Document:

WARRANT

       

      THE
        SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
        THE
        SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
        SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
        OR
        APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
        SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
        OR
        APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
        SAID
        ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
        WITH A BONA FIDE MARGIN ACCOUNT.

       

      XSUNX,
        INC.

       

       

      Warrant
        To Purchase Common Stock

       

      Warrant
        No.: CCP-001Number
        of
        Shares: 4,250,000

      

      Date
        of
        Issuance: July __, 2005

      

      XsunX,
        Inc., a Colorado corporation (the “Company”),
        hereby certifies that, for good and valuable consideration, the receipt and
        sufficiency of which are hereby acknowledged, Cornell
        Capital Partners, LP
        (“Cornell”),
        the
        registered holder hereof or its permitted assigns, is entitled, subject to
        the
        terms set forth below, to purchase from the Company upon surrender of this
        Warrant, at any time or times on or after the date hereof, but not after
        11:59 P.M. Eastern Time on the Expiration Date (as defined herein)
        Four
        Million Two Hundred Fifty Thousand (4,250,000) fully paid and nonassessable
        shares of Common Stock (as defined herein) of the Company (the “Warrant
        Shares”)
        at the
        exercise price per share provided in Section 1(b) below or as subsequently
        adjusted; provided, however, that in no event shall the holder be entitled
        to
        exercise this Warrant for a number of Warrant Shares in excess of that number
        of
        Warrant Shares which, upon giving effect to such exercise, would cause the
        aggregate number of shares of Common Stock beneficially owned by the holder
        and
        its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
        following such exercise, except within sixty (60) days of the Expiration
        Date.
        For purposes of the foregoing proviso, the aggregate number of shares of
        Common
        Stock beneficially owned by the holder and its affiliates shall include the
        number of shares of Common Stock issuable upon exercise of this Warrant with
        respect to which the determination of such proviso is being made, but shall
        exclude shares of Common Stock which would be issuable upon (i) exercise
        of
        the remaining, unexercised Warrants beneficially owned by the holder and
        its
        affiliates and (ii) exercise or conversion of the unexercised or
        unconverted portion of any other securities of the Company beneficially owned
        by
        the holder and its affiliates (including, without limitation, any convertible
        notes or preferred stock) subject to a limitation on conversion or exercise
        analogous to the limitation contained herein. Except as set forth in the
        preceding sentence, for purposes of this paragraph, beneficial ownership
        shall
        be calculated in accordance with Section 13(d) of the Securities Exchange
        Act of
        1934, as amended. For purposes of this Warrant, in determining the number
        of
        outstanding shares of Common Stock a holder may rely on the number of
        outstanding shares of Common Stock as reflected in (1) the Company’s most recent
        Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
        announcement by the Company or (3) any other notice by the Company or its
        transfer agent setting forth the number of shares of Common Stock outstanding.
        Upon the written request of any holder, the Company shall promptly, but in
        no
        event later than one (1) Business Day following the receipt of such notice,
        confirm in writing to any such holder the number of shares of Common Stock
        then
        outstanding. In any case, the number of outstanding shares of Common Stock
        shall
        be determined after giving effect to the exercise of Warrants (as defined
        below)
        by such holder and its affiliates since the date as of which such number
        of
        outstanding shares of Common Stock was reported.

       

      
        
           

        

        
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      Section
        1.

       

      (a) This
        Warrant is the common stock purchase warrant (the “Warrant”)
        issued
        pursuant to the Securities Purchase Agreement dated the date hereof by and
        between the Company and Cornell (“Securities
        Purchase Agreement”).

       

      (b) Definitions.
        The
        following words and terms as used in this Warrant shall have the following
        meanings:

       

      (i) “Approved
        Stock Plan”
        means
        any employee benefit plan which has been approved by the Board of Directors
        of
        the Company, pursuant to which the Company’s securities may be issued to any
        employee, officer or director for services provided to the Company.

       

      (ii) “Business
        Day”
        means
        any day other than Saturday, Sunday or other day on which commercial banks
        in
        the City of New York are authorized or required by law to remain
        closed.

       

      (iii) “Closing
        Bid Price”
        means
        the closing bid price of Common Stock as quoted on the Principal Market (as
        reported by Bloomberg Financial Markets (“Bloomberg”)
        through its “Volume at Price” function).

       

      (iv) “Common
        Stock”
        means
        (i) the Company’s common stock, no par value per share, and (ii) any
        capital stock into which such Common Stock shall have been changed or any
        capital stock resulting from a reclassification of such Common
        Stock.

       

      (v) “Event
        of Default”
        means
        an event of default under the Securities Purchase Agreement.

       

      (vi) “Excluded
        Securities”
        means,
        provided such security is issued at a price which is greater than or equal
        to
        the arithmetic average of the Closing Bid Prices of the Common Stock for
        the ten
        (10) consecutive trading days immediately preceding the date of issuance,
        any of
        the following: (a) any issuance by the Company of securities in connection
        with
        a strategic partnership or a joint venture (the primary purpose of which
        is not
        to raise equity capital), (b) any issuance by the Company of securities as
        consideration for a merger or consolidation or the acquisition of a business,
        product, license, or other assets of another person or entity and (c) options
        to
        purchase shares of Common Stock, provided (I) such options are issued after
        the
        date of this Warrant to employees of the Company within thirty (30) days
        of such
        employee’s starting his employment with the Company, and (II) the exercise price
        of such options is not less than the Closing Bid Price of the Common Stock
        on
        the date of issuance of such option. Excluded Securities shall also include
        any
        issuance by the Company of equity securities to employees, provided that
        the
        issuance, or exercise of such equity securities, as the case may be, takes
        place
        at a price of no less than $.10 per share.

       

      
        
           

        

        
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      (vii) “Expiration
        Date”
        means
        the date five (5) years from the Issuance Date of this Warrant or, if such
        date
        falls on a Saturday, Sunday or other day on which banks are required or
        authorized to be closed in the City of New York or the State of New York
        or on
        which trading does not take place on the Principal Exchange or automated
        quotation system on which the Common Stock is traded (a “Holiday”),
        the
        next date that is not a Holiday.

       

      (viii) “Issuance
        Date”
        means
        the date hereof.

