EXHIBIT 10.1


                          SECURITIES PURCHASE AGREEMENT

      THIS  SECURITIES  PURCHASE  AGREEMENT  (this  "Agreement"),  dated  as  of
December  ___,  2005,  by and among  XSUNX,  INC., a Colorado  corporation  (the
"Company"), and the Buyers listed on Schedule I attached hereto (individually, a
"Buyer" or collectively "Buyers").

                                   WITNESSETH

      WHEREAS,  the Company and the Buyer(s) are executing and  delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation  D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");

      WHEREAS,  the  parties  desire  that,  upon the terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer(s),
as provided  herein,  and the Buyer(s) shall purchase up to Five Million Dollars
($5,000,000) of secured convertible  debentures (the "Convertible  Debentures"),
which shall be  convertible  into shares of the Company's  common stock,  no par
value (the "Common Stock") (as converted,  the "Conversion Shares") of which Two
Million  Dollars  ($2,000,000)  shall be funded  within  five (5)  business  day
following  the  date  hereof  (the  "First   Closing"),   Two  Million   Dollars
($2,000,000)  shall  be  funded  two (2)  business  days  prior  to the date the
registration statement (the "Registration  Statement") is filed, pursuant to the
Investor  Registration  Rights Agreement dated the date hereof,  with the United
States  Securities and Exchange  Commission (the "SEC") (the "Second  Closing"),
and One Million  Dollars  ($1,000,000)  shall be funded three (3) business  days
prior to the date the  Registration  Statement is declared  effective by the SEC
(the "Third  Closing")  (individually  referred  to as a "Closing"  collectively
referred to as the "Closings"), for a total purchase price of up to Five Million
Dollars ($5,000,000), (the "Purchase Price") in the respective amounts set forth
opposite each Buyer(s) name on Schedule I (the "Subscription Amount"); and

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,   the  parties  hereto  are  executing  and  delivering  an  Investor
Registration  Rights Agreement (the "Investor  Registration  Rights  Agreement")
pursuant to which the Company has agreed to provide certain  registration rights
under the Securities Act and the rules and regulations  promulgated there under,
and applicable state securities laws; and

      WHEREAS, the aggregate proceeds of the sale of the Convertible  Debentures
contemplated  hereby shall be held in escrow  pursuant to the terms of an escrow
agreement (the "Escrow  Agreement")  between the Company,  the Buyers, and David
Gonzalez, Esq. (the "Escrow Agent").

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering an Amended  Security
Agreement (the "Security Agreement") pursuant to which the Company has agreed to
provide  the Buyer a security  interest in Pledged  Collateral  (as this term is
defined in the Security  Agreement)  to secure the Company's  obligations  under
this  Agreement,  the  Transaction  Documents,  or any other  obligations of the
Company to the Buyer;


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      WHEREAS, the Company's  obligations under this Agreement,  the Transaction
Documents, or any other obligations of the Company to the Buyer shall be secured
by the  Pledged  Shares  (as this  term is  defined  in the  Pledge  Agreements)
pursuant to a Pledge and Escrow  Agreement among the Company,  the Buyer and the
Escrow Agent (the "Pledge Agreement"); and

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions")

      NOW,  THEREFORE,  in  consideration  of the  mutual  covenants  and  other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:

      1.    PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

            (a)   Purchase   of   Convertible   Debentures.   Subject   to   the
satisfaction  (or waiver) of the terms and  conditions of this  Agreement,  each
Buyer  agrees,  severally  and not jointly,  to purchase at each Closing and the
Company  agrees to sell and issue to each Buyer,  severally and not jointly,  at
each  Closing,   Convertible   Debentures  in  amounts  corresponding  with  the
Subscription  Amount set forth  opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth  opposite  his name on Schedule I in same-day  funds or a check
payable  to "David  Gonzalez,  Esq.,  as Escrow  Agent for  XsunX,  Inc./Cornell
Capital  Partners,  LP,"  which  Subscription  Amount  shall  be held in  escrow
pursuant  to the terms of the Escrow  Agreement  (as  hereinafter  defined)  and
disbursed in accordance  therewith.  Notwithstanding the foregoing,  a Buyer may
withdraw his  Subscription  Amount and terminate this Agreement as to such Buyer
at any time after the  execution  hereof and prior to  Closing  (as  hereinafter
defined).

            (b)   Closing  Date.  The First  Closing of the purchase and sale of
the Convertible  Debentures shall take place at 10:00 a.m. Eastern Standard Time
on  the  fifth  (5th)  business  day  following  the  date  hereof,  subject  to
notification  of  satisfaction  of the conditions to the First Closing set forth
herein and in Sections 6 and 7 below (or such other date as is  mutually  agreed
to by the Company and the Buyer(s))  (the "First  Closing  Date") and the Second
Closing of the purchase and sale of the Convertible  Debentures shall take place
at 10:00 a.m.  Eastern Standard Time two (2) business days prior to the date the
Registration  Statement  is filed  with  the SEC,  subject  to  notification  of
satisfaction  of the  conditions  to the Second  Closing set forth herein and in
Sections  6 and 7 below  (or such  other  date as is  mutually  agreed to by the
Company and the Buyer(s)) (the "Second Closing Date"),  and the Third Closing of
the purchase and sale of the  Convertible  Debentures  shall take place at 10:00
a.m.  Eastern  Standard  Time  two (2)  business  days  prior  to the  date  the
Registration Statement is declared effective by the SEC, subject to notification
of  satisfaction  of the conditions to the Third Closing set forth herein and in
Sections  6 and 7 below  (or such  other  date as is  mutually  agreed to by the
Company and the Buyer(s)) (the "Third Closing Date") (collectively referred to a
the "Closing Dates"). The Closing shall occur on the respective Closing Dates at
the offices of Yorkville Advisors,  LLC, 3700 Hudson Street,  Suite 3700, Jersey
City,  New Jersey  07302 (or such other  place as is  mutually  agreed to by the
Company and the Buyer(s)).


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<PAGE>

            (c)   Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the  Closings,  the  aggregate  proceeds of the sale of the
Convertible  Debentures  to Buyer(s)  pursuant  hereto  shall be  deposited in a
non-interest bearing escrow account with the Escrow Agent, pursuant to the terms
the Escrow Agreement. Subject to the satisfaction of the terms and conditions of
this Agreement,  on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in  accordance  with the terms of the Escrow  Agreement  such  aggregate
proceeds for the Convertible  Debentures to be issued and sold to such Buyer(s),
minus the fees to be paid  directly  from the proceeds the Closings as set forth
herein, and (ii) the Company shall deliver to each Buyer, Convertible Debentures
which such  Buyer(s) is purchasing  in amounts  indicated  opposite such Buyer's
name on Schedule I, duly executed on behalf of the Company.

      2.    BUYER'S REPRESENTATIONS AND WARRANTIES.

      Each Buyer represents and warrants, severally and not jointly, that:

            (a)   Investment  Purpose.  Each Buyer is acquiring the  Convertible
Debentures  and,  upon  conversion  of  Convertible  Debentures,  the Buyer will
acquire the Conversion Shares then issuable,  for its own account for investment
only and not with a view towards,  or for resale in connection  with, the public
sale or distribution  thereof,  except pursuant to sales  registered or exempted
under the Securities Act; provided,  however, that by making the representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in  accordance  with or pursuant  to an  effective  registration  statement
covering such Conversion  Shares or an available  exemption under the Securities
Act.

