered into a
registration  rights agreement (the "Registration  Rights Agreement")  providing
for the filing of a registration  statement (the "Registration  Statement") with
the Securities  and Exchange  Commission  registering  the Common Stock issuable
upon  conversion of the Debentures and exercise of the Warrants.  The Company is
obligated  to use its best  efforts to cause the  Registration  Statement  to be
declared  effective  no  later  than  April  11,  2006  and to  insure  that the
registration statement remains in effect until all of the shares of common stock
issuable  upon  conversion of the  Debentures  and exercise of the Warrants have
been sold. In the event of a default of its obligations  under the  Registration
Rights  Agreement,  including its agreement to file the  Registration  Statement
with the Securities  and Exchange  Commission no later than January 11, 2006, or
if the Registration Statement is not declared effective by April 11, 2006, it is
required  pay to  Cornell,  as  liquidated  damages,  for  each  month  that the
registration statement has not been filed or declared effective, as the case may
be,  either a cash  amount  or  shares of our  common  stock  equal to 2% of the
liquidated value of the Debentures.

Prior to  executing  the  Purchase  Agreement,  the  Company had  withdrawn  the
registration  statement that included  Common Stock issued to Cornell and Common
Stock to be  issued  upon the  conversion  of  debentures  and the  exercise  of
warrants  previously sold to Cornell  (collectively,  the "Initial  Securities")
pursuant  to a  securities  purchase  agreement  executed  on July 14, 2005 (the
"Prior  Agreement") as well as Common Stock to be issued pursuant to the Standby
Equity  Distribution  Agreement  dated July 14,  2005  between  the  Company and
Cornell (the "Distribution Agreement").  All Initial Securities will be included
in the Registration Statement.  The Company and Cornell also agreed to terminate
the Distribution Agreement.

                                       26

<PAGE>

The Company's  obligations under the Prior Agreement and the Purchase  Agreement
are secured by substantially  all of the Company's  assets.  As further security
for its obligations thereunder, the Company has deposited into escrow 26,798,418
shares  of Common  Stock.  In  addition,  Tom  Djokovich,  the  Company's  Chief
Executive  Officer,  has granted a security interest in 925,000 shares of Common
Stock that he owns to secure the Company's obligations under the Prior Agreement
only.

                      Standby Equity Distribution Agreement

On July 14, 2005,  XsunX,  Inc. (the  "Company")  entered into a Standby  Equity
Distribution  Agreement  (the  "Distribution  Agreement")  with Cornell  Capital
Partners LP ("Cornell")  providing for the sale and issuance to Cornell of up to
$10,000,000  of Common  Stock over a period of up to 24 months after the signing
of the Distribution Agreement. Under the Distribution Agreement, the Company may
sell to  Cornell up to  $250,000  in shares of its  common  stock  (the  "Common
Stock") once every five trading days at a price of 96% of the lowest closing bid
price (as reported by  Bloomberg  L.P.),  of the Common  Stock on the  principal
market  where the Common Stock is traded for the five  consecutive  trading days
following a notice by the Company to Cornell of its  intention  to sell  shares.
The Company will also pay a 5% commitment fee upon each sale of shares under the
Distribution  Agreement.  Cornell  has  agreed not to short any of the shares of
Common Stock The Company has agreed to file a registration statement registering
the Common Stock  issuable  upon sales under the  Distribution  Agreement and no
sale will be made to Cornell  unless and until such  registration  statement has
been declared  effective.  In connection with the  Distribution  Agreement,  the
Company has issued to Cornell  2,544,031  shares of Common Stock as a commitment
fee. It also issued to Newbridge  Securities  Corporation,  a registered  broker
dealer,  65,232 shares of Common Stock as  compensation  for its services as the
exclusive   placement  agent  for  the  sale  of  the  Common  Stock  under  the
Distribution Agreement.

                       12% Secured Convertible Debentures

Also on July 14, 2005, the Company  consummated a Securities  Purchase Agreement
(the "Purchase  Agreement")  dated July 14, 2005 with Cornell  providing for the
sale by the Company to Cornell of its 12% secured convertible  debentures in the
aggregate  principal amount of $850,000 (the "Debentures") of which $400,000 was
advanced immediately. The balance of $450,000 will be advanced two business days
prior to the filing by the Company with the Securities  and Exchange  Commission
of the Registration  Statement (as defined below).  The Debentures mature on the
first  anniversary  of the date of issuance and bear interest at the annual rate
of 12% in cash.  The Company is required to make monthly  principal and interest
commencing  on  the  first  day  of  the  month  following  the  declaration  of
effectiveness  of the  Registration  Statement  or 120  days  from  the  date of
issuance of the Debentures,  whichever occurs first. Holders may convert, at any
time,  the principal  amount  outstanding  under the  Debentures  into shares of
Common  Stock,  at a  conversion  price per share  equal to  $0.10,  subject  to

                                       27

<PAGE>

adjustment.  Upon  three-business  day advance written  notice,  the Company may
redeem the Debentures, in whole or part. In the event that the closing bid price
of the Common Stock on the date that the Company provides advance written notice
of redemption or on the date  redemption  is made exceeds the  conversion  price
then in effect, the redemption will be calculated at 120% of the Debentures face
value.

Under the  Purchase  Agreement,  the Company  also  issued to Cornell  five-year
warrants to purchase 4,250,000 and 2,125,000 shares of Common Stock at $0.15 and
$0.20,  respectively  (collectively,  the  "Warrants").  In connection  with the
Purchase  Agreement,  the  Company  also  entered  into  a  registration  rights
agreement (the "Registration  Rights  Agreement")  providing for the filing of a
registration  statement (the  "Registration  Statement") with the Securities and
Exchange Commission registering the Common Stock issuable upon conversion of the
Debentures  and  exercise of the  Warrants.  The Company is obligated to use its
best efforts to cause the  Registration  Statement  to be declared  effective no
later than  November  28,  2005 and to insure  that the  registration  statement
remains  in  effect  until  all of the  shares of  common  stock  issuable  upon
conversion of the Debentures and exercise of the Warrants have been sold. In the
event of a default of its obligations  under the Registration  Rights Agreement,
including its agreement to file the  Registration  Statement with the Securities
and Exchange  Commission no later than August 29, 2005,  or if the  Registration
Statement is not declared  effective by November 28, 2005, it is required pay to
Cornell, as liquidated damages,  for each month that the registration  statement
has not been  filed or  declared  effective,  as the case may be,  either a cash
amount or shares of our common stock equal to 2% of the liquidated  value of the
Debentures.

The  Company's   obligations  under  the  Purchase   Agreement  are  secured  by
substantially  all  of  the  Company's  assets.  As  further  security  for  its
obligations thereunder,  the Company has deposited into escrow 26,798,418 shares
of Common Stock.  In addition,  Tom  Djokovich,  the Company's  Chief  Executive
Officer,  has granted a security interest in 925,000 shares of Common Stock that
he owns.

XsunX,  Inc.  announed  today that its Phase III  development  program is set to
expand R&D capabilities through the addition of new laser development equipment,
necessary in the development of key licensable manufacturing techniques.

                                       28


<PAGE>


The Company determined that to ensure performance characteristics of solar film,
it needed to bring this phase of  development  in-house.  Over the next month it
plans to complete the  installation of the laser and move as rapidly as possible
into developing key manufacturing techniques.

Michael Johnson & Co., LLC, formerly auditors for the Company,  was dismissed as
auditor  on July 18,  2005.  Jaspers + Hall,  PC were  engaged as  auditors  for
Company on July 18, 2005.

The Change of  Accountants  was  approved  by the Board of  Directors.  No audit
committee exists other than the members of the Board of Directors.

In  connection  with audit of the two most recent  fiscal  years and through the
date of termination of the accountants,  no disagreements  exist with any former
accountant  on any  matter of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope of procedure, which disagreements if not
resolved to the satisfaction of the former  accountant would have caused them to
make   reference  in   connection   with  his  report  to  the  subject  of  the
disagreement(s).

The audit report by Michael  Johnson & Co.,  LLC.for the period ended  September
30, 2004 and September 30, 2003  contained an opinion which included a paragraph
discussing  uncertainties  related to  continuation of the Registrant as a going
concern.  Otherwise,  the audit  report by  Michael  Johnson & Co.,  LLC for the
period  September  30,  2004 and  September  30, 2003 did not contain an adverse
opinion  or  disclaimer  of  opinion,  nor  was  qualified  or  modified  as  to
uncertainty, audit scope, or accounting principles.

XsunX,  Inc.  announced  on  September  7,  2005  that  the  design  of its mass
production   systems  for  the  manufacture  of  its  proprietary   Power  Glass
photovoltaic "PV" films will provide for modular expansion capabilities.

The system  design will  provide  for  production  capacities  of as little as 1
megawatt   annually   while   maintaining   expansion   capabilities,   allowing
manufacturers   to   ramp  up  to  meet   increasing   production   requirements
incrementally  through 20  megawatts  or more.  The Company  believes  that this
modular approach may best suit the needs of  manufacturers  and their markets as
the demand for building integrated PV increases.

The core design is based on a patented multi-chamber cluster tool approach using
cassettes  to  control  or  handle  rolls of thin  plastic  films.  The rolls of
material   (transparent  plastic  films)  are  loaded  into  the  cassettes  and
robotically   moved  between   chambers  or  stations.   Layers  of  transparent
semiconductor  and  conducting  materials are  deposited  onto the plastics in a
manner  which  prevents  cross  contamination  between  chambers to achieve high
performance,  semi-transparent, large area solar cell devices. The system design
allows for co-joining of cluster tool systems and hence, increased output, which
can be a limiting factor in conventional in-line systems.

The modular cluster design may also provide manufacturers  additional advantages
such as reduced  facility  costs due to the smaller  footprint  size of systems,
added  redundancy  allowing  production  throughput  to  continue  even  when  a
processing  chamber  fails,  reductions  in  material  costs  through the use of
inexpensive  plastics,  and the  reduction  of  processing  gases which  further
reduces material costs.