       

      (ix) “Options”
        means
        any rights, warrants or options to subscribe for or purchase Common Stock
        or
        Convertible Securities. 

       

      (x) “Other
        Securities”
        means
        (i) those options and warrants of the Company issued prior to, and
        outstanding on, the Issuance Date of this Warrant, (ii) the shares of Common
        Stock issuable on exercise of such options and warrants, provided such options
        and warrants are not amended after the Issuance Date of this Warrant and
        (iii) the shares of Common Stock issuable upon exercise of this Warrant.
        

       

      (xi) “Person”
        means
        an individual, a limited liability company, a partnership, a joint venture,
        a
        corporation, a trust, an unincorporated organization and a government or
        any
        department or agency thereof.

       

      (xii) “Principal
        Market”
        means
        the New York Stock Exchange, the American Stock Exchange, the Nasdaq National
        Market, the Nasdaq SmallCap Market, whichever is at the time the principal
        trading exchange or market for such security, or the over-the-counter market
        on
        the electronic bulletin board for such security as reported by Bloomberg
        or, if
        no bid or sale information is reported for such security by Bloomberg, then
        the
        average of the bid prices of each of the market makers for such security
        as
        reported in the “pink sheets” by the National Quotation Bureau,
        Inc.

       

      (xiii) “Securities
        Act”
        means
        the Securities Act of 1933, as amended. 

       

      (xiv) “Warrant”
        means
        this Warrant and all Warrants issued in exchange, transfer or replacement
        thereof. 

       

      (xv) “Warrant
        Exercise Price”
        shall
        be $0.15 or as subsequently adjusted as provided in Section 8 hereof.
        

       

      
        
           

        

        
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      (xvi) “Warrant
        Shares”
        means
        the shares of Common Stock issuable at any time upon exercise of this Warrant.
        

       

      (c) Other
        Definitional Provisions. 

       

      (i) Except
        as
        otherwise specified herein, all references herein (A) to the Company
        shall
        be deemed to include the Company’s successors and (B) to any applicable law
        defined or referred to herein shall be deemed references to such applicable
        law
        as the same may have been or may be amended or supplemented from time to
        time.

       

      (ii) When
        used
        in this Warrant, the words “herein”,
        “hereof”,
        and
“hereunder”
        and
        words of similar import, shall refer to this Warrant as a whole and not to
        any
        provision of this Warrant, and the words “Section”,
        “Schedule”,
        and
“Exhibit”
        shall
        refer to Sections of, and Schedules and Exhibits to, this Warrant unless
        otherwise specified. 

       

      (iii) Whenever
        the context so requires, the neuter gender includes the masculine or feminine,
        and the singular number includes the plural, and vice versa. 

       

      Section
        2. Exercise
        of Warrant.
        

       

      (a) Subject
        to the terms and conditions hereof, this Warrant may be exercised by the
        holder
        hereof then registered on the books of the Company, pro rata as hereinafter
        provided, at any time on any Business Day on or after the opening of business
        on
        such Business Day, commencing with the first day after the date hereof, and
        prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery
        of
        a written notice, in the form of the subscription notice attached as
Exhibit
        A
        hereto
        (the “Exercise
        Notice”),
        of
        such holder’s election to exercise this Warrant, which notice shall specify the
        number of Warrant Shares to be purchased, payment to the Company of
        an
        amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
        being purchased, multiplied by the number of Warrant Shares (at the
        applicable Warrant Exercise Price) as to which this Warrant is being
        exercised (plus any applicable issue or transfer taxes) (the “Aggregate
        Exercise Price”)
        in
        cash or wire transfer of immediately available funds and the surrender of
        this
        Warrant (or an indemnification undertaking with respect to this Warrant in
        the
        case of its loss, theft or destruction) to a common carrier for overnight
        delivery to the Company as soon as practicable following such date
        (“Cash
        Basis”)
        or
        (ii) if at the time of exercise, the Warrant Shares are not subject to an
        effective registration statement or if an Event of Default has occurred,
        by
        delivering an Exercise Notice and in lieu of making payment of the Aggregate
        Exercise Price in cash or wire transfer, elect instead to receive upon such
        exercise the “Net Number” of shares of Common Stock determined according to the
        following formula (the “Cashless
        Exercise”):
        

       

      Net
        Number = (A
        x
        B) - (A x C)

      B

      

      For
        purposes of the foregoing formula: 

      

      A
        = the
        total number of Warrant Shares with respect to which this Warrant is then
        being
        exercised. 

       

      
        
           

        

        
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      B
        = the
        Closing Bid Price of the Common Stock on the date of exercise of the
        Warrant.

      

      C
        = the
        Warrant Exercise Price then in effect for the applicable Warrant Shares at
        the
        time of such exercise. 

      

      In
        the
        event of any exercise of the rights represented by this Warrant in compliance
        with this Section 2, the Company shall on or before the fifth (5th)
        Business Day following the date of receipt of the Exercise Notice, the Aggregate
        Exercise Price and this Warrant (or an indemnification undertaking with respect
        to this Warrant in the case of its loss, theft or destruction) and the receipt
        of the representations of the holder specified in Section 6 hereof, if requested
        by the Company (the “Exercise
        Delivery Documents”),
        and
        if the Common Stock is DTC eligible, credit such aggregate number of shares
        of
        Common Stock to which the holder shall be entitled to the holder’s or its
        designee’s balance account with The Depository Trust Company; provided, however,
        if the holder who submitted the Exercise Notice requested physical delivery
        of
        any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible
        then the Company shall, on or before the fifth (5th)
        Business Day following receipt of the Exercise Delivery Documents, issue
        and
        surrender to a common carrier for overnight delivery to the address specified
        in
        the Exercise Notice, a certificate, registered in the name of the holder,
        for
        the number of shares of Common Stock to which the holder shall be entitled
        pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
        Exercise Price referred to in clause (i) or (ii) above the holder
        of this
        Warrant shall be deemed for all corporate purposes to have become the holder
        of
        record of the Warrant Shares with respect to which this Warrant has been
        exercised. In the case of a dispute as to the determination of the Warrant
        Exercise Price, the Closing Bid Price or the arithmetic calculation of the
        Warrant Shares, the Company shall promptly issue to the holder the number
        of
        Warrant Shares that is not disputed and shall submit the disputed determinations
        or arithmetic calculations to the holder via facsimile within one (1) Business
        Day of receipt of the holder’s Exercise Notice. 