            (b)   Accredited  Investor  Status.  Each  Buyer  is an  "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D.

            (c)   Reliance  on  Exemptions.  Each  Buyer  understands  that  the
Convertible  Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities  laws and that the  Company  is  relying  in part  upon the truth and
accuracy of, and such Buyer's compliance with, the representations,  warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
such Buyer to acquire such securities.

            (d)   Information.  Each  Buyer and its  advisors  (and his or,  its
counsel),  if any,  have  been  furnished  with all  materials  relating  to the
business,  finances  and  operations  of the Company and  information  he deemed
material to making an informed investment decision regarding his purchase of the
Convertible  Debentures and the Conversion Shares,  which have been requested by
such  Buyer.  Each  Buyer  and its  advisors,  if any,  have been  afforded  the
opportunity  to ask  questions of the Company and its  management.  Neither such
inquiries nor any other due diligence  investigations conducted by such Buyer or
its advisors,  if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's  representations and warranties contained


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<PAGE>

in  Section  3  below.  Each  Buyer  understands  that  its  investment  in  the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
as it has  considered  necessary to make an informed  investment  decision  with
respect to its  acquisition  of the  Convertible  Debentures  and the Conversion
Shares.

            (e)   No Governmental  Review. Each Buyer understands that no United
States federal or state agency or any other  government or  governmental  agency
has  passed on or made any  recommendation  or  endorsement  of the  Convertible
Debentures  or the  Conversion  Shares,  or the fairness or  suitability  of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Convertible Debentures or the Conversion Shares.

            (f)   Transfer  or Resale.  Each Buyer  understands  that  except as
provided in the Investor  Registration  Rights  Agreement:  (i) the  Convertible
Debentures have not been and are not being  registered  under the Securities Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred  unless (A) subsequently  registered  thereunder,  or (B) such Buyer
shall have  delivered  to the  Company an opinion  of  counsel,  in a  generally
acceptable  form,  to the effect that such  securities  to be sold,  assigned or
transferred may be sold,  assigned or transferred  pursuant to an exemption from
such  registration  requirements;  (ii)  any  sale  of such  securities  made in
reliance  on Rule 144 under the  Securities  Act (or a successor  rule  thereto)
("Rule  144")  may be made  only in  accordance  with the  terms of Rule 144 and
further,  if Rule 144 is not  applicable,  any resale of such  securities  under
circumstances  in which the seller (or the person through whom the sale is made)
may be deemed to be an  underwriter  (as that term is defined in the  Securities
Act) may require  compliance  with some other exemption under the Securities Act
or the rules and  regulations  of the SEC  thereunder;  and  (iii)  neither  the
Company nor any other person is under any obligation to register such securities
under the  Securities  Act or any state  securities  laws or to comply  with the
terms and conditions of any exemption thereunder. The Company reserves the right
to place stop transfer  instructions against the shares and certificates for the
Conversion Shares.

            (g)   Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive  legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):

            THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT
            BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS
            AMENDED,   OR  APPLICABLE  STATE  SECURITIES  LAWS.  THE
            SECURITIES  HAVE BEEN  ACQUIRED  SOLELY  FOR  INVESTMENT
            PURPOSES  AND NOT WITH A VIEW TOWARD  RESALE AND MAY NOT
            BE OFFERED FOR SALE,  SOLD,  TRANSFERRED  OR ASSIGNED IN
            THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT FOR


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            THE  SECURITIES  UNDER THE  SECURITIES  ACT OF 1933,  AS
            AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS, OR AN
            OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
            REGISTRATION   IS  NOT   REQUIRED   UNDER  SAID  ACT  OR
            APPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed  and the  Company  within  three (3)
business days shall issue a certificate without such legend to the holder of the
Conversion  Shares upon which it is stamped,  if, unless  otherwise  required by
state securities laws, (i) in connection with a sale  transaction,  provided the
Conversion  Shares are registered under the Securities Act or (ii) in connection
with a sale transaction,  after such holder provides the Company with an opinion
of counsel,  which opinion shall be in form,  substance and scope  customary for
opinions  of counsel in  comparable  transactions,  to the effect  that a public
sale,  assignment  or  transfer  of the  Conversion  Shares may be made  without
registration under the Securities Act.

            (h)   Authorization,  Enforcement.  This Agreement has been duly and
validly  authorized,  executed  and  delivered  on behalf of such Buyer and is a
valid and binding  agreement of such Buyer  enforceable  in accordance  with its
terms,  except as such  enforceability  may be limited by general  principles of
equity  or  applicable  bankruptcy,  insolvency,   reorganization,   moratorium,
liquidation  and other  similar laws  relating to, or affecting  generally,  the
enforcement of applicable creditors' rights and remedies.

            (i)   Receipt of  Documents.  Each Buyer and his or its  counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty  and covenant  set forth  herein,  and the  Transaction  Documents  (as
defined  herein);  (ii) all due  diligence  and other  information  necessary to
verify the accuracy and  completeness  of such  representations,  warranties and
covenants;  (iii) the Company's Form 10-KSB for the fiscal year ended  September
30, 2004;  (iv) the Company's  Form 10-QSB for the fiscal quarter ended June 30,
2005 and (v)  answers to all  questions  each  Buyer  submitted  to the  Company
regarding  an  investment  in the  Company;  and each  Buyer  has  relied on the
information  contained  therein and has not been furnished any other  documents,
literature, memorandum or prospectus.

            (j)   Due Formation of Corporate  and Other Buyers.  If the Buyer(s)
is a corporation,  trust,  partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible  Debentures and is not prohibited
from doing so.

            (k)   No Legal  Advice From the  Company.  Each Buyer  acknowledges,
that it had the  opportunity  to  review  this  Agreement  and the  transactions
contemplated  by this Agreement with his or its own legal counsel and investment
and tax advisors.  Each Buyer is relying solely on such counsel and advisors and
not  on  any  statements  or  representations  of  the  Company  or  any  of its
representatives  or agents for legal,  tax or investment  advice with respect to
this  investment,  the  transactions  contemplated  by  this  Agreement  or  the
securities laws of any jurisdiction.


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<PAGE>

      3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company  represents  and warrants as of the date hereof to each of the
Buyers that,  except as set forth in the SEC Documents (as defined herein) or in
the Disclosure Schedule attached hereto (the "Disclosure Schedule"):

            (a)   Organization   and   Qualification.   The   Company   and  its
subsidiaries  are  corporations  duly  organized  and  validly  existing in good
standing under the laws of the jurisdiction in which they are incorporated,  and
have the requisite corporate power to own their properties and to carry on their
business as now being  conducted.  Each of the Company and its  subsidiaries  is
duly  qualified as a foreign  corporation to do business and is in good standing
in every  jurisdiction in which the nature of the business conducted by it makes
such  qualification  necessary,  except to the extent  that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.