                                       29

<PAGE>

Expanded License and Warrants

Expanded Use License stock warrant  MVSystems,  Inc. - As consideration  for the
grant of an Expanded Use License on October 12, 2005,  granting XsunX additional
benefits  for use of licensed  technologies  and  patents,  XsunX  granted MVS a
warrant (the  "Expanded  Use License  Stock  Warrant") for the purchase of up to
Seven  Million  (7,000,000)  shares of common  stock of XsunX,  the warrant will
expire  five  (5)  years  after  the date of the  grant  and is  subject  to the
following vesting provisions:

        (1)    The Expanded Use License Stock Warrant allowed for the vesting of
               one million  (1,000,000)  warrants on the  effective  date of the
               agreements.

        (2)    Another  one  million  (1,000,000)  warrants  will  vest upon the
               satisfactory  completion of a Phase 4 development program for the
               development  of  technologies  licensed  under the  Expanded  Use
               License.

        (3)    The balance of five million  (5,000,000)  warrants will vest upon
               the  date the  technologies  licensed  within  the  Expanded  Use
               License are licensed to a third party in a bona fide  arms-length
               commercial setting.


Funding Agreement

On December 12, 2005, XsunX, Inc.  consummated a Securities  Purchase  Agreement
dated  December 12, 2005 with Cornell  Capital  Partners L.P.  providing for the
sale by the  Company to Cornell of 10%  secured  convertible  debentures  in the
aggregate  principal amount of $5,000,000 (the "Debentures") of which $2,000,000
was advanced immediately.  The second installment of $2,000,000 will be advanced
immediately prior to the filing by the Company, with the Securities and Exchange
Commission, of a Registration Statement. The last installment of $1,000,000 will
be advanced three days prior to the date the Registration  Statement is declared
effective by the Commission.  The Debenture is convertible into shares of Common
Stock at the option of the Holder at a  conversion  price per share equal to the
lesser of $0.38 or 95% of the lowest daily volume weighted  average price of the
Common Stock,  as quoted by Bloomberg,  LP, for the 30 trading days  immediately
preceding the date of conversion (the "Variable Market Price"). Unless waived by
the Company,  the Holders may not, together with their affiliates,  convert more
than an  aggregate of $350,000 in any 30-day  period of principal  amount of the
Debentures at the Variable Market Price.

Termination of Distribution Agreement

In July  2005,  in  association  with  the  sale of a  Convertible  12%  Secured
Debenture, the Company entered into a Standby Equity Distribution Agreement (the
"Distribution  Agreement") with an investor  providing for the sale and issuance
of up to  $10,000,000 of Common Stock over a period of up to 24 months after the
signing of the Distribution Agreement. The Company agreed to file a registration
statement   registering   the  Common  Stock   issuable  upon  sales  under  the
Distribution Agreement and for the underlying shares associated with the sale of
a  Convertible  12% Secured  Debenture.  On August 17, 2005 the Company  filed a
registration  statement  with the U.S.  Securities  and Exchange  Commission  in
relation to these  agreements.  On December 9, 2005 the Company and the investor
agreed to the  termination of the  Distribution  Agreement and withdrawal of the
registration statement as part of a subsequent financing agreement,  (see Item 8
"Subsequent  Events - Funding  Agreement"  above). No shares were sold under the
Distribution Agreement prior to its termination.


                                       30
<PAGE>

Issuance of Shares For Services

On or about  December 5, 2005 the Company  issued  40,441 shares of common stock
pursuant to Rule 144 of the Act to 1 consultant as compensation for three months
of services that had been  rendered to the company for the periods  between July
7, 2005 and October 6, 2005.  The shares were valued at the average market price
of the Company's  common stock over the three month period of services which was
$0.18559 per share for a total compensated value of $7,500.00.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a)

The following table lists the executive  offices and directors of the Company as
of September 30, 2004:



     NAME           Age          POSITION HELD                TENURE

Brian Altounian     42     Secretary, Director              Since September 2003
Tom Djokovich       48     President, CEO, CFO, Director    Since September 2003
Thomas Anderson     40     Director                         Since August 2001


The  directors  named  above will  serve  until the next  annual  meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders'  meeting.  Officers will hold their positions at the
pleasure of the board of directors,  absent any employment  agreement,  of which
none  currently  exists  or  is   contemplated.   There  is  no  arrangement  or
understanding  between the  directors  and officers of the Company and any other
person  pursuant to which any  director or officer was or is to be selected as a
director or officer.

The directors of the Company will devote such time to the  Company's  affairs on
an "as needed" basis,  but typically less than 20 hours per month.  As a result,
the actual  amount of time which they will  devote to the  Company's  affairs is
unknown and is likely to vary substantially from month to month.


BIOGRAPHICAL INFORMATION

BRIAN  ALTOUNIAN,  age 42, Chairman of the Board,  and Secretary as of September
30, 2003;

Mr.  Altounian  has  over  16  years  of  experience  in the  area  of  finance,
administration  and  operations.  He is  currently  Chief  Operating  Officer of
Platinum Studios, a Beverly Hills-based  entertainment company that controls the
world's largest  independent  library of comic book characters,  which it adapts
and produces for film,  television and all other media.  In addition to managing
fiscal growth and staffing,  he is spearheading the company's  digital strategy,
overseeing business development and acquisitions in the online, interactive, and
wireless  industries.  Mr. Altounian  previously served as the Vice President of
Finance for Lynch Entertainment, a producer of family television series' for the
Nickelodeon  and Disney  Channels.  Prior to joining  Lynch  Entertainment,  Mr.
Altounian  held key  management  positions at numerous  entertainment  companies
including  Director of Finance and  Administration  at Time Warner  Interactive;
Finance  Manager for  National  Geographic  Television;  and Manager of Business
Services for WQED, the nation's first community-owned public television station.
He also  founded  his own  consulting  company,  BKA  Enterprises,  a firm  that
supported and advised  entertainment  and  multimedia  companies in the areas of
financial and business  management.  Mr. Altounian holds an undergraduate degree
from UCLA and an MBA from Pepperdine University.


                                       31
<PAGE>

TOM DJOKOVICH, age 48, President and Chief Executive Officer as of September 30,
2003, and Director;

Mr.  Djokovich  was the  founder  and  served  from  1995  to 2002 as the  Chief
Executive Officer of Accesspoint  Corporation,  a vertically integrated provider
of electronic  transaction  processing and  e-business  solutions for merchants.
Under   Mr.   Djokovich's   guidance,   Accesspoint   became  a  member  of  the
Visa/MasterCard  association,  the national check processing  association NACHA,
and  developed one of the payment  industry's  most diverse set of network based
transaction  processing,  business  management and CRM systems for both Internet
and conventional points of sale. Prior to Accesspoint, Mr. Djokovich founded TMD
Construction   and   Development   in  1979.   TMD   provided   management   for
multimillion-dollar  projects  incorporating  at times  hundreds  of  employees,
subcontractors   and   international   material   acquisitions  for  commercial,
industrial and custom residential  construction  services as a licensed building
firm in  California.  In 1995 Mr.  Djokovich  developed an early  Internet based
business-to-business   ordering  system  for  the  construction   industry.  Mr.
Djokovich  also  currently  serves  as a  Director  and  Chairman  of the  Audit
Committee  for  Roaming  Messenger,  Inc.,  a publicly  reporting  company  that
provides a breakthrough  software solution for delivering  real-time  actionable
information for Homeland Security,  emergency response,  military and enterprise
applications.

THOMAS ANDERSON, age 40, became a director of the Company in August 2001;

Mr. Anderson presently works as a Senior Environmental  Scientist for the Energy
and Environmental Engineering Division of Apogen Technologies in Los Alamos, New
Mexico.  He earned his B.S. in Geology from Denison  University  and his M.S. in
Environmental  Science  and  Engineering  from  Colorado  School of  Mines.  Mr.
Anderson  has worked for past 16 years in the  environmental  consulting  field,
providing environmental compliance, characterization and remediation services to
Department of Energy, Department of Defense, and industrial clients. He formerly
worked as a Senior Environmental Scientist at Concurrent Technologies Corp. from
November 2000 to December 2004. From March 2000 to November 2000 he was employed
as a hydrologist  at Stone & Webster  Engineering,  Inc. From July 1998 to March
2000  he  was  employed  by  advanced  Integrated   Management  Services  as  an
Environmental  Scientist/Engineer.  From 1997 to 1998 he was a graduate research
assistant  at  Colorado  School  of  Mines  in  the  Environmental  Science  and
Engineering Program.

COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT

No disclosure contained herein.


ITEM 10. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Directors  received  no cash  compensation  for their  service to the Company as
directors,  but can be reimbursed for expenses  actually  incurred in connection
with attending meetings of the Board of Directors.



                                       32
<PAGE>

<TABLE>
<CAPTION>

                             SUMMARY COMPENSATION TABLE OF DIRECTORS
                             (excludes compensation for executives)
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Name                                 Annual         Meeting Fees   Consulting        Number of        Number of
                                     Retainer       ($)            Fees/Other Fees   Shares (#)       Securities
                                     Fees ($)                      ($)                                Underlying
                                                                                                      Options SARS (#)
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
<S>                                  <C>            <C>            <C>               <C>              <C>
Director, Tom Djokovich                   $0             $0               $0                0                 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, Brian Altounian                 $0             $0               $0                0                 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, Thomas Anderson                 $0             $0               $0                0                 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
</TABLE>


EXCUTIVE OFFICER COMPENSATION

The annual  compensation for the executive  officers of the Company for the post
reorganization  operations  has not yet been  determined,  but is expected to be
established  by a resolution of the Company's  Board of Directors in the future.
The Company has not entered into any  employment  agreements  with its executive
officers to date. The Company may enter into employment  agreements with them in
the future.

The  following  table and notes set forth the annual cash  compensation  paid to
officers of the Company.