       

      (b) If
        the
        holder and the Company are unable to agree upon the determination of the
        Warrant
        Exercise Price or arithmetic calculation of the Warrant Shares within one
        (1)
        day of such disputed determination or arithmetic calculation being submitted
        to
        the holder, then the Company shall immediately submit via facsimile (i) the
        disputed determination of the Warrant Exercise Price or the Closing Bid Price
        to
        an independent, reputable investment banking firm or (ii) the disputed
        arithmetic calculation of the Warrant Shares to its independent, outside
        accountant. The Company shall cause the investment banking firm or the
        accountant, as the case may be, to perform the determinations or calculations
        and notify the Company and the holder of the results no later than forty-eight
        (48) hours from the time it receives the disputed determinations or
        calculations. Such investment banking firm’s or accountant’s determination or
        calculation, as the case may be, shall be deemed conclusive absent manifest
        error.

       

      (c) Unless
        the rights represented by this Warrant shall have expired or shall have been
        fully exercised, the Company shall, as soon as practicable and in no event
        later
        than five (5) Business Days after any exercise and at its own expense, issue
        a
        new Warrant identical in all respects to this Warrant exercised except it
        shall
        represent rights to purchase the number of Warrant Shares purchasable
        immediately prior to such exercise under this Warrant exercised, less the
        number
        of Warrant Shares with respect to which such Warrant is exercised.

       

      
        
           

        

        
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      (d) No
        fractional Warrant Shares are to be issued upon any pro rata exercise of
        this
        Warrant, but rather the number of Warrant Shares issued upon such exercise
        of
        this Warrant shall be rounded up or down to the nearest whole
        number.

       

      (e) If
        the
        Company or its Transfer Agent shall fail for any reason or for no reason
        to
        issue to the holder within ten (10) days of receipt of the Exercise
        Delivery Documents, a certificate for the number of Warrant Shares to which
        the
        holder is entitled or to credit the holder’s balance account with The Depository
        Trust Company for such number of Warrant Shares to which the holder is entitled
        upon the holder’s exercise of this Warrant, the Company shall, in addition to
        any other remedies under this Warrant or the Placement Agent Agreement or
        otherwise available to such holder, pay as additional damages in cash to
        such
        holder on each day the issuance of such certificate for Warrant Shares is
        not
        timely effected an amount equal to 0.025% of the product of (A) the sum of
        the
        number of Warrant Shares not issued to the holder on a timely basis and to
        which
        the holder is entitled, and (B) the Closing Bid Price of the Common Stock
        for
        the trading day immediately preceding the last possible date which the Company
        could have issued such Common Stock to the holder without violating this
        Section 2.

       

      (f) If
        within
        ten (10) days after the Company’s receipt of the Exercise Delivery Documents,
        the Company fails to deliver a new Warrant to the holder for the number of
        Warrant Shares to which such holder is entitled pursuant to Section 2 hereof,
        then, in addition to any other available remedies under this Warrant or the
        Placement Agent Agreement, or otherwise available to such holder, the Company
        shall pay as additional damages in cash to such holder on each day after
        such
        tenth (10th)
        day
        that such delivery of such new Warrant is not timely effected in an amount
        equal
        to 0.25% of the product of (A) the number of Warrant Shares represented
        by
        the portion of this Warrant which is not being exercised and (B) the
        Closing Bid Price of the Common Stock for the trading day immediately preceding
        the last possible date which the Company could have issued such Warrant to
        the
        holder without violating this Section 2.

       

      Section
        3. Covenants
        as to Common Stock.
        The
        Company hereby covenants and agrees as follows:

       

      (a) This
        Warrant is, and any Warrants issued in substitution for or replacement of
        this
        Warrant will upon issuance be, duly authorized and validly issued.

       

      (b) All
        Warrant Shares which may be issued upon the exercise of the rights represented
        by this Warrant will, upon issuance, be validly issued, fully paid and
        nonassessable and free from all taxes, liens and charges with respect to
        the
        issue thereof.

       

      (c) During
        the period within which the rights represented by this Warrant may be exercised,
        the Company will at all times have authorized and reserved at least one hundred
        percent (100%) of the number of shares of Common Stock needed to provide
        for the
        exercise of the rights then represented by this Warrant and the par value
        of
        said shares will at all times be less than or equal to the applicable Warrant
        Exercise Price. If at any time the Company does not have a sufficient number
        of
        shares of Common Stock authorized and available, then the Company shall call
        and
        hold a special meeting of its stockholders within sixty (60) days
        of that
        time for the sole purpose of increasing the number of authorized shares of
        Common Stock.

       

      
        
           

        

        
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      (d) If
        at any
        time after the date hereof the Company shall file a registration statement,
        the
        Company shall include the Warrant Shares issuable to the holder, pursuant
        to the
        terms of this Warrant and shall maintain, so long as any other shares of
        Common
        Stock shall be so listed, such listing of all Warrant Shares from time to
        time
        issuable upon the exercise of this Warrant; and the Company shall so list
        on
        each national securities exchange or automated quotation system, as the case
        may
        be, and shall maintain such listing of, any other shares of capital stock
        of the
        Company issuable upon the exercise of this Warrant if and so long as any
        shares
        of the same class shall be listed on such national securities exchange or
        automated quotation system.

       

      (e) The
        Company will not, by amendment of its Articles of Incorporation or through
        any
        reorganization, transfer of assets, consolidation, merger, dissolution, issue
        or
        sale of securities, or any other voluntary action, avoid or seek to avoid
        the
        observance or performance of any of the terms to be observed or performed
        by it
        hereunder, but will at all times in good faith assist in the carrying out
        of all
        the provisions of this Warrant and in the taking of all such action as may
        reasonably be requested by the holder of this Warrant in order to protect
        the
        exercise privilege of the holder of this Warrant against dilution or other
        impairment, consistent with the tenor and purpose of this Warrant. The Company
        will not increase the par value of any shares of Common Stock receivable
        upon
        the exercise of this Warrant above the Warrant Exercise Price then in effect,
        and (ii) will take all such actions as may be necessary or appropriate
        in
        order that the Company may validly and legally issue fully paid and
        nonassessable shares of Common Stock upon the exercise of this
        Warrant.