            (b)   Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the  requisite  corporate  power and authority to enter into
and perform this Agreement,  the Security Agreement,  the Investor  Registration
Rights  Agreement,   the  Irrevocable  Transfer  Agent  Agreement,   the  Escrow
Agreement,  the Pledge Agreements,  and any related agreements (collectively the
"Transaction  Documents")  and to  issue  the  Convertible  Debentures  and  the
Conversion  Shares in  accordance  with the terms hereof and  thereof,  (ii) the
execution  and  delivery  of the  Transaction  Documents  by the Company and the
consummation  by  it  of  the  transactions  contemplated  hereby  and  thereby,
including,  without limitation,  the issuance of the Convertible  Debentures the
Conversion  Shares and the  reservation  for  issuance  and the  issuance of the
Conversion Shares issuable upon conversion or exercise  thereof,  have been duly
authorized  by the  Company's  Board of  Directors  and no  further  consent  or
authorization  is  required  by the  Company,  its  Board  of  Directors  or its
stockholders,  (iii) the  Transaction  Documents  have been  duly  executed  and
delivered by the Company,  (iv) the Transaction  Documents  constitute the valid
and  binding  obligations  of the  Company  enforceable  against  the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement of creditors'  rights and remedies.  The
authorized  officer of the Company executing the Transaction  Documents knows of
no reason why the Company  cannot file the  registration  statement  as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.

            (c)   Capitalization.  The  authorized  capital stock of the Company
consists  of  500,000,000  shares  of  Common  Stock  and  50,000,000  shares of
Preferred Stock, par value $0.01 ("Preferred Stock") of which 123,917,080 shares
of Common  Stock (not  including  26,798,418  shares  pledged to Buyer) and zero
shares of Preferred Stock are issued and  outstanding.  All of such  outstanding
shares have been validly issued and are fully paid and nonassessable.  No shares
of Common Stock are subject to preemptive  rights or any other similar rights or
any liens or encumbrances  suffered or permitted by the Company.  As of the date
of this Agreement, (i) there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character  whatsoever  relating to,
or securities  or rights  convertible  into,  any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or


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<PAGE>

arrangements  by which the Company or any of its  subsidiaries  is or may become
bound to issue  additional  shares of capital stock of the Company or any of its
subsidiaries  or options,  warrants,  scrip,  rights to  subscribe  to, calls or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible  into,  any  shares of  capital  stock of the  Company or any of its
subsidiaries,  (ii) there are no outstanding debt securities and (iii) there are
no agreements or arrangements under which the Company or any of its subsidiaries
is  obligated  to  register  the  sale  of any of  their  securities  under  the
Securities Act (except pursuant to the Registration  Rights  Agreement) and (iv)
there are no  outstanding  registration  statements and there are no outstanding
comment  letters  from the SEC or any  other  regulatory  agency.  There  are no
securities or instruments  containing  anti-dilution or similar  provisions that
will be triggered by the issuance of the Convertible  Debentures as described in
this  Agreement.  The Company has furnished to the Buyer true and correct copies
of the Company's  Articles of Incorporation,  as amended and as in effect on the
date hereof (the "Articles of Incorporation"),  and the Company's By-laws, as in
effect on the date  hereof  (the  "By-laws"),  and the  terms of all  securities
convertible  into or exercisable for Common Stock and the material rights of the
holders  thereof in respect thereto other than stock options issued to employees
and consultants.

            (d)   Issuance of Securities.  The  Convertible  Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with  respect  to  the  issue  thereof.  The  Conversion  Shares  issuable  upon
conversion of the Convertible  Debentures have been duly authorized and reserved
for issuance.  Upon  conversion or exercise in accordance  with the  Convertible
Debentures  the  Conversion   Shares  will  be  duly  issued,   fully  paid  and
nonassessable.

            (e)   No Conflicts.  The execution,  delivery and performance of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions  contemplated  hereby  will not (i)  result in a  violation  of the
Articles of  Incorporation,  any  certificate of designations of any outstanding
series of preferred stock of the Company or the By-laws or (ii) conflict with or
constitute  a default  (or an event  which with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment,   acceleration  or  cancellation  of,  any  agreement,  indenture  or
instrument to which the Company or any of its subsidiaries is a party, or result
in a  violation  of  any  law,  rule,  regulation,  order,  judgment  or  decree
(including  federal and state  securities laws and regulations and the rules and
regulations  of The  National  Association  of  Securities  Dealers  Inc.'s  OTC
Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its  subsidiaries or by which any property or asset of the Company or any
of  its  subsidiaries  is  bound  or  affected.  Neither  the  Company  nor  its
subsidiaries  is in violation of any term of or in default under its Articles of
Incorporation   or  By-laws  or  their   organizational   charter  or   by-laws,
respectively,  or any  material  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable to the Company or its  subsidiaries.  The business of the
Company and its subsidiaries is not being conducted,  and shall not be conducted
in violation of any material law,  ordinance,  or regulation of any governmental
entity.  Except as  specifically  contemplated by this Agreement and as required
under the Securities Act and any applicable  state  securities laws, the Company
is not  required to obtain any consent,  authorization  or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this


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Agreement or the  Registration  Rights  Agreement in  accordance  with the terms
hereof  or  thereof.   All  consents,   authorizations,   orders,   filings  and
registrations  which the Company is required to obtain pursuant to the preceding
sentence  have been  obtained or effected  on or prior to the date  hereof.  The
Company and its  subsidiaries  are unaware of any facts or  circumstance,  which
might give rise to any of the foregoing.

            (f)   SEC Documents:  Financial  Statements.  Since January 1, 2003,
the  Company  has filed all  reports,  schedules,  forms,  statements  and other
documents required to be filed by it with the SEC under the Securities  Exchange
Act of 1934, as amended (the "Exchange  Act") (all of the foregoing  filed prior
to the date hereof or amended  after the date hereof and all  exhibits  included
therein  and  financial   statements   and   schedules   thereto  and  documents
incorporated by reference  therein,  being  hereinafter  referred to as the "SEC
Documents").  The Company has delivered to the Buyers or their  representatives,
or made  available  through the SEC's website at  http://www.sec.gov.,  true and
complete  copies  of the  SEC  Documents.  As of  their  respective  dates,  the
financial  statements  of the  Company  disclosed  in  the  SEC  Documents  (the
"Financial  Statements")  complied  as to form  in all  material  respects  with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with respect  thereto.  Such financial  statements have been prepared in
accordance with generally accepted accounting principles,  consistently applied,
during the periods  involved  (except (i) as may be otherwise  indicated in such
Financial  Statements  or the notes  thereto,  or (ii) in the case of  unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or  summary  statements)  and,  fairly  present  in all  material  respects  the
financial position of the Company as of the dates thereof and the results of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited   statements,   to  normal  year-end  audit  adjustments).   No  other
information  provided  by or on behalf of the  Company to the Buyer which is not
included  in the  SEC  Documents,  including,  without  limitation,  information
referred to in this Agreement,  contains any untrue statement of a material fact
or omits to state any material  fact  necessary in order to make the  statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading.

            (g)   10(b)-5.   The  SEC   Documents  do  not  include  any  untrue
statements  of  material  fact,  nor do they  omit to state  any  material  fact
required to be stated therein necessary to make the statements made, in light of
the circumstances under which they were made, not misleading.

            (h)   Absence of Litigation.  There is no action, suit,  proceeding,
inquiry  or  investigation  before or by any  court,  public  board,  government
agency,  self-regulatory  organization  or body pending against or affecting the
Company,  the  Common  Stock or any of the  Company's  subsidiaries,  wherein an
unfavorable decision, ruling or finding would (i) have a material adverse effect
on the  transactions  contemplated  hereby (ii) adversely affect the validity or
enforceability  of, or the  authority  or ability of the  Company to perform its
obligations under, this Agreement or any of the documents  contemplated  herein,
or (iii) have a material adverse effect on the business, operations, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole.