<TABLE>
<CAPTION>

                    SUMMARY COMPENSATION TABLE OF EXECUTIVES

--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Name & Principal Position   Fiscal    Annual       Annual Bonus    Awards Other         Restricted       Securities
                            Year      Salary ($)   ($)             Annual               Stock Award(s)   Underlying
                                                                   Compensation ($)     ($)              Options/ SARS
                                                                                                         (#)
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
<S>                         <C>       <C>          <C>             <C>                  <C>              <C>
Tom Djokovich, President      2005     $150,000          0                  0                  0                0
                              2004     $130,000          0                  0                  0                0
                              2003        $0             0                  0                  0                0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Brian Altounian, Secretary    2005        $0             0                  0                  0                0
                              2004        $0             0                  0                  0                0
                              2003        $0             0                  0                  0                0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
Thomas Anderson, Director     2005        $0             0                  0                  0                0
                              2004        $0             0                  0                  0                0
                              2003        $0             0                  0                  0                0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
</TABLE>


(1) The Company  has agreed to pay Mr.  Djokovich  $2,884 per week 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.  When  necessitated  by the  Company's  adverse  financial  condition Mr.
Djokovich has agreed to the deferment of his monthly salary up to and until such
time that the Company can repay any such deferred  amounts.  In the period ended
September 30, 2004 Mr.  Djokovich  agreed to the deferment of $65,000 dollars of
his salary until such time that the Company  could begin to repay him. As of the
period  ended  September  30,  2005 the  remaining  balance  of Mr.  Djokovich's
deferred salary was $29,423.


                                       33
<PAGE>

Option/SAR Grants Table (None)

Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)

Long Term Incentive Plans - Awards in Last Fiscal Year
(None)

WARRANTS

The following table sets forth  information with respect to warrants to purchase
common stock of the Company granted during fiscal year ended September 30, 2005.

<TABLE>
<CAPTION>

                                      Non-Qualified Options

----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
Name                    Date Issued            Number Issued     Exercise   Expiration Date       Consideration
                                                                 Price
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
<S>                     <C>                    <C>               <C>       <C>                   <C>
Dr.Richard Rocheleau(1)  February 1, 2005       250,000          $0.20       February 1, 2008    Advisory Board service
                                                                                                 2 year
agreement
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
Dr. Arokia Nathan(2)     February 1, 2005       250,000          $0.20       February 1, 2008    Advisory Board service
                                                                                                 2 year agreement
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
Dr. John Moore (3)       March 8, 2005          250,000          $0.20       March 8, 2008       Advisory Board service
                                                                                                 2 year agreement
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
Cornell Capital, LP(4)   July 14, 2005          4,250,000        $0.15       July 14, 2010       As part of a financing
                                                                                                 agreement
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
Cornell Capital, LP(5)   July 14, 2005          2,125,000        $0.20       July 14, 2010       As part of a financing
                                                                                                 agreement
----------------------- ---------------------- ----------------- --------- --------------------- ---------------------
</TABLE>

(1) The  Warrant  granted to Dr.  Richard  Rocheleau  will vest in the amount of
50,000 shares upon the effective date of the Consultancy and Advisory  Agreement
which was  February 1, 2005.  Thereafter,  the Warrant  will vest at the rate of
25,000 Shares per calendar quarter,  or any apportioned  amount thereof,  during
the term of two (2) year engagement by XsunX, Inc. of Dr. Richard Rocheleau.

(2) The Warrant  granted to Dr.  Arokia Nathan will vest in the amount of 50,000
shares upon the effective date of the Consultancy  and Advisory  Agreement which
was  February 1, 2005.  Thereafter,  the Warrant will vest at the rate of 25,000
Shares per calendar quarter, or any apportioned amount thereof,  during the term
of two (2) year engagement by XsunX, Inc. of Dr. Arokia Nathan.

(3) The Warrant will vest in the amount of 50,000 shares upon the effective date
of the Consultancy and Advisory  Agreement which was March 8, 2005.  Thereafter,
the Warrant will vest at the rate of 25,000 Shares per calendar quarter,  or any
apportioned amount thereof, during the term of two (2) year engagement by XsunX,
Inc. of Dr. John Moore.

(4),  (5) Warrant to  Purchase  Common  Stock  Cornell - On July 14,  2005,  the
Company  consummated a Securities  Purchase Agreement with Cornell providing for
the sale by the Company to Cornell of its 12% secured convertible  debentures in
the aggregate principal amount of $850,000.  Under the Purchase  Agreement,  the
Company  also issued to Cornell  five-year  warrants to purchase  4,250,000  and
2,125,000 shares of Common Stock at $0.15 and $0.20, respectively (collectively,
the "Warrants").

During the years ended  September 30, 2004, and September 30, 20005,  no warrant
holders exercised warrants to purchase the Company's common stock.


                                       34
<PAGE>

A summary of warrant  activity for the year ended September 30, 2004 and 2005 is
as follows:

<TABLE>
<CAPTION>

                                                            Weighted-                           Weighted-
                                         Number of          Average                             Average
                                         Warrants           Exercise         Warrants           Exercise
                                                            Price            Exercisable        Price
                                         --------------     -------------    ---------------    --------------
<S>                                      <C>                <C>              <C>                <C>
Outstanding, September 30, 2003          0                  $0.0             0                  $0.0
    Granted 2004                         8,000,000          $.15             6,700,000          $.15
    Exercised 2004                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2004          8,000,000          $.15             6,700,000          $.15

    Granted 2005                         7,125,000          $.17             6,725,000          $.17
    Exercised 2005                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2005          15,125,000         $.1595           14,450,000         $.1595
                                         ==============
</TABLE>


At September 30, 2005, the range of warrant prices for shares under warrants and
the weighted-average remaining contractual life is as follows:

<TABLE>
<CAPTION>

                                 Warrants Outstanding                                  Warrants Exercisable
                        --------------------------------------------------    ---------------------------------
                                                          Weighted-
                                        Weighted-         Average                                 Weighted-
Range of                Number of       Average           Remaining           Number              Average
Warrant                 Warrants        Exercise          Contractual         Of                  Exercise
Exercise Price                          Price             Life                Warrants            Price
--------------------    ------------    --------------    ----------------    ----------------    -------------
<S>                     <C>             <C>               <C>                 <C>                 <C>
$.15                      8,000,000     $ .15               2                   6,700,000         $ .15
 .17                      7,125,000       .17             2.8                   6,725,000           .17
                        ------------                                          ----------------
                         15,125.000                                            14,450,000
                        ============                                          ================
</TABLE>

No other  compensation  not described  above was paid or distributed  during the
last  fiscal  year  to the  executive  officers  of the  Company.  There  are no
compensatory plans or arrangements,  with respect to any executive office of the
Company,  which result or will result from the  resignation,  retirement  or any
other  termination of such  individual's  employment  with the Company or from a
change  in   control   of  the   Company   or  a  change  in  the   individual's
responsibilities following a change in control.


                                       35
<PAGE>

INCENTIVE STOCK OPTIONS

On July 15, 2004, the Board of Directors of XsunX resolved to establish the 2004
Stock  Option  Plan.  The plan was  adopted  to  provide  equity  incentives  to
employees,  consultants  and suppliers of the Company.  The adoption of the Plan
was subject to ratification by a majority of the Company's  stockholders,  which
approval was to be obtained  within 12 months from the date the Plan was adopted
by the Board.  The Plan was cancelled by the Board,  due to  non-approval by the
shareholders,  in August 2005. No stocks or options were issued at September 30,
2005

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table sets forth,  as of the date of this Report,  the number of
shares of common stock owned of record and  beneficially by executive  officers,
directors and persons who hold 5.0% or more of the  outstanding  common stock of
the Company as of December  31, 2005.  Also  included are the shares held by all
executive officers and directors as a group.



SHAREHOLDERS/                    NUMBER OF SHARES              OWNERSHIP
BENEFICIAL OWNERS                                              PERCENTAGE(1)
---------------------------------------------------------------------------
Tom Djokovich                         17,903,000(2)               14.45%
President & Director
65 Enterprise
Aliso Viejo, CA  92656

Brian Altounian                        3,650,000                   2.95%
Secretary
65 Enterprise
Aliso Viejo, CA  92656

Thomas Anderson                          56,900                   >.01%
65 Enterprise
Aliso Viejo, CA  92656

All directors and executive  officers as a group (3 persons)  21,609,900 17.44%.
Each principal  shareholder has sole investment power and sole voting power over
the shares.

(1) Applicable  percentage  ownership is based on  123,917,080  shares of common
stock outstanding as of January 9, 2006.  Beneficial  ownership is determined in
accordance  with  the  rules  of the  Securities  and  Exchange  Commission  and
generally includes voting or investment power with respect to securities. Shares
of common stock that are currently  exercisable or exercisable within 60 days of
January 9, 2006 are deemed to be  beneficially  owned by the person holding such
securities  for the purpose of  computing  the  percentage  of ownership of such
person,  but are not treated as  outstanding  for the purpose of  computing  the
percentage ownership of any other person.

(2) Includes 16,978,000 shares owned by the Djokovich Limited  Partnership.  Mr.
Djokovich shares voting and dispositive  power with respect to these shares with
Mrs. Djokovich.


                                       36
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

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.

ADDITION OF MEMBERS TO SCIENTIFIC ADVISORY BOARD

Grant of Options/Warrants

During  the  quarter  period  ending  September  30,  2005  the  Company  issued
consultancy  and advisory  Warrants to 3 individuals,  Dr. Richard  Rocheleau on
February 1, 2005,  Dr. Arokia Nathan on February 1, 2005,  and Dr. John Moore on
March  8,  2005 as  compensation  for 2 years  service  each as  members  of the
Company's  Scientific  Advisory  Board.  Each  individual  was granted  Warrants
totaling  250,000 shares with an exercise price of $0.20 per share. The Warrants
were issued as part of  Consultancy  and Advisory  Agreements and each carry a 3
year exercise term and the following vesting provisions:

         (i) 50,000 shares upon the effective date of Warrant.  Thereafter,  the
         Warrant  shall  become  exercisable  at the rate of 25,000  Shares  per
         calendar quarter, or any apportioned amount thereof, during the term of
         engagement between the consultant and the Company.