       

      (f) This
        Warrant will be binding upon any entity succeeding to the Company by merger,
        consolidation or acquisition of all or substantially all of the Company’s
        assets.

       

      Section
        4. Taxes.
        The
        Company shall pay any and all taxes, except any applicable withholding, which
        may be payable with respect to the issuance and delivery of Warrant Shares
        upon
        exercise of this Warrant.

       

      Section
        5. Warrant
        Holder Not Deemed a Stockholder.
        Except
        as otherwise specifically provided herein, no holder, as such, of this Warrant
        shall be entitled to vote or receive dividends or be deemed the holder of
        shares
        of capital stock of the Company for any purpose, nor shall anything contained
        in
        this Warrant be construed to confer upon the holder hereof, as such, any
        of the
        rights of a stockholder of the Company or any right to vote, give or withhold
        consent to any corporate action (whether any reorganization, issue of stock,
        reclassification of stock, consolidation, merger, conveyance or otherwise),
        receive notice of meetings, receive dividends or subscription rights, or
        otherwise, prior to the issuance to the holder of this Warrant of the Warrant
        Shares which he or she is then entitled to receive upon the due exercise
        of this
        Warrant. In addition, nothing contained in this Warrant shall be construed
        as
        imposing any liabilities on such holder to purchase any securities (upon
        exercise of this Warrant or otherwise) or as a stockholder of the Company,
        whether such liabilities are asserted by the Company or by creditors of the
        Company. Notwithstanding this Section 5, the Company will provide the holder
        of
        this Warrant with copies of the same notices and other information given
        to the
        stockholders of the Company generally, contemporaneously with the giving
        thereof
        to the stockholders.

       

      
        
           

        

        
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      Section
        6. Representations
        of Holder.
        The
        holder of this Warrant, by the acceptance hereof, represents that it is
        acquiring this Warrant and the Warrant Shares for its own account for investment
        only and not with a view towards, or for resale in connection with, the public
        sale or distribution of this Warrant or the Warrant Shares, except pursuant
        to
        sales registered or exempted under the Securities Act; provided, however,
        that
        by making the representations herein, the holder does not agree to hold this
        Warrant or any of the Warrant Shares for any minimum or other specific term
        and
        reserves the right to dispose of this Warrant and the Warrant Shares at any
        time
        in accordance with or pursuant to a registration statement or an exemption
        under
        the Securities Act. The holder of this Warrant further represents, by acceptance
        hereof, that, as of this date, such holder is an “accredited investor” as such
        term is defined in Rule 501(a)(1) of Regulation D promulgated by the
        Securities and Exchange Commission under the Securities Act (an “Accredited
        Investor”).
        Upon
        exercise of this Warrant the holder shall, if requested by the Company, confirm
        in writing, in a form satisfactory to the Company, that the Warrant Shares
        so
        purchased are being acquired solely for the holder’s own account and not as a
        nominee for any other party, for investment, and not with a view toward
        distribution or resale and that such holder is an Accredited Investor. If
        such
        holder cannot make such representations because they would be factually
        incorrect, it shall be a condition to such holder’s exercise of this Warrant
        that the Company receive such other representations as the Company considers
        reasonably necessary to assure the Company that the issuance of its securities
        upon exercise of this Warrant shall not violate any United States or state
        securities laws.

       

      Section
        7. Ownership
        and Transfer.

       

      (a) The
        Company shall maintain at its principal executive offices (or such other
        office
        or agency of the Company as it may designate by notice to the holder hereof),
        a
        register for this Warrant, in which the Company shall record the name and
        address of the person in whose name this Warrant has been issued, as well
        as the
        name and address of each transferee. The Company may treat the person in
        whose
        name any Warrant is registered on the register as the owner and holder thereof
        for all purposes, notwithstanding any notice to the contrary, but in all
        events
        recognizing any transfers made in accordance with the terms of this
        Warrant.

       

      Section
        8. Adjustment
        of Warrant Exercise Price and Number of Shares.
        The
        Warrant Exercise Price and the number of shares of Common Stock issuable
        upon
        exercise of this Warrant shall be adjusted from time to time as
        follows:

       

      (a) Adjustment
        of Warrant Exercise Price and Number of Shares upon Issuance of Common
        Stock.
        If and
        whenever on or after the Issuance Date of this Warrant, the Company issues
        or
        sells, or is deemed to have issued or sold, any shares of Common
        Stock (other than (i) Excluded Securities and (ii) shares of Common
        Stock
        which are issued or deemed to have been issued by the Company in connection
        with
        an Approved Stock Plan or upon exercise or conversion of the Other Securities)
        for a consideration per share less than a price (the “Applicable
        Price”)
        equal
        to the Warrant Exercise Price in effect immediately prior to such issuance
        or
        sale, then immediately after such issue or sale the Warrant Exercise Price
        then
        in effect shall be reduced to an amount equal to such consideration per share.
        Upon each such adjustment of the Warrant Exercise Price hereunder, the number
        of
        Warrant Shares issuable upon exercise of this Warrant shall be adjusted to
        the
        number of shares determined by multiplying the Warrant Exercise Price in
        effect
        immediately prior to such adjustment by the number of Warrant Shares issuable
        upon exercise of this Warrant immediately prior to such adjustment and dividing
        the product thereof by the Warrant Exercise Price resulting from such
        adjustment.