                                       8
<PAGE>

            (i)   Acknowledgment  Regarding  Buyer's Purchase of the Convertible
Debentures.  The Company  acknowledges  and agrees  that the  Buyer(s) is acting
solely  in the  capacity  of an arm's  length  purchaser  with  respect  to this
Agreement  and  the  transactions   contemplated  hereby.  The  Company  further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar  capacity)  with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective  representatives or agents in connection with this Agreement
and the transactions  contemplated  hereby is merely  incidental to such Buyer's
purchase of the  Convertible  Debentures or the Conversion  Shares.  The Company
further  represents to the Buyer that the Company's  decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.

            (j)   No General  Solicitation.  Neither the Company, nor any of its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation D under the Securities  Act) in connection  with the offer or sale of
the Convertible Debentures or the Conversion Shares.

            (k)   No Integrated  Offering.  Neither the Company,  nor any of its
affiliates,  nor any  person  acting on its or their  behalf  has,  directly  or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any security,  under  circumstances  that would require  registration of the
Convertible  Debentures or the  Conversion  Shares under the  Securities  Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be
integrated  with prior  offerings by the Company for purposes of the  Securities
Act.

            (l)   Employee  Relations.  To the best of the Company's  knowledge,
neither the Company nor any of its subsidiaries is involved in any labor dispute
nor, to the  knowledge  of the Company or any of its  subsidiaries,  is any such
dispute  threatened.  None of the Company's or its subsidiaries'  employees is a
member  of a union and the  Company  and its  subsidiaries  believe  that  their
relations with their employees are good.

            (m)   Intellectual Property Rights. The Company and its subsidiaries
own or possess  adequate rights or licenses to use all trademarks,  trade names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,    copyrights,    inventions,    licenses,    approvals,    governmental
authorizations,  trade secrets and rights  necessary to conduct their respective
businesses as now conducted.  The Company and its  subsidiaries  do not have any
knowledge of any  infringement by the Company or its  subsidiaries of trademark,
trade name rights, patents,  patent rights,  copyrights,  inventions,  licenses,
service names, service marks, service mark registrations,  trade secret or other
similar  rights of others,  and, to the  knowledge  of the  Company  there is no
claim,  action or proceeding being made or brought against,  or to the Company's
knowledge,  being threatened against, the Company or its subsidiaries  regarding
trademark,  trade name, patents, patent rights, invention,  copyright,  license,
service names, service marks, service mark registrations,  trade secret or other
infringement;  and the Company and its  subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

            (n)   Environmental  Laws. The Company and its  subsidiaries are (i)
in compliance with any and all applicable foreign, federal, state and local laws
and  regulations  relating to the  protection  of human  health and safety,  the
environment  or  hazardous  or  toxic   substances  or  wastes,   pollutants  or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable  Environmental Laws to conduct
their  respective  businesses  and  (iii) are in  compliance  with all terms and
conditions of any such permit, license or approval.


                                       9
<PAGE>

            (o)   Title.  Any real property and  facilities  held under lease by
the Company and its  subsidiaries  are held by them under valid,  subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such  property and buildings by the
Company and its subsidiaries.

            (p)   Insurance.  The  Company  and  each  of its  subsidiaries  are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Company  believes  to be
prudent  and  customary  in  the   businesses  in  which  the  Company  and  its
subsidiaries  are engaged.  Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such  subsidiary has any reason to believe that it will not be able to renew
its existing  insurance  coverage as and when such coverage expires or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its subsidiaries, taken as a whole.

            (q)   Regulatory Permits.  The Company and its subsidiaries  possess
all material certificates,  authorizations and permits issued by the appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

            (r)   Internal  Accounting  Controls.  The  Company  and each of its
subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  and (iii) the recorded  amounts for assets is compared with the
existing  assets at reasonable  intervals and  appropriate  action is taken with
respect to any differences.

            (s)   No Material Adverse Breaches, etc. Neither the Company nor any
of its  subsidiaries  is  subject  to any  charter,  corporate  or  other  legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
material  adverse  effect on the  business,  properties,  operations,  financial
condition,   results  of   operations   or  prospects  of  the  Company  or  its
subsidiaries.  Neither the Company nor any of its  subsidiaries  is in breach of
any  contract or  agreement  which  breach,  in the  judgment  of the  Company's
officers,  has or is expected to have a material adverse effect on the business,
properties,  operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.

            (t)   Tax Status.  The Company and each of its subsidiaries has made
and filed all federal and state  income and all other tax  returns,  reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its  subsidiaries  has set aside


                                       10
<PAGE>

on its books  provisions  reasonably  adequate for the payment of all unpaid and
unreported  taxes)  has paid all taxes and other  governmental  assessments  and
charges  that are  material  in amount,  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provision  reasonably adequate for the payment of
all taxes for periods  subsequent to the periods to which such returns,  reports
or declarations  apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any  jurisdiction,  and the officers of the
Company know of no basis for any such claim.

            (u)   Certain  Transactions.  Except for arm's  length  transactions
pursuant to which the Company makes payments in the ordinary  course of business
upon terms no less  favorable  than the Company  could obtain from third parties
and other than the grant of stock options  disclosed in the SEC Documents,  none
of the officers,  directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing
for the  furnishing  of  services  to or by,  providing  for  rental  of real or
personal  property to or from,  or otherwise  requiring  payments to or from any
officer,  director or such  employee or, to the  knowledge  of the Company,  any
corporation,  partnership, trust or other entity in which any officer, director,
or any such  employee  has a  substantial  interest or is an officer,  director,
trustee or partner.

            (v)   Fees and Rights of First Refusal. The Company is not obligated
to offer the securities  offered  hereunder on a right of first refusal basis or
otherwise to any third parties including,  but not limited to, current or former
shareholders  of the  Company,  underwriters,  brokers,  agents  or other  third
parties.

      4.    COVENANTS.

            (a)   Best Efforts.  Each party shall use its best efforts to timely
satisfy each of the  conditions  to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

            (b)   Form D. The  Company  agrees to file a Form D with  respect to
the  Conversion  Shares as  required  under  Regulation  D and to provide a copy
thereof to each Buyer  promptly  after such  filing.  The Company  shall,  on or
before the  Closing  Date,  take such  action as the  Company  shall  reasonably
determine is necessary to qualify the Conversion  Shares, or obtain an exemption
for the Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement  under  applicable  securities or "Blue Sky" laws of the states of the
United  States,  and shall  provide  evidence of any such action so taken to the
Buyers on or prior to the Closing Date.

            (c)   Reporting  Status.  Until  the  earlier  of (i) the date as of
which the Buyer(s) may sell all of the  Conversion  Shares  without  restriction
pursuant to Rule  144(k)  promulgated  under the  Securities  Act (or  successor
thereto),  or (ii) the date on which (A) the  Buyer(s)  shall  have sold all the
Conversion  Shares and (B) none of the  Convertible  Debentures are  outstanding
(the  "Registration  Period"),  the  Company  shall file in a timely  manner all
reports  required to be filed with the SEC  pursuant to the Exchange Act and the
regulations  of the SEC  thereunder,  and the Company  shall not  terminate  its
status as an issuer  required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would otherwise permit such
termination.