Expanded License and Warrants

Expanded Use License stock warrant  MVSystems,  Inc. - As consideration  for the
grant of an Expanded Use License on October 12, 2005,  granting XsunX additional
benefits  for use of licensed  technologies  and  patents,  XsunX  granted MVS a
warrant (the  "Expanded  Use License  Stock  Warrant") for the purchase of up to
Seven  Million  (7,000,000)  shares of common  stock of XsunX,  the warrant will
expire  five  (5)  years  after  the date of the  grant  and is  subject  to the
following vesting provisions:

        (4)    The Expanded Use License Stock Warrant allowed for the vesting of
               one million  (1,000,000)  warrants on the  effective  date of the
               agreements.

        (5)    Another  one  million  (1,000,000)  warrants  will  vest upon the
               satisfactory  completion of a Phase 4 development program for the
               development  of  technologies  licensed  under the  Expanded  Use
               License.

        (6)    The balance of five million  (5,000,000)  warrants will vest upon
               the  date the  technologies  licensed  within  the  Expanded  Use
               License are licensed to a third party in a bona fide  arms-length
               commercial setting.


                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

1. Reports on Form 8-K:

8-K filed 7-18-05
8-K filed 8-10-05
8-K filed 8-11-05
8-K filed 9-7-05
8-K/A filed 10-11-05
8-K filed 10-17-05
8-K filed 10-28-05
8-K 12-12-05



                                       37
<PAGE>

<TABLE>
<CAPTION>

2. Exhibits:

<S>  <C>
10.1 EXPANDED USE LICENSE AGREEMENT
10.2 EXPANDED USE LICENSE STOCK WARRANT TO PURCHASE COMMON STOCK OF XSUNX, INC.
10.3 SUBSCRIPTION FORM AND NOTICE OF EXERCISE
10.4 CONSULTANCY AND ADVISORY WARRANT TO PURCHASE COMMON STOCK OF XSUNX, INC.
10.5 CONSULTANCY AND ADVISORY WARRANT TO PURCHASE COMMON STOCK OF XSUNX, INC.
10.6 CONSULTING AND ADVISORY AGREEMENT
10.7 CONSULTING AND ADVISORY AGREEMENT
10.8 CONSULTING AND ADVISORY AGREEMENT

31 Sarbanes-Oxley Certification
32 Sarbanes-Oxley Certification
</TABLE>


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  Company's  Board  acts as the  audit  committee  and  had no  "pre-approval
policies and  procedures"  in effect for the auditors'  engagement for the audit
year 2004 and 2005.

All audit work was performed by the auditors' full time employees.

Michael Johnson & Co., LLC, formerly auditors for the Company,  was dismissed as
auditor  on July 18,  2005.  Jaspers + Hall,  PC were  engaged as  auditors  for
Company on July 18, 2005.

Jaspers + Hall, PC, is now the Company's principal auditing accountant firm. The
Company's  Board of Directors has considered  whether the provision of the audit
services is compatible with maintaining Jaspers + Hall, PC independence.

AUDIT FEES 2005:

As of the period ended  September 30, 2005 Jaspers + Hall had billed the Company
$1,500 for the following professional services:  review of the interim financial
statements  included in quarterly  reports on Form 10-QSB for the periods  ended
June 30, 2005. No other fees the Company  billed by Jaspers + Hall in the period
ended September 30, 2005.

The Company's  previous  auditor,  Michael Johnson & Co, LLC, billed the Company
$7,500 for the following  professional  services:  audit of the annual financial
statement of the Company for the fiscal year ended September 30, 2004, review of
the interim  financial  statements  included in quarterly reports on Form 10-QSB
for the periods ended December 31, 2004, March 31, 2005.

AUDIT FEES 2004:

The Company's  previous  auditor,  Michael Johnson & Co, LLC, billed the Company
$5,900 for the following  professional  services:  audit of the annual financial
statement  of the Company  for the fiscal year ended  September  30,  2003,  and
review of the interim financial statements included in quarterly reports on Form
10-QSB for the periods  ended  December 31, 2003,  March 31, 2004,  and June 30,
2004. Michael Johnson & Co, LLC, billed the Company $4,250 for the 2002 audit.

The  Company's  Board  acts as the  audit  committee  and  had no  "pre-approval
policies and  procedures"  in effect for the auditors'  engagement for the audit
year 2004 and 2005.



                                       38
<PAGE>

                                      INDEX



                                                      Form 10-KSB
Regulation                                            Consecutive
S-K Number                 Exhibit                    Page Number

3.1             Articles of Incorporation             Incorporated by reference
                to Registration Statement
                Form 10SB12G #000-29621


3.2             Bylaws                                Incorporated by Reference
                to Registration Statement
                Form 10SB12G #000-29621



                                       39
<PAGE>

                          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

<PAGE>

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, and
the related statements of operations,  cash flows, and stockholders'  equity for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the 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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of XSUNX,  INC.,  (formerly Sun
River Mining,  Inc.) at September  30, 2005 and the results of their  operations
and their cash flows for the year ended  September 30, 2005 in  conformity  with
accounting principles generally accepted in the United States.

The  financial  statements  for the years ended  September 30, 2004 and 2003 and
from 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.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 4 to the
financial  statements,  conditions exist which raise substantial doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note 4. The financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.


/s/ JASPERS + HALL, PC
Denver, CO
December 28, 2005


                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                                          XSUNX, INC.
                                 (A Development Stage Company)
                                         Balance Sheets
                                         September 30,

                                                                                        2005                    2004
                                                                                   ----------------        ----------------
<S>                                                                                <C>                     <C>
ASSETS:
Current assets:
   Cash                                                                                  $ 175,869                $ 37,344
   Prepaid Expense                                                                          79,984                  20,000
                                                                                   ----------------        ----------------

      Total current assets                                                                 255,853                  57,344
                                                                                   ----------------        ----------------

Fixed Assets:
   Office Equipment (Net)                                                                  165,831                   2,270
                                                                                   ----------------        ----------------

      Total Fixed Assets                                                                   165,831                   2,270
                                                                                   ----------------        ----------------

Other Assets:
   Patents                                                                                  20,000                  10,000
   Deposits                                                                                      -                   2,500
                                                                                   ----------------        ----------------

      Total other assets                                                                    20,000                  12,500
                                                                                   ----------------        ----------------

TOTAL ASSETS                                                                             $ 441,684                $ 72,114
                                                                                   ================        ================


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
   Accounts Payable                                                                       $ 78,377                $ 89,030
   Accrued Interest                                                                         45,856                   5,908
   Note Payable                                                                            850,000                       -
   Note Payable - Stockholder                                                                    -                   1,225
                                                                                   ----------------        ----------------

      Total current liabilities                                                            974,233                  96,163
                                                                                   ----------------        ----------------

Stockholders' equity (deficit):

Preferred Stock, par value $0.01 per share; 50,000,000
shares authorized; no shares issued and outstanding                                              -                       -
Treasury Stock, no par value; 26,798,418 issued and outstanding                                  -                       -
Common Stock, no par value; 500,000,000 shares authorized;
   123,876,633 shares issued and outstanding in 2005, and 114,036,102                    3,996,735               3,104,396
   shares issued and outstanding in 2004.
Common Stock Warrants                                                                    1,200,000               1,200,000
Deficit accumulated during the development stage                                        (5,729,284)             (4,328,445)
                                                                                   ----------------        ----------------

       Total stockholders' deficit                                                        (532,549)                (24,049)
                                                                                   ----------------        ----------------

TOTAL LIABILITIES AND
   STOCKHOLDERS' EQUITY (DEFICIT)                                                        $ 441,684                $ 72,114
                                                                                   ================        ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                                          XSUNX, INC.
                                 (A Development Stage Company)
                                    Statements of Operations


                                                                               February 25, 1997
                                                Year Ended                       (Inception) to
                                               September 30,                     September 30,
                                     -----------------------------------
                                         2005                 2004                   2005
                                     --------------       --------------       ------------------
<S>                                  <C>                  <C>                  <C>

Revenue                                        $ -                  $ -                      $ -

Expenses:
   Abandoned Equipment                           -                    -                      808
   Advertising                               3,979                    -                    3,979
   Bank Charges                                500                  401                    2,613
   Consulting                              320,944               19,900                1,344,983
   Depreciation                             18,435                    -                   21,613
   Directors' Fees                               -                    -                   11,983
   Due Dilgence                                  -                    -                   45,832
   Equipment Rental                              -                    -                    1,733
   Filing Fees                               1,800                    -                    1,800
   Impairment loss                               -                    -                  923,834
   Insurance                                   758                    -                      758
   Legal and Accounting                    107,249               27,203                  295,609
   Licenses & Fees                              25                  190                    6,435
   Loan Fees                               115,000                    -                  115,000
   Meals & Entertainment                         -                    -                    4,119
   Miscellaneous Expenses                    1,675                    -                    1,675
   Office Expenses                           2,634                5,218                   21,833
   Patent Fees                                 663                    -                      663
   Salaries                                155,236              119,336                  655,322
   Postage                                   2,161                    -                    5,378
   Printing                                  4,300                    -                    9,880
   Public Relations                        116,413                6,640                  227,379
   Rent                                      9,000                8,905                   25,963
   Research & Development                  501,423              129,493                  630,916
   Subscription Reports                        860                    -                      860
   Taxes                                         -                    -                    4,657
   Telephone                                 5,489                4,270                   40,304
   Transfer Agent Expense                    3,628                2,997                   19,954
   Travel                                   11,234                3,640                   74,167
   Warrant Option Expense                        -            1,200,000                1,675,000
                                     --------------       --------------       ------------------

Total Expenses                           1,383,406            1,528,193                6,175,050
                                     --------------       --------------       ------------------

Other Income and Expense
   Interest Expense                         17,433                  251                   89,030
   Interest Income                               -                    -                      (23)
   Forgiveness of Debt                           -              (19,376)                 (59,773)
                                     --------------       --------------       ------------------