       

      
        
           

        

        
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      (b) Effect
        on Warrant Exercise Price of Certain Events.
        For
        purposes of determining the adjusted Warrant Exercise Price under Section
        8(a)
        above, the following shall be applicable:

       

      (i) Issuance
        of Options.
        If
        after the date hereof, the Company in any manner grants any Options and the
        lowest price per share for which one share of Common Stock is issuable upon
        the
        exercise of any such Option or upon conversion or exchange of any convertible
        securities issuable upon exercise of any such Option is less than the Applicable
        Price, then such share of Common Stock shall be deemed to be outstanding
        and to
        have been issued and sold by the Company at the time of the granting or sale
        of
        such Option for such price per share. For purposes of this Section 8(b)(i),
        the
        lowest price per share for which one share of Common Stock is issuable upon
        exercise of such Options or upon conversion or exchange of such Convertible
        Securities shall be equal to the sum of the lowest amounts of consideration
        (if
        any) received or receivable by the Company with respect to any one share
        of
        Common Stock upon the granting or sale of the Option, upon exercise of the
        Option or upon conversion or exchange of any convertible security issuable
        upon
        exercise of such Option. No further adjustment of the Warrant Exercise Price
        shall be made upon the actual issuance of such Common Stock or of such
        convertible securities upon the exercise of such Options or upon the actual
        issuance of such Common Stock upon conversion or exchange of such convertible
        securities.

       

      (ii) Issuance
        of Convertible Securities.
        If the
        Company in any manner issues or sells any convertible securities and the
        lowest
        price per share for which one share of Common Stock is issuable upon the
        conversion or exchange thereof is less than the Applicable Price, then such
        share of Common Stock shall be deemed to be outstanding and to have been
        issued
        and sold by the Company at the time of the issuance or sale of such convertible
        securities for such price per share. For the purposes of this
        Section 8(b)(ii), the lowest price per share for which one share of
        Common
        Stock is issuable upon such conversion or exchange shall be equal to the
        sum of
        the lowest amounts of consideration (if any) received or receivable by the
        Company with respect to one share of Common Stock upon the issuance or sale
        of
        the convertible security and upon conversion or exchange of such convertible
        security. No further adjustment of the Warrant Exercise Price shall be made
        upon
        the actual issuance of such Common Stock upon conversion or exchange of such
        convertible securities, and if any such issue or sale of such convertible
        securities is made upon exercise of any Options for which adjustment of the
        Warrant Exercise Price had been or are to be made pursuant to other provisions
        of this Section 8(b), no further adjustment of the Warrant Exercise Price
        shall
        be made by reason of such issue or sale. 

       

      (iii) Change
        in Option Price or Rate of Conversion.
        If the
        purchase price provided for in any Options, the additional consideration,
        if
        any, payable upon the issue, conversion or exchange of any convertible
        securities, or the rate at which any convertible securities are convertible
        into
        or exchangeable for Common Stock changes at any time, the Warrant Exercise
        Price
        in effect at the time of such change shall be adjusted to the Warrant Exercise
        Price which would have been in effect at such time had such Options or
        convertible securities provided for such changed purchase price, additional
        consideration or changed conversion rate, as the case may be, at the time
        initially granted, issued or sold and the number of Warrant Shares issuable
        upon
        exercise of this Warrant shall be correspondingly readjusted. For purposes
        of
        this Section 8(b)(iii), if the terms of any Option or convertible security
        that
        was outstanding as of the Issuance Date of this Warrant are changed in the
        manner described in the immediately preceding sentence, then such Option
        or
        convertible security and the Common Stock deemed issuable upon exercise,
        conversion or exchange thereof shall be deemed to have been issued as of
        the
        date of such change. No adjustment pursuant to this Section 8(b) shall
        be
        made if such adjustment would result in an increase of the Warrant Exercise
        Price then in effect.

       

      
        
           

        

        
          A-9

          
            

          

        

        
           

        

      

       

      (c) Effect
        on Warrant Exercise Price of Certain Events.
        For
        purposes of determining the adjusted Warrant Exercise Price under
        Sections 8(a) and 8(b), the following shall be applicable:

       

      (i) Calculation
        of Consideration Received.
        If any
        Common Stock, Options or convertible securities are issued or sold or deemed
        to
        have been issued or sold for cash, the consideration received therefore will
        be
        deemed to be the net amount received by the Company therefore. If any Common
        Stock, Options or convertible securities are issued or sold for a consideration
        other than cash, the amount of such consideration received by the Company
        will
        be the fair value of such consideration, except where such consideration
        consists of marketable securities, in which case the amount of consideration
        received by the Company will be the market price of such securities on the
        date
        of receipt of such securities. If any Common Stock, Options or convertible
        securities are issued to the owners of the non-surviving entity in connection
        with any merger in which the Company is the surviving entity, the amount
        of
        consideration therefore will be deemed to be the fair value of such portion
        of
        the net assets and business of the non-surviving entity as is attributable
        to
        such Common Stock, Options or convertible securities, as the case may be.
        The
        fair value of any consideration other than cash or securities will be determined
        jointly by the Company and the holders of Warrants representing at least
        two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
        then
        outstanding. If such parties are unable to reach agreement within ten (10)
        days after the occurrence of an event requiring valuation (the “Valuation
        Event”),
        the
        fair value of such consideration will be determined within five (5) Business
        Days after the tenth (10th)
        day
        following the Valuation Event by an independent, reputable appraiser jointly
        selected by the Company and the holders of Warrants representing at least
        two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
        then
        outstanding. The determination of such appraiser shall be final and binding
        upon
        all parties and the fees and expenses of such appraiser shall be borne jointly
        by the Company and the holders of Warrants.

       

      (ii) Integrated
        Transactions.
        In case
        any Option is issued in connection with the issue or sale of other securities
        of
        the Company, together comprising one integrated transaction in which no specific
        consideration is allocated to such Options by the parties thereto, the Options
        will be deemed to have been issued for a consideration of $.01.

       

      
        
           

        

        
          A-10

          
            

          

        

        
           

        

      

       

      (iii) Treasury
        Shares.
        The
        number of shares of Common Stock outstanding at any given time does not include
        shares owned or held by or for the account of the Company, and the disposition
        of any shares so owned or held will be considered an issue or sale of Common
        Stock.

       

      (iv) Record
        Date.
        If the
        Company takes a record of the holders of Common Stock for the purpose of
        entitling them (1) to receive a dividend or other distribution payable
        in
        Common Stock, Options or in convertible securities or (2) to subscribe
        for
        or purchase Common Stock, Options or convertible securities, then such record
        date will be deemed to be the date of the issue or sale of the shares of
        Common
        Stock deemed to have been issued or sold upon the declaration of such dividend
        or the making of such other distribution or the date of the granting of such
        right of subscription or purchase, as the case may be.