                                       11
<PAGE>

            (d)   Use of Proceeds.  The Company  will use the proceeds  from the
sale of the  Convertible  Debentures for general  corporate and working  capital
purposes.

            (e)   Reservation  of  Shares.  The  Company  shall  take all action
reasonably  necessary  to at all times have  authorized,  and  reserved  for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have  available  such  shares of Common  Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares, the Company
shall call and hold a special  meeting of the  shareholders  within  thirty (30)
days of such occurrence, for the sole purpose of increasing the number of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of  increasing  the  number  of  shares  of  Common  Stock  authorized.
Management  shall also vote all of its shares in favor of increasing  the number
of authorized shares of Common Stock.

            (f)   Listings or Quotation.  The Company shall promptly  secure the
listing or  quotation of the  Conversion  Shares upon each  national  securities
exchange,  automated quotation system or The National  Association of Securities
Dealers Inc.'s  Over-The-Counter  Bulletin Board  ("OTCBB") or other market,  if
any,  upon which  shares of Common  Stock are then listed or quoted  (subject to
official notice of issuance) and shall use its best efforts to maintain, so long
as any other  shares of Common  Stock  shall be so listed,  such  listing of all
Conversion  Shares from time to time issuable under the terms of this Agreement.
The Company shall maintain the Common Stock's authorization for quotation on the
OTCBB.

            (g)   Fees and Expenses.

                  (i)   Each of the Company and the Buyer(s) shall pay all costs
and  expenses  incurred  by such  party  in  connection  with  the  negotiation,
investigation, preparation, execution and delivery of the Transaction Documents.
The  Company  shall pay  Yorkville  Advisors  Management  LLC a fee equal to ten
percent  (10%) of the Purchase  Price which shall be paid pro rata directly from
the gross proceeds of each Closing.

                  (ii)  The Company  shall pay a  structuring  fee to  Yorkville
Advisors,  LLC of Ten Thousand  Dollars  ($10,000)  which shall be paid directly
from the proceeds of the First Closing.

                  (iii) The Company  shall pay the Buyers a  non-refundable  due
diligence fee of Thee  Thousand  Dollars  ($3,000)  which shall be paid directly
from the proceeds of the First Closing.

                  (iv)  The  Company  shall  issue  to the  Buyer a  warrant  to
purchase  3,125,000  shares of Common Stock for a period of five (5) years at an
exercise price of $0.45 per share, and a warrant to purchase 1,250,000 shares of
Common  Stock for a period of five (5) years at an  exercise  price of $0.55 per
share.   The  shares  of  Common  Stock   issuable  under  both  warrants  shall
collectively be referred to as the Warrant Shares. The Warrant Shares shall have
"piggy-back" and demand registration rights.


                                       12
<PAGE>

            (h)   Corporate  Existence.  So  long  as  any  of  the  Convertible
Debentures  remain  outstanding,  the Company  shall not directly or  indirectly
consummate  any  merger,  reorganization,  restructuring,  reverse  stock  split
consolidation,  sale of all or substantially  all of the Company's assets or any
similar  transaction  or  related   transactions  (each  such  transaction,   an
"Organizational  Change") unless,  prior to the  consummation an  Organizational
Change,  the Company  obtains the written  consent of each Buyer,  which consent
shall not be  unreasonably  withheld.  In any such case,  the Company  will make
appropriate  provision  with respect to such  holders'  rights and  interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.  Notwithstanding  anything to the contrary,  without
the prior written consent, the Company may enter into a transaction in which the
Company  would be acquired,  purchased,  or merged into a third party other than
MVSystems, Inc. (each, a "Special Event") Provided that upon the occurrence of a
Special  Event,  the  Company  shall  deliver  to  each  Buyer  notice  of  such
transaction  (the "Special Event Notice") and,  within three business days after
delivery of the Special Event  Notice,  each Buyer shall notify the Company that
it  will  either,  at its  option,  (i)  prior  to  the  effectiveness  of  such
transaction, convert the entire outstanding amount of the Convertible Debentures
in accordance  with the terms thereof,  or (ii) permit the Company to redeem the
entire outstanding  amount of the Convertible  Debentures,  notwithstanding  the
limitation  on  redemptions  set  forth  in  the  Convertible  Debentures,  at a
redemption  price equal to the principal  amount  outstanding  plus a redemption
premium equal to twenty percent (20%) of the principal amount  outstanding,  and
accrued interest. Provided that the Company honors the Buyers' choice to convert
or to permit  redemption as set forth in this section,  the Buyers shall have no
other rights upon the occurrence of a Special Event.

            (i)   Transactions  With  Affiliates.  So  long  as any  Convertible
Debentures are  outstanding,  the Company shall not, and shall cause each of its
subsidiaries  not to, enter into,  amend,  modify or  supplement,  or permit any
subsidiary  to  enter  into,   amend,   modify  or  supplement   any  agreement,
transaction,  commitment,  or  arrangement  with any of its or any  subsidiary's
officers,  directors,  person who were  officers or directors at any time during
the previous two (2) years,  stockholders who beneficially own five percent (5%)
or more of the  Common  Stock,  or  Affiliates  (as  defined  below) or with any
individual  related by blood,  marriage,  or adoption to any such  individual or
with any entity in which any such entity or individual  owns a five percent (5%)
or more beneficial  interest (each a "Related Party"),  except for (a) customary
employment  arrangements  and benefit  programs  on  reasonable  terms,  (b) any
investment  in an  Affiliate  of the Company,  (c) any  agreement,  transaction,
commitment,  or arrangement  on an arms-length  basis on terms no less favorable
than  terms  which  would  have been  obtainable  from a person  other than such
Related Party, (d) any agreement, transaction,  commitment, or arrangement which
is approved by a majority of the  disinterested  directors of the  Company;  for
purposes  hereof,  any  director  who is also an officer  of the  Company or any
subsidiary of the Company shall not be a disinterested  director with respect to
any such agreement,  transaction,  commitment,  or arrangement.  "Affiliate" for
purposes hereof means,  with respect to any person or entity,  another person or
entity that, directly or indirectly,  (i) has a ten percent (10%) or more equity
interest  in that person or entity,  (ii) has ten  percent  (10%) or more common
ownership with that person or entity,  (iii) controls that person or entity,  or
(iv) shares common  control with that person or entity.  "Control" or "controls"
for  purposes  hereof  means that a person or entity  has the  power,  direct or
indirect, to conduct or govern the policies of another person or entity.


                                       13
<PAGE>

            (j)   Transfer Agent. The Company  covenants and agrees that, in the
event that the Company's agency  relationship  with the transfer agent should be
terminated  for any  reason  prior to a date  which is two (2)  years  after the
Closing Date,  the Company shall  immediately  appoint a new transfer  agent and
shall  require that the new transfer  agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).