Net Loss                              $ (1,400,839)        $ (1,509,068)            $ (6,204,284)
                                     ==============       ==============       ==================


Per Share Information:

   Weighted average number of
     common shares outstanding         123,854,733          114,036,102
                                     --------------       --------------

Net Loss per Common Share               $ (0.02)             $(0.01)
                                        ========             =======
</TABLE>

* Less than $.01

   The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                             XSUNX
                                 (A Development Stage Company)
                                    Statements of Cash Flows

                                       (Indirect Method)


                                                                                                        February 25, 1997
                                                                        Year Ended                        (Inception) to
                                                                       September 30,                       September 30,
                                                             ------------------------------------
                                                                 2005                  2004                    2005
                                                             --------------       ---------------       -------------------
<S>                                                          <C>                  <C>                   <C>
Cash Flows from Operating Activities:

Net Loss                                                      $ (1,400,839)          $(1,509,068)             $ (6,204,284)

   Issuance of Common Stock for Services                            50,827                     -                 1,288,384
   Issuance of Common Stock for Loan Inducement                    310,117                                         310,117
   Depreciation Expense                                             18,435                                          18,435
Adjustments to reconcile net loss to net cash used in operations.
   (Increase) Decrease in Deposits                                   2,500               (22,500)                        -
   (Increase) in Prepaid Expenses                                  (59,985)                                        (79,985)
   Increase (Decrease) in Accounts Payable                         (10,653)               89,030                    78,377
   Increase (Decrease) in Accrued Liabilities                       39,948                 5,908                    45,856
                                                             --------------       ---------------       -------------------

Net Cash Flows Used by Operations                               (1,049,650)           (1,436,630)               (4,543,100)
                                                             --------------       ---------------       -------------------

Cash Flows from Investing Activities:
   Purchase of Equipment                                          (181,995)               (2,270)                 (184,265)
   Purchase of Intangible Assets                                   (10,000)               (9,997)                  (20,000)
                                                             --------------       ---------------       -------------------

   Net cash used by investing activities                          (191,995)              (12,267)                 (204,265)
                                                             --------------       ---------------       -------------------

Cash Flows from Financing Activities:
   Proceeds from Notes payable - Stockholder                         3,775                 1,225                         -
   Payment for Notes payable - Stockholder                          (5,000)                    -                         -
   Proceeds from Convertible Debt                                  850,000                     -                   850,000
   Issuance of Common Stock Warrants                                     -             1,200,000                 1,675,000
   Issuance of Common Stock for cash                               531,395               282,670                 2,398,234
                                                             --------------       ---------------       -------------------

Net Cash Flows Provided by Financing Activities                  1,380,170             1,483,895                 4,923,234
                                                             --------------       ---------------       -------------------

Increase in Cash                                                   138,525                34,998                   175,869
                                                             --------------       ---------------       -------------------

Cash at Beginning of Period                                         37,344                 2,346                         -
                                                             --------------       ---------------       -------------------

Cash at End of Period                                            $ 175,869              $ 37,344                 $ 175,869
                                                             ==============       ===============       ===================

Supplemental Disclosure of Cash Flow Information
   Cash paid for Interest                                              $ -                   $ -                  $ 71,346
                                                             ==============       ===============       ===================
   Cash paid for income taxes                                          $ -                   $ -                       $ -
                                                             ==============       ===============       ===================

NON-CASH TRANSACTIONS
   Stock issued for services                                      $ 50,827                   $ -               $ 1,288,384
                                                             ==============       ===============       ===================
   Stock issued for Loan Inducement                              $ 310,117                   $ -                   310,117
                                                             ==============       ===============       ===================

</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>


                                                   XSUNX, INC.
                                         (A Development Stage Company)
                                   Statement of Stockholders' Equity (Deficit)
                                               September 30, 2005


                                                                                                    Deficit
                                                                                                  Accumulated
                                                                                       Common        During
                                          Treasury Stock           Common Stock         Stock     Development
                                       ----------------------   --------------------
                                       # of Shares  Amount      # of Shares Amount      Warrants     Stage       Totals
                                                                                      ------------------------  ---------
<S>                                    <C>          <C>         <C>         <C>      <C>           <C>            <C>

Inception February 25, 1997                $   -       $   -            -   $      -   $       -   $         -            -

Issuance of stock for cash 3/97                -           -       10,590    111,900           -             -      111,900
Issuance of stock to Founders 3/97             -           -       14,110          -           -             -           -
Issuance of stock for consolidation 4/97       -           -      445,000    312,106           -             -      312,106
Issuance of stock for cash 8/97                -           -        2,900     58,000           -             -       58,000
Issuance of stock for cash 9/97                -           -        2,390     47,800           -             -       47,800
Net Loss for Year                              -           -            -          -           -      (193,973)    (193,973)
                                       ----------  ----------   ---------   --------  ----------   -----------    ---------

Balance - September 30, 1997                   -           -      474,990    529,806           -      (193,973)     335,833
                                       ----------  ----------   ---------   --------  ----------   -----------    ---------

Issuance of stock for services 11/97           -           -        1,500     30,000           -             -       30,000
Issuance of stock for cash 9/98                -           -       50,200    204,000           -             -      204,000
Consolidation stock cancelled 9/98             -           -      (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 10/98               -           -       21,233    159,367           -             -      159,367
Issuance of stock for services 1/99            -           -       65,000    316,500           -             -      316,500
Issuance of stock for cash 1/99                -           -       37,500    296,125           -             -      296,125
Issuance of stock for cash 2/99                -           -        7,500     70,313           -             -       70,313
Issuance of stock for cash 4/99                -           -       45,225    122,108           -             -      122,108
Issuance of stock for services 6/99            -           -       70,000    147,000           -             -      147,000
Issuance of stock for cash 9/99                -           -       40,000     69,200           -             -       69,200
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 9/00                -           -       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)
                                       ----------  ----------   ---------   --------  ----------   -----------    ---------

Extinquishment 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 7/03              -           -   70,000,000          3           -             -            3
Issuance of stock for Cash 8/03                -           -    9,000,000    225,450           -             -      225,450
Issuance of stock for Debt 9/03                -           -      115,000    121,828           -             -      121,828
Issuance of stock for Expenses 9/03            -           -      115,000     89,939           -             -       89,939
Issuance of stock for Services 9/03            -           -   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)       2,349
                                       ----------  ----------   ---------   --------  ----------   -----------    ---------


                                      F-5
                                                                                                ...Continued
<PAGE>

                                                   XSUNX, INC.                                  ...Continued
                                         (A Development Stage Company)
                                   Statement of Stockholders' Equity (Deficit)
                                               September 30, 2005


                                                                                                    Deficit
                                                                                                  Accumulated
                                                                                       Common        During
                                          Treasury Stock           Common Stock         Stock     Development
                                       ----------------------   --------------------
                                       # of Shares  Amount      # of Shares Amount      Warrants     Stage       Totals
                                                                                      ------------------------  ---------

Issuance of stock for Cash                     -           -      181,750     21,071           -             -       21,071
Issuance of stock for Cash                     -           -      217,450     22,598           -             -       22,598
Issuance of stock for Cash                     -           -      254,956     34,669           -             -       34,669
Issuance of stock for Cash                     -           -      694,649     96,306           -             -       96,306
Issuance of stock for Cash                     -           -      157,649     21,421           -             -       21,421
Issuance of stock for Cash                     -           -       57,000      5,133           -             -        5,133
Issuance of stock for Cash                     -           -    1,174,500     81,472           -             -       81,472
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                     -           -    5,919,537    471,068           -             -      471,068
Issuance of stock for cash                     -           -      300,500     20,067           -             -       20,067
Issuance of stock for services                 -           -       10,000      3,000           -             -        3,000
Issuance of stock for services                 -           -      300,000     24,000           -             -       24,000
Issuance of stock for cash                     -           -      527,000     40,260           -             -       40,260
Issuance of stock for services                 -           -      125,000     10,000           -             -       10,000
Issuance of stock for services                 -           -      114,469     13,827           -             -       13,827
Issuance of stock for Collateral       26,798,418          -            -          -           -             -            -
Issuance of stock for loan inducement          -           -    2,544,031    310,117           -             -      310,117
Net Loss for year                              -           -            -          -           -    (1,400,839)  (1,400,839)
                                       ----------  ----------   ---------   --------  ----------   -----------    ---------

Balance - September 30, 2005           26,798,418        $ -   23,876,639 $3,996,735  $1,200,000  $ (5,729,284)   $(532,549)
                                       ==========  ==========   =========   ========  ==========   ===========    =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6


<PAGE>

                                   XSUNX, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements
                               September 30, 2005

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. In May 1999 management decided to
write-off the Sun River Bolivian  subsidiaries  and to take the subsequent loss,
of all investments  associated with the  subsidiaries.  Effective  September 24,
2003,  The  Company  completed  a Plan  of  Reorganization  and  Asset  Purchase
Agreement with Xoptix, Inc., a California corporation.

Pursuant to the Plan the Company acquire the following three patents 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 developing solar cell designs and manufacturing  process with the
intent to provide  commercially  viable  solar  cell  design  applications  that
convert sun light into electrical energy. The process for producing  electricity
from sun light is known as Photovoltaics.  Photovoltaic ("PV") is the science of
capturing and converting solar energy into electricity.

The  product of the  Company's  development  efforts is  intended to deliver two
aspects  of  deliverable  technologies  in the  form of an  integrated  solution
providing,   a)  commercially  scalable  manufactured  processes  and  equipment
designed  for  the  specific  manufacture  of  the  Company's  thin  film  solar
technologies,  and b) proprietary  thin film solar cell designs that address new
application opportunities.

Note 2 - Going Concern

Going Concern:

The financial  statements  of the Company have been  presented on the basis that
they are a going concern,  which  contemplates the realization of assets and the
satisfaction  of liabilities  in the normal course of business.  The Company has
not generated any revenue and has an  accumulated  deficit at September 30, 2005
of $6,201,284.