       

      (d) Adjustment
        of Warrant Exercise Price upon Subdivision or Combination of Common
        Stock.
        If the
        Company at any time after the date of issuance of this Warrant subdivides
        (by
        any stock split, stock dividend, recapitalization or otherwise) one or more
        classes of its outstanding shares of Common Stock into a greater number of
        shares, any Warrant Exercise Price in effect immediately prior to such
        subdivision will be proportionately reduced and the number of shares of Common
        Stock obtainable upon exercise of this Warrant will be proportionately
        increased. If the Company at any time after the date of issuance of this
        Warrant
        combines (by combination, reverse stock split or otherwise) one or more classes
        of its outstanding shares of Common Stock into a smaller number of shares,
        any
        Warrant Exercise Price in effect immediately prior to such combination will
        be
        proportionately increased and the number of Warrant Shares issuable upon
        exercise of this Warrant will be proportionately decreased. Any adjustment
        under
        this Section 8(d) shall become effective at the close of business
        on the
        date the subdivision or combination becomes effective.

       

      (e) Distribution
        of Assets.
        If the
        Company shall declare or make any dividend or other distribution of its assets
        (or rights to acquire its assets) to holders of Common Stock, by way of return
        of capital or otherwise (including, without limitation, any distribution
        of
        cash, stock or other securities, property or options by way of a dividend,
        spin
        off, reclassification, corporate rearrangement or other similar transaction)
        (a
“Distribution”),
        at
        any time after the issuance of this Warrant, then, in each such
        case:

       

      (i) any
        Warrant Exercise Price in effect immediately prior to the close of business
        on
        the record date fixed for the determination of holders of Common Stock
        entitled to
        receive the Distribution shall be reduced, effective as of the close of business
        on such record date, to a price determined by multiplying such Warrant Exercise
        Price by a fraction of which (A) the numerator shall be the Closing Sale
        Price
        of the Common Stock on the trading day immediately preceding such record
        date
        minus the value of the Distribution (as determined in good faith by the
        Company’s Board of Directors) applicable to one share of Common Stock, and (B)
        the denominator shall be the Closing Sale Price of the Common Stock on the
        trading day immediately preceding such record date; and

       

      (ii) either
        (A) the number of Warrant Shares obtainable upon exercise of this Warrant
        shall
        be increased to a number of shares equal to the number of shares of Common
        Stock
        obtainable immediately prior to the close of business on the record date
        fixed
        for the determination of holders of Common Stock entitled to receive the
        Distribution multiplied by the reciprocal of the fraction set forth in the
        immediately preceding clause (i), or (B) in the event that the Distribution
        is
        of common stock of a company whose common stock is traded on a national
        securities exchange or a national automated quotation system, then the holder
        of
        this Warrant shall receive an additional warrant to purchase Common Stock,
        the
        terms of which shall be identical to those of this Warrant, except that such
        warrant shall be exercisable into the amount of the assets that would have
        been
        payable to the holder of this Warrant pursuant to the Distribution had the
        holder exercised this Warrant immediately prior to such record date and with
        an
        exercise price equal to the amount by which the exercise price of this Warrant
        was decreased with respect to the Distribution pursuant to the terms of the
        immediately preceding clause (i).

       

      
        
           

        

        
          A-11

          
            

          

        

        
           

        

      

       

      (f) Certain
        Events.
        If any
        event occurs of the type contemplated by the provisions of this Section 8
        but not expressly provided for by such provisions (including, without
        limitation, the granting of stock appreciation rights, phantom stock rights
        or
        other rights with equity features), then the Company’s Board of Directors will
        make an appropriate adjustment in the Warrant Exercise Price and the number
        of
        shares of Common Stock obtainable upon exercise of this Warrant so as to
        protect
        the rights of the holders of the Warrants; provided, except as set forth
        in
        section 8(d),that no such adjustment pursuant to this Section 8(f) will increase
        the Warrant Exercise Price or decrease the number of shares of Common Stock
        obtainable as otherwise determined pursuant to this Section 8.

       

      (g) Notices.

       

      (i) Immediately
        upon any adjustment of the Warrant Exercise Price, the Company will give
        written
        notice thereof to the holder of this Warrant, setting forth in reasonable
        detail, and certifying, the calculation of such adjustment.

       

      (ii) The
        Company will give written notice to the holder of this Warrant at least ten
        (10)
        days prior to the date on which the Company closes its books or takes a record
        (A) with respect to any dividend or distribution upon the Common Stock,
        (B) with respect to any pro rata subscription offer to holders of
        Common
        Stock or (C) for determining rights to vote with respect to any Organic
        Change (as defined below), dissolution or liquidation, provided that such
        information shall be made known to the public prior to or in conjunction
        with
        such notice being provided to such holder.

       

      (iii) The
        Company will also give written notice to the holder of this Warrant at least
        ten
        (10) days prior to the date on which any Organic Change, dissolution or
        liquidation will take place, provided that such information shall be made
        known
        to the public prior to or in conjunction with such notice being provided
        to such
        holder.

       

      Section
        9. Purchase
        Rights; Reorganization, Reclassification, Consolidation, Merger or
        Sale.

       

      (a) In
        addition to any adjustments pursuant to Section 8 above, if at any time the
        Company grants, issues or sells any Options, Convertible Securities or rights
        to
        purchase stock, warrants, securities or other property pro rata to the record
        holders of any class of Common Stock (the “Purchase
        Rights”),
        then
        the holder of this Warrant will be entitled to acquire, upon the terms
        applicable to such Purchase Rights, the aggregate Purchase Rights which such
        holder could have acquired if such holder had held the number of shares of
        Common Stock acquirable upon complete exercise of this Warrant immediately
        before the date on which a record is taken for the grant, issuance or sale
        of
        such Purchase Rights, or, if no such record is taken, the date as of which
        the
        record holders of Common Stock are to be determined for the grant, issue
        or sale
        of such Purchase Rights.