            (k)   Restriction on Issuance of the Capital  Stock.  So long as any
Convertible Debentures are outstanding, the Company shall not, without the prior
written  consent of the  Buyer(s),  (i) issue or sell shares of Common  Stock or
Preferred Stock without consideration or for a consideration per share less than
the bid price of the Common Stock determined  immediately prior to its issuance,
(ii) issue any preferred stock, warrant, option, right, contract, call, or other
security or instrument  granting the holder  thereof the right to acquire Common
Stock without consideration or for a consideration less than such Common Stock's
bid price determined  immediately  prior to it's issuance,  (iii) enter into any
security  instrument  granting  the  holder a security  interest  in any and all
assets of the  Company,  or (iv)  file any  registration  statement  on Form S-8
except to  register  up to up to  1,000,000  shares of  Common  Stock  issued to
employees,  officers or directors of the Company or its  subsidiaries,  provided
that such  issuances are approved by the  Company's  Board of Directors and that
the  recipients  have agreed to sell such shares in  accordance  with the volume
limitations  of Rule  144(e)  of the  General  Rules and  Regulations  under the
Securities Act of 1933. Notwithstanding the forgoing, the Company shall have the
right,  without the prior  written  consent of the Buyers,  to issue or sell any
Common Stock, Preferred Stock, or any warrant, option, right, contract, call, or
other  security or instrument  granting the holder  thereof the right to acquire
Common  Stock  provided  that (w) such shares are issued in  connection  with an
acquisition of MVSystems,  Inc., or (x) the consideration received per share for
such  issuance  is not less  than the lower of the  Fixed  Conversion  Price (as
defined in the  Convertible  Debenture)  or the Common  Stock's bid price at the
time of such issuance, (y) the aggregate value of such shares issued or issuable
in any one  month  period  does not  exceed  ten  percent  (10%)  of the  market
capitalization  of the  Company,  and (z) such  shares  are  restricted  shares.
Additionally, the Company shall be permitted to issue warrants to purchase up to
10,000,000  shares of Common  Stock  without  the prior  written  consent of the
Buyers provided that such shares underlying the warrants are restricted shares.

            (l)   Neither the  Buyer(s) nor any of its  affiliates  have an open
short position in the Common Stock of the Company,  and the Buyer(s) agrees that
it shall not, and that it will cause its  affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock as long as any
Convertible Debentures shall remain outstanding.

            (m)   Rights of First Refusal.  For a period of eighteen (18) months
from the date hereof, if the Company intends to raise additional  capital by the
issuance or sale of capital stock of the Company,  including without  limitation
shares of any class of common  stock,  any class of  preferred  stock,  options,
warrants  or any other  securities  convertible  or  exercisable  into shares of
common stock  (whether  the  offering is conducted by the Company,  underwriter,
placement  agent or any third party) the Company  shall be obligated to offer to
the Buyers such issuance or sale of capital  stock,  by providing in writing the
principal  amount of capital it  intends  to raise and  outline of the  material
terms of such  capital  raise,  prior to the offering  such  issuance or sale of
capital stock to any third  parties  including,  but not limited to,  current or
former officers or directors, current or former shareholders and/or investors of


                                       14
<PAGE>

the obligor,  underwriters,  brokers,  agents or other third parties. The Buyers
shall have five (5)  business  days from  receipt of such  notice of the sale or
issuance of capital  stock to accept or reject all or a portion of such  capital
raising offer.

      5.    TRANSFER AGENT INSTRUCTIONS.

            (a)   The  Company  shall  issue  the  Irrevocable   Transfer  Agent
Instructions to its transfer agent irrevocably  appointing David Gonzalez,  Esq.
as the Company's agent for purpose of having certificates issued,  registered in
the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing  such amounts of  Convertible  Debentures as specified from time to
time  by the  Buyer(s)  to  the  Company  upon  conversion  of  the  Convertible
Debentures, for interest owed pursuant to the Convertible Debenture, and for any
and all Liquidated Damages (as this term is defined in the Investor Registration
Rights  Agreement).  David  Gonzalez,  Esq.  shall  be paid a cash  fee of Fifty
Dollars ($50) for every occasion they act pursuant to the  Irrevocable  Transfer
Agent  Instructions.  The Company shall not change its transfer agent unless the
subsequent  transfer agent agrees to be bound by the Irrevocable  Transfer Agent
Instructions.   Prior  to  registration  of  the  Conversion  Shares  under  the
Securities  Act,  all  such  certificates  shall  bear  the  restrictive  legend
specified  in Section  2(g) of this  Agreement.  The  Company  warrants  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof  (in the case of the  Conversion  Shares  prior to  registration  of such
shares  under the  Securities  Act) will be given by the Company to its transfer
agent and that the Conversion  Shares shall otherwise be freely  transferable on
the books and  records  of the  Company as and to the  extent  provided  in this
Agreement  and the  Investor  Registration  Rights  Agreement.  Nothing  in this
Section 5 shall  affect in any way the  Buyer's  obligations  and  agreement  to
comply with all applicable  securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance  customary for opinions of counsel in comparable  transactions  to the
effect that  registration  of a resale by the Buyer(s) of any of the  Conversion
Shares is not required  under the  Securities  Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more  certificates
in such name and in such  denominations  as specified by the Buyer.  The Company
acknowledges  that  a  breach  by it of its  obligations  hereunder  will  cause
irreparable  harm to the  Buyer by  vitiating  the  intent  and  purpose  of the
transaction contemplated hereby. Accordingly,  the Company acknowledges that the
remedy  at law for a breach  of its  obligations  under  this  Section 5 will be
inadequate  and  agrees,  in the event of a breach or  threatened  breach by the
Company  of the  provisions  of this  Section  5,  that  the  Buyer(s)  shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

      6.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligation of the Company  hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing  Dates,  of each of the following  conditions,  provided that
these  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:


                                       15
<PAGE>

            (a)   Each Buyer shall have executed the  Transaction  Documents and
delivered them to the Company.

            (b)   The  Buyer(s)  shall have  delivered  to the Escrow  Agent the
Purchase  Price for  Convertible  Debentures in respective  amounts as set forth
next to each Buyer as  outlined  on  Schedule  I attached  hereto and the Escrow
Agent shall have  delivered  the net proceeds to the Company by wire transfer of
immediately  available U.S. funds pursuant to the wire instructions  provided by
the Company.

            (c)   The  representations  and  warranties of the Buyer(s) shall be
true and correct in all material respects as of the date when made and as of the
Closing  Dates as  though  made at that time  (except  for  representations  and
warranties  that  speak as of a  specific  date),  and the  Buyer(s)  shall have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.

      7.    CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

            (a)   The  obligation  of the  Buyer(s)  hereunder  to purchase  the
Convertible  Debentures at the First Closing is subject to the satisfaction,  at
or before the First Closing Date, of each of the following conditions:

                  (i)   The  Company   shall  have   executed  the   Transaction
Documents and delivered the same to the Buyer(s).

                  (ii)  The Common Stock shall be  authorized  for  quotation on
the OTCBB,  trading in the Common  Stock shall not have been  suspended  for any
reason,  and all the  Conversion  Shares  issuable  upon the  conversion  of the
Convertible Debentures shall be approved by the OTCBB.

                  (iii) The  representations and warranties of the Company shall
be true and correct in all material  respects  (except to the extent that any of
such  representations  and warranties is already  qualified as to materiality in
Section 3 above, in which case,  such  representations  and warranties  shall be
true and correct without further  qualification) as of the date when made and as
of  the  First   Closing   Date  as  though  made  at  that  time   (except  for
representations and warranties that speak as of a specific date) and the Company
shall have performed,  satisfied and complied in all material  respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the First Closing Date.
If requested by the Buyer, the Buyer shall have received a certificate, executed
by the  President of the Company,  dated as of the First  Closing  Date,  to the
foregoing effect and as to such other matters as may be reasonably  requested by
the Buyer including,  without  limitation an update as of the First Closing Date
regarding the representation contained in Section 3(c) above.