The future  success of the Company is likely  dependent on its ability to attain
additional  capital,  or to find an  acquisition  to add  value  to its  present
shareholders  and  ultimately,  upon its  ability  to attain  future  profitable
operations.  There can be no assurance  that the Company will be  successful  in
obtaining  such  financing,  or that it will  attain  positive  cash  flow  from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial  requirements  provide the opportunity for the
Company to continue as a going concern.

The Company has made  substantial  investments this last year in the development
of intellectual  property assets as part of a  business-restructuring  plan. The
purpose  of these  investments  was to acquire  patented  solar  electric  glass
technology.  The  Company  believes  that  its  patented  solar  electric  glass
technology  has a number of market  opportunities  in the  multi-billion  dollar
worldwide architectural glass markets.


Note 3 - Summary of Significant Accounting Policies:

Basis of Presentation - Development Stage Company:

The Company has not earned  significant  revenues from operations.  Accordingly,
the Company's  activities  have been  accounted  for as those of a  "Development
Stage Enterprise" as set forth in Financial Accounting Standards Board Statement
No.  7  ("SFAS  7").  Among  the  disclosures  required  by SFAS 7 are  that the
Company's  financial  statements be  identified as those of a development  stage
company,  and that the statements of operations,  stockholders' equity (deficit)
and cash flows disclose activity since the date of the Company's inception.

                                      F-7

<PAGE>


Basis of Accounting:

The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting  principles  generally  accepted in the
United States.


Cash and Cash Equivalents:

For purposes of the statements of cash flows, cash and cash equivalents  include
cash in banks and money  markets  with an original  maturity of three  months or
less.


Use of Estimates:

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and  assumptions   that  affect  certain   reported   amounts  and  disclosures.
Accordingly,  actual  results  could  differ from those  estimates.  Significant
estimates made in preparing these financial  statements include the estimate for
the useful life of property and equipment, and the fair value of stock warrants.
Actual results could differ from those estimates

Fair value of financial instruments

The  Company's  financial  instruments,  including  cash and  cash  equivalents,
accounts payable and accrued liabilities are carried at cost, which approximates
their fair value, due to the relatively short maturity of these instruments.  As
of  September  30,  2005 and 2004,  the  Company's  notes  payable  have  stated
borrowing  rates that are  consistent  with  those  currently  available  to the
Company and, accordingly,  the Company believes the carrying value of these debt
instruments approximates their fair value.

Property and Equipment

Property and  equipment  are stated at cost,  and are  depreciated  or amortized
using the straight-line method over the following estimated useful lives:

Furniture, fixtures & equipment                 7 Years
Computer equipment                              5 Years
Commerce server                                 5 Years
Computer software                             3-5 Years
Leasehold improvements              Length of the lease

Net earning (loss) per share:

Basic loss per share is computed on the basis of the weighted  average number of
common shares  outstanding.  For all periods,  all of the Company's common stock
equivalents  were excluded from the calculation of diluted loss per common share
because they were anti-dilutive, due to the Company's net losses.

Advertising:

Advertising costs are expensed as incurred.  Total advertising costs were $3,975
and $0.0 for the years ended September 30, 2005 and 2004, respectively.

Research and Development:

Research and  development  costs are expensed as  incurred.  Total  research and
development  costs were $ 501,423 and $129,493 for the years ended September 30,
2005 and 2004, 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.

                                      F-8

<PAGE>

Note 4 - Federal Income Tax:

The Company  accounts  for income taxes under SFAS No. 109,  which  requires the
asset and  liability  approach  to  accounting  for  income  taxes.  Under  this
approach,  deferred income taxes are determined based upon  differences  between
the financial  statement and tax bases of the Company's  assets and  liabilities
and operating loss carry forwards using enacted tax rates in effect for the year
in which the  differences  are  expected  to  reverse.  Deferred  tax assets are
recognized  if it is more likely  than not that the future tax  benefit  will be
realized.

Significant  components of the Company's deferred tax liabilities and assets are
as follows:


                                                      2005                2004
                                                  -----------       -----------
   Deferred Tax Liability                       $  6,204,284       $  4,328,445
   Deferred Tax Assets
      Net Operating Loss Carry forwards
      Book/Tax Differences in Bases of Assets              0                  0
                                                --------------   ---------------
   Valuation  allowance                         $  6,204,284       $  4,328,445
                                                --------------   ---------------
   Net Deferred tax assets                      $          0       $          0
                                                ==============   ===============


At September  30, 2005,  the Company had net  operating  loss carry  forwards of
approximately,  $6,204,284 for federal income tax purposes. These carry forwards
if not utilized to offset taxable income will begin to expire in 2010.

Note 5 - Capital Stock Transactions:

The authorized  capital stock of the Company was established at 500,000,000 with
no par value. On September 29, 2003 the Board of Directors  authorized a reverse
split of 1 for 20 shares of stock.  The stocks  issued in 2003 were for  accrued
directors  fees and salaries and to pay off past debt to  investors.  70,000,000
shares of stock were issued to obtain the patent  rights from Xoptix,  Inc. Also
shares  of stock  were  issued  in 2003 for  consulting  fees in  arranging  the
formation of the new Corporation.  In 2004 2,737,954 shares of stock were issued
for cash and consulting  fees.  9,840,537  shares of common stock were issued in
2005 for cash and  consulting  fees. In July 2005,  26,798,418  shares of common
stock were placed in XSUNX, Inc. Treasury Stocks as collateral for the long-term
note with Cornell Capital Partners.

In 2005,  the Company  issued  6,747,037  shares of common stock for $531,395 in
cash, 549,419 shares of common stock for consulting fees with estimated value of
$50,827,  and 2,544,031  shares for a loan  inducement  with estimated  value of
$310,117.

Note 6 - Stock Options and Warrants:

Stock Option Plan:

On July 15, 2004, the Board of Directors of XsunX resolved to establish the 2004
Stock  Option  Plan.  The plan was  adopted  to  provide  equity  incentives  to
employees,  consultants  and suppliers of the Company.  The adoption of the Plan
was subject to ratification by a majority of the Company's  stockholders,  which
approval was to be obtained  within 12 months from the date the Plan was adopted
by the Board.  The Plan was cancelled by the Board,  due to  non-approval by the
shareholders,  in August 2005. No stocks or options were issued at September 30,
2005

Warrant/Option Expense

Warrant/Option  Expense for the Company was computed by multiplying the value of
the  difference  between the  warrant  exercise  price,  if less than the market
price, and the market price of the stock at date of grant.  This method resulted
in a $0.0  charge  to  expenses  for the  warrants  granted  in the  year  ended
September 30, 2005, as follows:

                                      F-9

<PAGE>

<TABLE>
<CAPTION>

2005 WARRANT/OPTION EXPENSE CHART

                                                        Underlying        In   the   Money
                         # of Warrants  Exercise Price  Share  Value  at  Spread  at  Date  Warrant Expense
Holder                                                  Date of Grant     of Grant
------------------------ -------------- --------------- ----------------- ----------------- -----------------
<S>                      <C>            <C>             <C>               <C>               <C>
                         250,000        $.20            $.15              $.0               $.0
Richard Rocheleau
------------------------ -------------- --------------- ----------------- ----------------- -----------------
Arokia Nathan            250,000        $.20            $.15              $.0               $.0
------------------------ -------------- --------------- ----------------- ----------------- -----------------
John Moore               250,000        $.20            $.12              $.0               $.0
------------------------ -------------- --------------- ----------------- ----------------- -----------------
Cornell Capital, LP      4,250,000      $.15            $.15              $.0               $.0
------------------------ -------------- --------------- ----------------- ----------------- -----------------
Cornell Capital, LP      2,125,000      $.20            $.15              $.0               $.0
------------------------ -------------- --------------- ----------------- ----------------- -----------------
Totals                                                                                      $0.0
------------------------ -------------- --------------- ----------------- ----------------- -----------------
</TABLE>


Warrant Grants

License Stock Warrant  MVSystems,  Inc.- In September 2004 as consideration  for
the grant of the  License,  XsunX  granted  MVS a warrant  (the  "License  Stock
Warrant")  for the purchase of up to Five Million  (5,000,000)  shares of common
stock of XsunX (the  "License  Stock Warrant  Shares"),  the warrant will expire
five (5) years after the date of the grant.

Technology Sharing Warrant  MVSystems,  Inc.- In September 2004 as consideration
for  access  to MVS know how and  Service  at Cost  pursuant  to the  technology
sharing  agreement  between  the  parties,  XsunX  granted  to MVS a warrant  to
purchase  up to One Million  shares  (1,000,000)  of common  stock of XsunX (the
"Technology  Sharing Warrant Shares").  The Technology Sharing Warrant carries a
five (5) year exercise term and is subject to conditional  vesting in accordance
with the following provisions:

        (1)    The Technology  Sharing  Warrant shall become  exercisable in the
               amount of 250,000  shares  upon the  satisfactory  completion  of
               Phase 2 under the MVS Phase 2 Development Agreement.

        (2)    The Technology  Sharing  Warrant shall become  exercisable in the
               amount of 250,000  shares upon the  satisfactory  completion,  as
               reasonably  determined  by the XsunX Board of  Directors,  of any
               subsequent  phase of  development as may be defined under the MVS
               future development proposal.

        (3)    The Technology  Sharing  Warrant shall become  exercisable in the
               amount of 500,000 shares upon the  Commercialization  of an XsunX
               process.

Consultancy  Warrant  Bentley - In  September  2004 the  Company  granted  James
Bentley a  consultancy  and advisory  warrant in the amount of 1,000,000  shares
with an  exercise  price of $.15 per share.  Mr.  Bentley  has  worked  with the
Company in its initial stage helping to establish a plan for the  development of
working  samples and the review and  selection  process for  engaging  qualified
research and development firms to initiate  development efforts. Mr. Bentley had
also assisted the Company in continued  efforts to expand  research  efforts and
business development opportunities. The warrant was issued for the conversion of
$15,000 in accrued  consultancy  fees, and as part of a Consultancy and Advisory
Agreement  and carries a 3 year  exercise  term and is subject to the  following
vesting provisions:

        (1)    500,000   shares  upon  the   effective   date  of  the  warrant.
               Thereafter,  the warrant shall become  exercisable at the rate of
               125,000 shares per calendar  quarter up to the full amount of the
               warrant.