       

      
        
           

        

        
          A-12

          
            

          

        

        
           

        

      

       

      (b) Any
        recapitalization, reorganization, reclassification, consolidation, merger,
        sale
        of all or substantially all of the Company’s assets to another Person or other
        transaction in each case which is effected in such a way that holders of
        Common
        Stock are entitled to receive (either directly or upon subsequent liquidation)
        stock, securities or assets with respect to or in exchange for Common Stock
        is
        referred to herein as an “Organic
        Change.”
        Prior
        to the consummation of any (i) sale of all or substantially all of the Company’s
        assets to an acquiring Person or (ii) other Organic Change following which
        the
        Company is not a surviving entity, the Company will secure from the Person
        purchasing such assets or the successor resulting from such Organic Change
        (in
        each case, the “Acquiring
        Entity”)
        a
        written agreement (in form and substance satisfactory to the holders of Warrants
        representing at least two-thirds (iii) of the Warrant Shares issuable
        upon
        exercise of the Warrants then outstanding) to deliver to each holder of Warrants
        in exchange for such Warrants, a security of the Acquiring Entity evidenced
        by a
        written instrument substantially similar in form and substance to this Warrant
        and satisfactory to the holders of the Warrants (including an adjusted warrant
        exercise price equal to the value for the Common Stock reflected by the terms
        of
        such consolidation, merger or sale, and exercisable for a corresponding number
        of shares of Common Stock acquirable and receivable upon exercise of the
        Warrants without regard to any limitations on exercise, if the value so
        reflected is less than any Applicable Warrant Exercise Price immediately
        prior
        to such consolidation, merger or sale). Prior to the consummation of any
        other
        Organic Change, the Company shall make appropriate provision (in form and
        substance satisfactory to the holders of Warrants representing a
        majority of
        the
        Warrant Shares issuable upon exercise of the Warrants then outstanding) to
        insure that each of the holders of the Warrants will thereafter have the
        right
        to acquire and receive in lieu of or in addition to (as the case may be)
        the
        Warrant Shares immediately theretofore issuable and receivable upon the exercise
        of such holder’s Warrants (without regard to any limitations on exercise),
        such shares of stock, securities or assets that would have been issued or
        payable in such Organic Change with respect to or in exchange for the number
        of
        Warrant Shares which would have been issuable and receivable upon the exercise
        of such holder’s Warrant as of the date of such Organic Change (without taking
        into account any limitations or restrictions on the exercisability of this
        Warrant).

       

      Section
        10. Lost,
        Stolen, Mutilated or Destroyed Warrant.
        If this
        Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
        on
        receipt of an indemnification undertaking (or, in the case of a mutilated
        Warrant, the Warrant), issue a new Warrant of like denomination and tenor
        as
        this Warrant so lost, stolen, mutilated or destroyed.

       

      Section
        11. Notice.
        Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms of this Warrant must be in writing and will be deemed
        to
        have been delivered: (i) upon receipt, when delivered personally;
        (ii) upon receipt, when sent by facsimile (provided confirmation of
        receipt
        is received by the sending party transmission is mechanically or electronically
        generated and kept on file by the sending party); or (iii) one Business
        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:

       

      
        	
                If
                  to Cornell:

              	
                Cornell
                  Capital Partners, LP

              
	 	
                101
                  Hudson Street - Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Attention: Mark
                  A. Angelo

              
	 	
                Telephone: (201)
                  985-8300

              
	 	
                Facsimile: (201)
                  985-8266

              
	 	 
	
                With
                  Copy to:

              	
                Troy
                  Rillo, Esq.

              
	 	
                101
                  Hudson Street - Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Telephone: (201)
                  985-8300

              
	 	
                Facsimile: (201)
                  985-8266

              
	 	 
	 	 
	
                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

              
	 	
                Attention: 

              
	 	
                Telephone: (212)
                  930-9700

              
	 	
                Facsimile: (212)
                  930-9725

              

      

      

      If
        to a
        holder of this Warrant, to it at the address and facsimile number set forth
        on
Exhibit C
        hereto,
        with copies to such holder’s representatives as set forth on Exhibit C,
        or at
        such other address and facsimile as shall be delivered to the Company upon
        the
        issuance or transfer of this Warrant. Each party shall provide five days’ prior
        written notice to the other party of any change in address or facsimile number.
        Written confirmation of receipt (A) given by the recipient of such
        notice,
        consent, facsimile, waiver or other communication, (or (B) provided
        by a
        nationally recognized overnight delivery service shall be rebuttable evidence
        of
        personal service, receipt by facsimile or receipt from a nationally recognized
        overnight delivery service in accordance with clause (i), (ii) or (iii) above,
        respectively.

       

      Section
        12. Date.
        The
        date of this Warrant is set forth on page 1 hereof. This Warrant, in all
        events, shall be wholly void and of no effect after the close of business
        on the
        Expiration Date, except that notwithstanding any other provisions hereof,
        the
        provisions of Section 8(b) shall continue in full force and effect
        after
        such date as to any Warrant Shares or other securities issued upon the exercise
        of this Warrant.

       

      
        
           

        

        
          A-13

          
            

          

        

        
           

        

      

       

      Section
        13. Amendment
        and Waiver.
        Except
        as otherwise provided herein, the provisions of the Warrants may be amended
        and
        the Company may take any action herein prohibited, or omit to perform any
        act
        herein required to be performed by it, only if the Company has obtained the
        written consent of the holders of Warrants representing at least two-thirds
        of
        the Warrant Shares issuable upon exercise of the Warrants then outstanding;
        provided that, except for Section 8(d), no such action may increase the Warrant
        Exercise Price or decrease the number of shares or class of stock obtainable
        upon exercise of any Warrant without the written consent of the holder of
        such
        Warrant.