                  (iv)  The Company  shall have  executed  and  delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.


                                       16
<PAGE>

                  (v)   The Buyer(s)  shall have  received an opinion of counsel
from counsel to the Company in a form satisfactory to the Buyer(s).

                  (vi)  The  Company  shall  have  provided  to the  Buyer(s)  a
certificate of good standing from the secretary of state from the state in which
the company is incorporated.

                  (vii) The  Company or the Buyer  shall have filed a form UCC-1
or such other forms as may be  required  to perfect the Buyer's  interest in the
Pledged  Property as detailed in the Security  Agreement  and provided  proof of
such filing to the Buyer(s).

                  (viii) The Pledged  Shares as well as executed  and  medallion
guaranteed  stock  powers  shall  have been  delivered  to the  Escrow  Agent as
required pursuant to the Pledge Agreement.

                  (ix)  The  Company   shall  have  provided  to  the  Buyer  an
acknowledgement,   to  the  satisfaction  of  the  Buyer,   from  the  Company's
independent  certified  public  accountants  as to its  ability to  provide  all
consents  required in order to file a registration  statement in connection with
this transaction.

                  (x)   The Company  shall have  reserved out of its  authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
the Convertible  Debentures,  shares of Common Stock to effect the conversion of
all of the Conversion Shares then outstanding.

                  (xi)  The Irrevocable Transfer Agent Instructions, in form and
substance   satisfactory  to  the  Buyer,  shall  have  been  delivered  to  and
acknowledged in writing by the Company's transfer agent.

            (b)   The  obligation  of  the  Buyer(s)  hereunder  to  accept  the
Convertible Debentures at the Second Closing is subject to the satisfaction,  at
or before the Second Closing Date, of each of the following conditions:

                  (i)   The Common Stock shall be  authorized  for  quotation on
the OTCBB,  trading in the Common  Stock shall not have been  suspended  for any
reason,  and all the  Conversion  Shares  issuable  upon the  conversion  of the
Convertible Debentures shall be approved by the OTCBB.

                  (ii)  The  representations and warranties of the Company shall
be true and correct in all material  respects  (except to the extent that any of
such  representations  and warranties is already  qualified as to materiality in
Section 3 above, in which case,  such  representations  and warranties  shall be
true and correct without further  qualification) as of the date when made and as
of  the  Second   Closing   Date  as  though  made  at  that  time  (except  for
representations and warranties that speak as of a specific date) and the Company
shall have performed,  satisfied and complied in all material  respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied  or  complied  with by the  Company at or prior to the Second  Closing
Date. If requested by the Buyer,  the Buyer shall have  received a  certificate,
executed by two officers of the Company, dated as of the Second Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Buyer  including,  without  limitation an update as of the Second Closing
Date regarding the representation contained in Section 3(c) above.


                                       17
<PAGE>

                  (iii) The Company  shall have  executed  and  delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.

                  (iv)  The Company shall have  certified that all conditions to
the  Second  Closing  have been  satisfied  and that the  Company  will file the
Registration Statement with the SEC in compliance with the rules and regulations
promulgated by the SEC for filing thereof two (2) business days after the Second
Closing. If requested by the Buyer, the Buyer shall have received a certificate,
executed by the two  officers  of the  Company,  dated as of the Second  Closing
Date,  to the  foregoing  effect.  The Buyers have no  obligation to fund at the
Second Closing if the Company has filed the Registration Statement.

            (c)   The  obligation  of  the  Buyer(s)  hereunder  to  accept  the
Convertible  Debentures at the Third Closing is subject to the satisfaction,  at
or before the Third Closing Date, of each of the following conditions:

                  (i)   The Common Stock shall be  authorized  for  quotation on
the OTCBB,  trading in the Common  Stock shall not have been  suspended  for any
reason,  and all the  Conversion  Shares  issuable  upon the  conversion  of the
Convertible Debentures shall be approved by the OTCBB.

                  (ii)  The  representations and warranties of the Company shall
be true and correct in all material  respects  (except to the extent that any of
such  representations  and warranties is already  qualified as to materiality in
Section 3 above, in which case,  such  representations  and warranties  shall be
true and correct without further  qualification) as of the date when made and as
of  the  Third   Closing   Date  as  though  made  at  that  time   (except  for
representations and warranties that speak as of a specific date) and the Company
shall have performed,  satisfied and complied in all material  respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Third Closing Date.
If requested by the Buyer, the Buyer shall have received a certificate, executed
by two  officers of the  Company,  dated as of the Third  Closing  Date,  to the
foregoing effect and as to such other matters as may be reasonably  requested by
the Buyer including,  without  limitation an update as of the Third Closing Date
regarding the representation contained in Section 3(c) above.

                  (iii) The Company  shall have  executed  and  delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.

                  (iv)  The Company shall have  certified that all conditions to
the Third Closing have been satisfied and that the  Registration  Statement will
be  declared  effective  by the SEC  within  (3)  business  days after the Third
Closing  Date.  If  requested  by the Buyer,  the Buyer  shall  have  received a
certificate,  executed by the two officers of the Company, dated as of the Third
Closing Date, to the foregoing effect.


                                       18
<PAGE>

      8.    INDEMNIFICATION.

            (a)   In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the  Convertible  Debentures and the  Conversion  Shares
hereunder,  and in addition to all of the Company's other obligations under this
Agreement,  the Company shall defend,  protect,  indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible  Debentures and the Conversion
Shares, and all of their officers,  directors,  employees and agents (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions,  causes of action,  suits, claims,  losses,  costs,
penalties,  fees,  liabilities and damages, and expenses in connection therewith
(irrespective  of whether any such Buyer Indemnitee is a party to the action for
which indemnification  hereunder is sought), and including reasonable attorneys'
fees and disbursements  (the "Indemnified  Liabilities"),  incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any  misrepresentation  or breach of any  representation or warranty made by the
Company  in  this  Agreement,   the  Convertible   Debentures  or  the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby or thereby,  (b) any breach of any  covenant,  agreement or
obligation  of  the  Company  contained  in  this  Agreement,  or  the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby,  or (c) any  cause of  action,  suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution,  delivery,  performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the parties
hereto, any transaction financed or to be financed in whole or in part, directly
or indirectly,  with the proceeds of the issuance of the Convertible  Debentures
or  the  status  of the  Buyer  or  holder  of the  Convertible  Debentures  the
Conversion Shares, as a Buyer of Convertible  Debentures in the Company.  To the
extent that the foregoing  undertaking by the Company may be  unenforceable  for
any reason,  the Company shall make the maximum  contribution to the payment and
satisfaction of each of the Indemnified Liabilities,  which is permissible under
applicable law.