Consultancy  and Advisory  Warrant Dr. Madan - In September 2004 as compensation
for Dr.  Madan's  advice and  consultation  efforts in the  furtherance of XsunX
business  initiatives as Chairman of the XsunX Scientific Advisory Board , XsunX
granted Dr. Madan the a warrant  (the  "Consultancy  and  Advisory  Warrant") to
purchase  up to One  Million  (1,000,000)  shares of common  stock of XsunX (the
"Consultancy  and Advisory Stock Warrant Shares") The Warrant carries a five (5)
year exercise term and is subject to conditional  vesting in accordance with the
following provisions:

        (1)    The Consultancy and Advisory Warrant shall become  exercisable at
               the rate of 25,000  Shares  per month  during and up to the first
               twenty-four (24) months of engagement by XsunX of Dr. Madan.

        (2)    The Consultancy and Advisory Warrant shall become  exercisable in
               the amount of 150,000 shares upon the satisfactory  completion of
               Phase 2 under the MVS Phase 2 Development Agreement.

        (3)    The Consultancy and Advisory Warrant shall become  exercisable in
               the amount of 250,000  shares  upon the  Commercialization  of an
               XsunX process.

Consultancy and Advisory  Warrant Nathan - A Consultancy and Advisory  agreement
with Dr. Arokia Nathan for services to the Company as a member of the Scientific

                                      F-10

<PAGE>

Advisory Board was approved by the Board on February 1, 2005. The Board issued a
warrant  agreement  for the  purchase of common  stock to Dr.  Arokia  Nathan in
accordance with the provisions of the Consulting and Advisory Agreement totaling
two hundred fifty  thousand  (250,000)  warrants  exercisable  at $.20 each. The
Warrant  carries a three (3) year  exercise  term and is subject to  conditional
vesting in accordance with the following provisions:

        (2)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was  February 1, 2005.  Thereafter,  the Warrant will vest at the
               rate of 25,000 Shares per calendar  quarter,  or any  apportioned
               amount  thereof,  during the term of two (2) year  engagement  by
               XsunX, Inc. of Dr. Arokia Nathan.

Consultancy and Advisory Warrant Agreement Rocheleau- A Consultancy and Advisory
agreement  with Dr Richard E.  Rocheleau for services to the Company as a member
of the Scientific  Advisory Board was approved by the Board on February 1, 2005.
The Board  issued a warrant  agreement  for the  purchase of common stock to Dr.
Richard E.  Rocheleau in accordance  with the  provisions of the  Consulting and
Advisory  Agreement  totaling  two hundred  fifty  thousand  (250,000)  warrants
exercisable at $.20 each. The Warrant carries a three (3) year exercise term and
is subject to conditional vesting in accordance with the following provisions:

        (2)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was  February 1, 2005.  Thereafter,  the Warrant will vest at the
               rate of 25,000 Shares per calendar  quarter,  or any  apportioned
               amount  thereof,  during the term of two (2) year  engagement  by
               XsunX, Inc. of Dr. Richard Rocheleau.

Consultancy  and Advisory  Warrant  Agreement Moore - A Consultancy and Advisory
agreement  with Dr John J. Moore for  services to the Company as a member of the
Scientific  Advisory Board was approved by the Board on March 8, 2005. The Board
issued a warrant agreement for the purchase of common stock to Dr. John J. Moore
in accordance  with the  provisions  of the  Consulting  and Advisory  Agreement
totaling two hundred fifty thousand (250,000) warrants exercisable at $.20 each.
The Warrant carries a three (3) year exercise term and is subject to conditional
vesting in accordance with the following provisions:

        (2)    The  Warrant  will vest in the amount of 50,000  shares  upon the
               effective date of the  Consultancy  and Advisory  Agreement which
               was March 8, 2005. Thereafter,  the Warrant will vest at the rate
               of 25,000 Shares per calendar quarter,  or any apportioned amount
               thereof,  during  the term of two (2) year  engagement  by XsunX,
               Inc. of Dr. John Moore.

Warrant  to  Purchase  Common  Stock  Cornell - On July 14,  2005,  the  Company
consummated a Securities  Purchase  Agreement  (the "Purchase  Agreement")  with
Cornell  providing  for the sale by the  Company to  Cornell of its 12%  secured
convertible debentures in the aggregate principal amount of $850,000.  Under the
Purchase  Agreement,  the Company also issued to Cornell  five-year  warrants to
purchase  4,250,000  and  2,125,000  shares of Common  Stock at $0.15 and $0.20,
respectively (collectively, the "Warrants").

During the years ended  September 30, 2004, and September 30, 2005, the board of
directors  approved  the  issuance  of warrants  to  purchase  an  aggregate  of
15,125,000  shares of the Company's common stock.  Such warrants are exercisable
at prices  ranging  from $.15 to $.20 per  share,  vest  over  periods  up to 60
months, and expire at various times through June 2010.

During the years ended  September 30, 2004, and September 30, 20005,  no warrant
holders exercised warrants to purchase the Company's common stock.

A summary of warrant  activity for the year ended September 30, 2004 and 2005 is
as follows:

<TABLE>
<CAPTION>

                                                            Weighted-                           Weighted-
                                         Number of          Average                             Average
                                         Warrants           Exercise         Warrants           Exercise
                                                            Price            Exercisable        Price
                                         --------------     -------------    ---------------    --------------
<S>                                      <C>                <C>              <C>                <C>
Outstanding, September 30, 2003          0                  $0.0             0                  $0.0
    Granted 2004                         8,000,000          $.15             6,700,000          $.15
    Exercised 2004                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2004          8,000,000          $.15             6,700,000          $.15

    Granted 2005                         7,125,000          $.17             6,725,000          $.17
    Exercised 2005                       0                  $0.0
                                         --------------     -------------    ---------------    --------------
Outstanding, September 30, 2005          15,125,000         $.1595           14,450,000         $.1595
                                         ==============
</TABLE>

At September 30, 2005, the range of warrant prices for shares under warrants and
the weighted-average remaining contractual life is as follows:

                                      F-11

<PAGE>

<TABLE>
<CAPTION>

                                 Warrants Outstanding                                  Warrants Exercisable
                        --------------------------------------------------    ---------------------------------
                                                          Weighted-
                                        Weighted-         Average                                 Weighted-
Range of                Number of       Average           Remaining           Number              Average
Warrant                 Warrants        Exercise          Contractual         Of                  Exercise
Exercise Price                          Price             Life                Warrants            Price
--------------------    ------------    --------------    ----------------    ----------------    -------------
<S>                     <C>             <C>               <C>                 <C>                 <C>
$.15                      8,000,000     $ .15               2                   6,700,000         $ .15
 .17                      7,125,000       .17             2.8                   6,725,000           .17
                        ------------                                          ----------------
                         15,125.000                                            14,450,000
                        ============                                          ================
</TABLE>

Note 7 - Notes, Commitments, and Contingencies

Note Payable

On July 14,  2005,  XSUNX,  Inc.  entered into a Secured  Convertible  Debenture
agreement  with Cornell  Capital  Partners,  LP in the amount of  $400,000.  The
interest shall accrue on the outstanding  principal  balance hereof at an annual
rate equal to twelve  percent (12%.) This  Debenture  shall be convertible  into
shares of Common Stock at the option of the Holder,  with a conversion  price in
effect on any Conversion  Date shall be equal to ten cents ($.10),  which may be
adjusted pursuant to the other terms of this Debenture.

On August 16, 2005,  XSUNX,  Inc.  received an additional  $450,000 from Cornell
Capital  Partners,  LP  with  the  same  interest  and  conversion  rights.  The
Debentures  are  secured  by the assets of the  Company  and mature on the first
anniversary  of the date of issuance and bear interest at the annual rate of 12%
in cash.

Trademark Transfer Agreement:

On May 6, 2004 a Trademark  transfer  agreement  was signed with Western Gas and
Electric  Company of California.  Western solely owns all rights and interest in
and to the  registered  trademark  consisting  of printed words styled as "POWER
GLASS' as more fully set forth  herein  ("Trademark")  and desires to assign and
transfer,  subject to the terms and conditions set forth herein,  all rights and
interest in the Trademark to XsunX in exchange for the payment set forth in this
Agreement. The purchase price for the Trademark shall be: (1) the sum of $10,000
if paid within one (1) year from the effective  date;  (2) the sum of $20,000 if
paid after the conclusion of the first (1st) year but prior to the conclusion of
the second (2nd) year after the effective date of this Agreement; (3) the sum of
$35,000 if paid after the  conclusion  of the second (2nd) year but prior to the
conclusion of the third (3rd) year after the effective  date of this  Agreement;
or (4) the sum of $50,000 if paid after the  conclusion  of the third (3rd) year
but prior to the  conclusion  of three (3)  years and six (6)  months  after the
effective date of this Agreement. If payment is not made prior to the conclusion
of  three  (3)  years  and six  (6)  months  after  the  effective  date of this
Agreement,  XsunX shall  re-assign  the  Trademark  back to Western as set forth
herein. At September 2005 the balance of $20,000 is included in Accounts Payable

Funding Agreement

On July 14,  2005,  the  Company  entered  into a  Standby  Equity  Distribution
Agreement  (the  "Distribution  Agreement")  with  Cornell  Capital  Partners LP
("Cornell")  providing for the sale and issuance to Cornell of up to $10,000,000
of  Common  Stock  over a period of up to 24 months  after  the  signing  of the
Distribution Agreement.  Under the Distribution Agreement,  the Company may sell
to Cornell up to $250,000  in shares of its common  stock (the  "Common  Stock")
once every five trading  days at a price of 96% of the lowest  closing bid price
(as reported by Bloomberg  L.P.),  of the Common Stock on the  principal  market
where the Common Stock is traded for the five consecutive trading days following
a notice by the Company to Cornell of its intention to sell shares.  The Company
will  also  pay  a 5%  commitment  fee  upon  each  sale  of  shares  under  the
Distribution  Agreement.  Cornell  has  agreed not to short any of the shares of
Common Stock

In connection with the Distribution Agreement, the Company has issued to Cornell
2,544,031  shares  of  Common  Stock as a  commitment  fee.  It also  issued  to
Newbridge Securities  Corporation,  a registered broker dealer, 65,232 shares of
Common Stock as compensation  for its services as the exclusive  placement agent
for the sale of the Common Stock under the Distribution Agreement.

In August 2005 the Company filed a  registration  statement  with the Securities
and Exchange Commission pertaining to the Common Stock issuable upon sales under
the  Distribution   Agreement.   In  December  2005  the  Company  withdrew  the
registration statement and terminated the Distribution Agreement with Cornell in
lieu of obtaining alternate financing.

                                      F-12

<PAGE>

Note 8 - Subsequent Events

Expanded License and Warrants

Expanded Use License stock warrant  MVSystems,  Inc.- As  consideration  for the
grant of an Expanded Use License on October 12, 2005,  granting XsunX additional
benefits  for use of licensed  technologies  and  patents,  XsunX  granted MVS a
warrant (the  "Expanded  Use License  Stock  Warrant") for the purchase of up to
Seven  Million  (7,000,000)  shares of common  stock of XsunX,  the warrant will
expire  five  (5)  years  after  the date of the  grant  and is  subject  to the
following vesting provisions:

        (7)    The Expanded Use License Stock Warrant allowed for the vesting of
               one million  (1,000,000)  warrants on the  effective  date of the
               agreements.

        (8)    Another  one  million  (1,000,000)  warrants  will  vest upon the
               satisfactory  completion of a Phase 4 development program for the
               development  of  technologies  licensed  under the  Expanded  Use
               License.

        (9)    The balance of five million  (5,000,000)  warrants will vest upon
               the  date the  technologies  licensed  within  the  Expanded  Use
               License are licensed to a third party in a bona fide  arms-length
               commercial setting.


Funding Agreement

On December 12, 2005, XsunX, Inc.  consummated a Securities  Purchase  Agreement
dated  December 12, 2005 with Cornell  Capital  Partners L.P.  providing for the
sale by the  Company to Cornell of 10%  secured  convertible  debentures  in the
aggregate  principal amount of $5,000,000 (the "Debentures") of which $2,000,000
was advanced immediately.  The second installment of $2,000,000 will be advanced
immediately prior to the filing by the Company, with the Securities and Exchange
Commission, of a Registration Statement. The last installment of $1,000,000 will
be advanced three days prior to the date the Registration  Statement is declared
effective by the Commission.  The Debenture is convertible into shares of Common
Stock at the option of the Holder at a  conversion  price per share equal to the
lesser of $0.38 or 95% of the lowest daily volume weighted  average price of the
Common Stock,  as quoted by Bloomberg,  LP, for the 30 trading days  immediately
preceding the date of conversion (the "Variable Market Price"). Unless waived by
the Company,  the Holders may not, together with their affiliates,  convert more
than an  aggregate of $350,000 in any 30-day  period of principal  amount of the
Debentures at the Variable Market Price.  Cornell has agreed not to short any of
the shares of Common Stock


Note 9 - Financial Accounting Developments:

Recently issued Accounting Pronouncements

In February 2003, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 150,  "Accounting for Certain Financial  Instruments with Characteristics of
Both  Liabilities  and Equity".  The  provisions  of SFAS 150 are  effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
are effective at the beginning of the first interim period  beginning after June
15, 2003,  except for mandatory  redeemable  financial  instruments of nonpublic
entities.  The  Company  has not  issued  any  financial  instruments  with such
characteristics.

In December 2003, the FASB issued FASB  Interpretation  No. 46 (revised December
2003),  "Consolidation  of Variable  Interest  Entities"  (FIN No.  46R),  which
addresses  how  a  business  enterprise  should  evaluate  ,  whether  it  has a
controlling  financial  interest  in an entity  through  means other than voting
rights and accordingly  should consolidate the entity. FIN No. 46R replaces FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities",  which was
issued in January  2003.  Companies  are  required  to apply FIN 46R to variable
interests in variable interest entities ("VIE") created after December 31, 2003.
For variable interest in VIEs created before January 1, 2004 the  interpretation
is applied  beginning  January 1, 2005.  For any VIEs that must be  consolidated
under FIN No.  46R that  were  created  before  January  1,  2004,  the  assets,
liabilities and  non-controlling  interests of the VIE initially are measured at
their carrying  amounts with any difference  between the net amount added to the
balance sheet and any previously  recognized  interest  being  recognized as the
cumulative effect of an accounting  change. If determining the carrying value is
not  practicable,  fair value at the date FIN No. 46R first  applies may be used
measure the assets,  liabilities  and  non-controlling  interest of the VIE. The
Company does not have any interest in VIEs.

                                      F-13

<PAGE>


In December  2004,  the FASB issued SFAS No. 123R  (revised  2004)  "Share-Based
Payment"  which amends FASB  Statement  No. 123 and will be effective for public
companies  for  interim  or annual  periods  beginning  June 15,  2005.  The new
statement  will require  entities to expense  employee  stock  options and other
share-based payments. The new standard may be adopted in one of three ways - the
modified  prospective  transition method, a variation of the modified transition
method or the  modified  retrospective  transition  method.  The  Company  is to
evaluate how it will adopt the standard and the  evaluation  the effect that the
adoption  of SFAS  123R will  have on the  financial  position  and  results  of
operations.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43,  Chapter  4." The  statement  amends the  guidance in ARB No. 43,
Chapter 4, Inventory Pricing,  to clarify the accounting for abnormal amounts of
idle facility expense,  freight,  handling costs and wasted material (spoilage).
Paragraph  5 of ARB No.  43,  Chapter  4  previously  stated  that  "under  some
circumstances,  items such as idle facility expense,  excessive spoilage, double
freight  and  rehandling  costs may be so abnormal  as to require  treatment  as
current period charges". SFAS No. 151 requires that those items be recognized as
current-period  charges  regardless  of whether  they meet the  criterion of "so
abnormal".  In  addition,  this  statement  requires  that  allocation  of fixed
production overhead to the costs of conversion be based on the prospectively and
are effective for inventory  costs incurred  during fiscal years beginning after
June 15, 2005, with earlier  application  permitted for inventory costs incurred
during  fiscal years  beginning  after the date this  Statement  is issued.  The
adoption  of SFAS No.  151 does not have an  impact on the  Company's  financial
position and results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary Assets,
an  amendment  of APB  Opinion  No.  29. The  guidance  in APB  opinion  No. 29,
Accounting  for  Non-monetary  Transactions,  is  based  on the  principle  that
exchange  of  non-monetary  assets  should be  measured on the fair value of the
assets  exchanges.  The  guidance in that  Opinion,  however,  included  certain
exceptions to that principle.  This Statement amends Opinion 29 to eliminate the
exception for non-monetary  exchanges of similar  productive  assets that do not
have commercial substance. A non-monetary has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange.  SFAS No. 153 is effective  for  non-monetary  exchanges  occurring in
fiscal  periods  beginning  June 15,  2005.  The adoption of SFAS No. 153 is not
expected to have an impact on the  Company's  financial  position and results of
operations.

In March 2005,  the FASB  issued FASB  Interpretation  No. 47,  "Accounting  for
Conditional Asset Retirement  Obligations"  ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial  reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional  asset retirement  obligation
when incurred if the liability's fair value can be reasonably estimated.  FIN 47
also defines  when an entity would have  sufficient  information  to  reasonably
estimate  the fair value of an asset  retirement  obligation.  The  provision is
effective no later than the end of fiscal years ending after  December 15, 2005.
The Company  will adopt FIN 47 beginning  the first  quarter of fiscal year 2006
and  does  not  believe  the  adoption  will  have  a  material  impact  on  its
consolidated financial position or results of operations or cash flows.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections"  ("SFAS 154") which replaces  Accounting  Principles Board Opinions
No. 20 "Accounting  Changes" and SFAS No. 3,  "Reporting  Accounting  Changes in
Interim  Financial  Statements-An  Amendment  of APB  Opinion  No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting  changes and
error  corrections.  It  establishes  retrospective  application,  or the latest
practicable  date,  as the required  method for reporting a change in accounting
principle and the  reporting of a correction of an error.  SFAS 154 is effective
for accounting changes and a correction of errors made in fiscal years beginning
after  December  15,  2005 and is  required  to be adopted by the Company in the
first quarter of 2006.  The Company is currently  evaluating the effect that the
adoption  of SFAS 154 will  have on its  results  of  operations  and  financial
condition but does not expect it to have a material impact.

In June 2005, the Emerging  Issues Task Force,  or EITF,  reached a consensus on
Issue 05-6,  Determining  the  Amortization  Period for Leasehold  Improvements,
which requires that leasehold  improvements  acquired in a business  combination
purchased subsequent to the inception of a lease be amortized over the lesser of
the  useful  life of the  assets  or a term  that  includes  renewals  that  are
reasonably  assured at the date of the business  combination  or purchase.  EITF
05-6 is effective for periods beginning after July 1, 2005. We do not expect the
provisions  of  this  consensus  to  have a  material  impact  on the  financial
position, results of operations or cash flows.


                                  END OF NOTES


                                      F-14

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements  of Section 12 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.

Dated: January 9, 2006

                                   XsunX, INC.





/s/ Tom Djokovich
---------------------------------
   Tom Djokovich
   President



                                   DIRECTORS:





/s/ Tom Djokovich
--------------------------------


/s/ Brian Altounian
--------------------------------


/s/ Thomas Anderson
--------------------------------


                                       40