            (b)   In  consideration  of the Company's  execution and delivery of
this Agreement,  and in addition to all of the Buyer's other  obligations  under
this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers,  directors,  employees  and agents  (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement)  (collectively,  the "Company Indemnitees") from
and against any and all Indemnified  Liabilities  incurred by the Indemnitees or
any of  them  as a  result  of,  or  arising  out  of,  or  relating  to (a) any
misrepresentation  or  breach  of any  representation  or  warranty  made by the
Buyer(s)  in this  Agreement,  instrument  or  document  contemplated  hereby or
thereby  executed by the Buyer,  (b) any breach of any  covenant,  agreement  or
obligation  of  the  Buyer(s)   contained  in  this   Agreement,   the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby  executed  by the  Buyer,  or (c) any cause of
action,  suit or claim brought or made against such Company  Indemnitee based on
material  misrepresentations  or due to a material  breach and arising out of or
resulting  from the  execution,  delivery,  performance  or  enforcement of this


                                       19
<PAGE>

Agreement,  the Investor  Registration Rights Agreement or any other instrument,
document or agreement  executed pursuant hereto by any of the parties hereto. To
the extent that the foregoing undertaking by each Buyer may be unenforceable for
any reason,  each Buyer shall make the maximum  contribution  to the payment and
satisfaction of each of the Indemnified Liabilities,  which is permissible under
applicable law.

      9.    GOVERNING LAW: MISCELLANEOUS.

            (a)   Governing  Law.  This  Agreement  shall  be  governed  by  and
interpreted  in  accordance  with the laws of the  State of New  Jersey  without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Hudson County,  New Jersey,  and expressly
consent  to the  jurisdiction  and venue of the  Superior  Court of New  Jersey,
sitting in Hudson County and the United States  District  Court for the District
of New Jersey sitting in Newark,  New Jersey for the  adjudication  of any civil
action asserted pursuant to this Paragraph.

            (b)   Counterparts.  This  Agreement  may be executed in two or more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered  to the other  party.  In the event any  signature  page is
delivered  by  facsimile  transmission,  the party  using such means of delivery
shall  cause  four  (4)  additional  original  executed  signature  pages  to be
physically  delivered to the other party  within five (5) days of the  execution
and delivery hereof.

            (c)   Headings.  The headings of this Agreement are for  convenience
of reference and shall not form part of, or affect the  interpretation  of, this
Agreement.

            (d)   Severability.  If any  provision  of this  Agreement  shall be
invalid   or   unenforceable   in   any   jurisdiction,   such   invalidity   or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability of any provision of this Agreement in any other jurisdiction.

            (e)   Entire Agreement,  Amendments.  This Agreement  supersedes all
other prior oral or written agreements between the Buyer(s),  the Company, their
affiliates  and  persons  acting on their  behalf  with  respect to the  matters
discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither the Company nor any Buyer makes any representation,  warranty,
covenant or  undertaking  with  respect to such  matters.  No  provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

            (f)   Notices.   Any   notices,   consents,    waivers,   or   other
communications  required  or  permitted  to be  given  under  the  terms of this
Agreement  must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt, when sent
by  facsimile;  (iii)  three (3) days after being sent by U.S.  certified  mail,
return  receipt  requested,  or (iv) one (1) day after deposit with a nationally
recognized  overnight  delivery service,  in each case properly addressed to the
party to  receive  the  same.  The  addresses  and  facsimile  numbers  for such
communications shall be:


                                       20
<PAGE>

If to the Company, to:       XsunX, Inc.
                             65 Enterprise
                             Aliso Viejo, CA 92656
                             Attention: Tom Djokovich
                             Telephone: (949) 330-8060
                             Facsimile: (949) 266-5823

With a copy to:              Sichenzia Ross Friedman Ference LLP
                             1065 Avenue of the Americas
                             New York, NY 10018
                             Telephone: (212) 930-9700
                             Facsimile: (212) 930-9725

      If to the  Buyer(s),  to its address and  facsimile  number on Schedule I,
with copies to the Buyer's  counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written  notice to the other party of any change in
address or facsimile number.

            (g)   Successors and Assigns.  This Agreement  shall be binding upon
and inure to the  benefit of the  parties and their  respective  successors  and
assigns.  Neither the Company nor any Buyer shall  assign this  Agreement or any
rights or obligations  hereunder  without the prior written consent of the other
party hereto.

            (h)   No Third Party  Beneficiaries.  This Agreement is intended for
the benefit of the parties hereto and their respective  permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

            (i)   Survival.  Unless this  Agreement is terminated  under Section
9(l),  the  representations  and  warranties  of the  Company  and the  Buyer(s)
contained  in  Sections  2 and 3, the  agreements  and  covenants  set  forth in
Sections 4, 5 and 9, and the indemnification  provisions set forth in Section 8,
shall  survive the Closing for a period of two (2) years  following  the date on
which the  Convertible  Debentures  are converted in full. The Buyer(s) shall be
responsible  only  for  its  own  representations,  warranties,  agreements  and
covenants hereunder.

            (j)   Publicity.  The Company and the Buyer(s)  shall have the right
to approve, before issuance any press release or any other public statement with
respect to the  transactions  contemplated  hereby made by any party;  provided,
however,  that the Company shall be entitled,  without the prior approval of the
Buyer(s),  to issue any press release or other public disclosure with respect to
such  transactions  required  under  applicable  securities  or  other  laws  or
regulations  (the Company  shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public  disclosure  prior to its
release  and  Buyer(s)  shall  be  provided  with a copy  thereof  upon  release
thereof).


                                       21
<PAGE>

            (k)   Further Assurances.  Each party shall do and perform, or cause
to be done and  performed,  all such further acts and things,  and shall execute
and deliver all such other agreements, certificates,  instruments and documents,
as the other party may  reasonably  request in order to carry out the intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

            (l)   Termination.  In the  event  that the  Closing  shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date  hereof  due to the  Company's  or  the  Buyer's  failure  to  satisfy  the
conditions  set forth in Sections 6 and 7 above (and the  non-breaching  party's
failure to waive such unsatisfied  condition(s)),  the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of  business  on such date  without  liability  of any party to any
other party;  provided,  however,  that if this  Agreement is  terminated by the
Company  pursuant to this Section 9(l),  the Company  shall remain  obligated to
reimburse  the  Buyer(s)  for  the  fees  and  expenses  of  Yorkville  Advisors
Management, LLC described in Section 4(g) above.

            (m)   No Strict  Construction.  The language used in this  Agreement
will be deemed to be the language  chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.


                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]


                                       22
<PAGE>

      IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.


                                               COMPANY:
                                               XSUNX, INC.

                                               By:
                                                  ------------------------------
                                                  Name:  Tom Djokovich
                                                  Title: Chief Executive Officer


                                       23
<PAGE>

                                   SCHEDULE I


                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>

                                                                                 Address/Facsimile             Amount of
           Name                                 Signature                         Number of Buyer             Subscription
-----------------------------          -----------------------------     ------------------------------       ------------
<S>                                    <C>                               <C>                                  <C>
Cornell Capital Partners, LP           By:   Yorkville Advisors, LLC     101 Hudson Street - Suite 3700          $5,000,000
                                       Its:  General Partner             Jersey City, NJ  07303
                                                                         Facsimile: (201) 985-8266

                                       By:__________________________
                                       Name: Mark Angelo
                                       Its:  Portfolio Manager

With a copy to:                        David Gonzalez, Esq.              101 Hudson Street - Suite 3700
                                                                         Jersey City, NJ 07302
                                                                         Facsimile: (201) 985-8266
</TABLE>

<PAGE>

                               DISCLOSURE SCHEDULE


3(c) Capitalization - List of Warrants to be manually inserted.

3(h) Absence of Litigation - Letter to be manually inserted.