       

      Section
        14. Descriptive
        Headings; Governing Law.
        The
        descriptive headings of the several sections and paragraphs of this Warrant
        are
        inserted for convenience only and do not constitute a part of this Warrant.
        The
        corporate laws of the State of Nevada shall govern all issues concerning
        the
        relative rights of the Company and its stockholders. All other questions
        concerning the construction, validity, enforcement and interpretation of
        this
        Agreement shall be governed by the internal laws of the State of New Jersey,
        without giving effect to any choice of law or conflict of law provision or
        rule
        (whether of the State of New Jersey or any other jurisdictions) that would
        cause
        the application of the laws of any jurisdictions other than the State of
        New
        Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction
        of
        the state and federal courts sitting in Hudson County and the United States
        District Court for the District of New Jersey, for the adjudication of any
        dispute hereunder or in connection herewith or therewith, or with any
        transaction contemplated hereby or discussed herein, and hereby irrevocably
        waives, and agrees not to assert in any suit, action or proceeding, any claim
        that it is not personally subject to the jurisdiction of any such court,
        that
        such suit, action or proceeding is brought in an inconvenient forum or that
        the
        venue of such suit, action or proceeding is improper. Each party hereby
        irrevocably waives personal service of process and consents to process being
        served in any such suit, action or proceeding by mailing a copy thereof to
        such
        party at the address for such notices to it under this Agreement and agrees
        that
        such service shall constitute good and sufficient service of process and
        notice
        thereof. Nothing contained herein shall be deemed to limit in any way any
        right
        to serve process in any manner permitted by law. 

       

      Section
        15. Waiver
        of Jury Trial.
        AS
        A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
        PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
        RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
        ASSOCIATED WITH THIS TRANSACTION.

       

      IN
        WITNESS WHEREOF,
        the
        Company has caused this Warrant to be signed as of the date first set forth
        above.

       

      
        	 	
                XSUNX,
                  INC.

              
	 	 
	 	
                By:      

              
	 	
                Name: Tom
                  Djokovich

              
	 	
                Title: Chief
                  Executive Officer

              

      

      

      
        
           

        

        
          A-14

          
            

          

        

        
           

        

      

       

      EXHIBIT
        A TO WARRANT

       

       

      EXERCISE
        NOTICE

       

       

      TO
        BE EXECUTED 

       

       

      BY
        THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

       

       

      XSUNX,
        INC.

       

      The
        undersigned holder hereby exercises the right to purchase ______________
        of the
        shares of Common Stock (“Warrant
        Shares”)
        of
        XsunX, Inc., a Colorado corporation (the “Company”),
        evidenced by the attached Warrant (the “Warrant”).
        Capitalized terms used herein and not otherwise defined shall have the
        respective meanings set forth in the Warrant.

       

      Specify
        Method of exercise by check mark:

       

      1.
        ___ Cash
        Exercise

       

      (a)
        Payment
        of Warrant Exercise Price.
        The
        holder shall pay the Aggregate Exercise Price of $______________ to the Company
        in accordance with the terms of the Warrant. 

       

      (b)
        Delivery
        of Warrant Shares.
        The
        Company shall deliver to the holder _________
        Warrant
        Shares in accordance with the terms of the Warrant. 

       

      2.
        ___ Cashless
        Exercise

       

      (a)
        Payment
        of Warrant Exercise Price.
        In lieu
        of making payment of the Aggregate Exercise Price, the holder elects to receive
        upon such exercise the Net Number of shares of Common Stock determined in
        accordance with the terms of the Warrant. 

       

      (b)
        Delivery
        of Warrant Shares.
        The
        Company shall deliver to the holder _________
        Warrant
        Shares in accordance with the terms of the Warrant. 

      

      Date:
        _______________ __, ______

      

      Name
        of
        Registered Holder

      

      By:     

      Name:     

      Title:     

      

      
        
           

        

        
          A-15

          
            

          

        

        
           

        

      

      
         

      

      EXHIBIT
        B TO WARRANT

       

       

      FORM
        OF WARRANT POWER

       

      FOR
        VALUE RECEIVED,
        the
        undersigned does hereby assign and transfer to ________________, Federal
        Identification No. __________, a warrant to purchase ____________
        shares of
        the capital stock of XsunX, Inc., a Colorado corporation, represented by
        warrant
        certificate no. _____, standing in the name of the undersigned on
        the books
        of said corporation. The undersigned does hereby irrevocably constitute and
        appoint ______________, attorney to transfer the warrants of said corporation,
        with full power of substitution in the premises.

       

      
        	
                Dated:

              	
                 

              	 	 	 
	 	 	 	 	 
	 	 	 	By:	
                      

              
	 	 	 	Name:	
                 

              
	 	 	 	
                Title:

              	
                 

              
	 	 	 	 	 

      

      

       

      
        
           

        

          B-1SECURITIES
      PURCHASE AGREEMENT

    

    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”),
      dated
      as of July 14, 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 Eight Hundred Fifty Thousand Dollars
      ($850,000) 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 Four Hundred Thousand Dollars ($400,000) shall be funded on the fifth
      (5th)
      business day following the date hereof (the “First
      Closing”)
      and
      Four Hundred Fifty Thousand Dollars ($450,000) 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”)
      (individually referred to as a “Closing”
      collectively referred to as the “Closings”),
      for a
      total purchase price of up to Eight Hundred Fifty Thousand Dollars ($850,000),
      (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 a Registration Rights Agreement
      substantially in the form attached hereto as Exhibit
      A
      (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
      substantially in the form of the Escrow Agreement attached hereto as
Exhibit
      B.

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Security Agreement substantially in the
      form attached hereto as Exhibit
      C
      (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
      Convertible Debenture, the Investor Registration Rights Agreement, the
      Irrevocable Transfer Agent Instructions, the Security Agreement, the Pledge
      and
      Escrow Agreement or any other obligations of the Company to the
      Buyer;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Pledge and Escrow Agreement substantially
      in the form attached hereto as Exhibit
      D
      (the
“Pledge
      and Escrow Agreement”)
      pursuant to which the Company has agreed to provide the Buyer a security
      interest in the Pledged Shares (as this term is defined in the Pledge and Escrow
      Agreement) and the Company, the Buyer and Tom Djokovich are executing and
      delivering an Officer Pledge and Escrow Agreement (“Officer
      Pledge Agreement”)
      substantially in the form attached hereto as Exhibit
      E
      pursuant to which Tom Djokovich has agreed to provide the Buyer a security
      interest in the Pledged Shares (as defined in the Officer Pledge Agreement)
      to
      secure the Company’s obligations under this Agreement, the Convertible
      Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
      Agent Instructions, the Security Agreement, the Pledge and Escrow Agreement,
      the
      Officer Pledge Agreement or any other obligations of the Company to the Buyer;
      and

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering Irrevocable Transfer Agent Instructions
      substantially in the form attached hereto as Exhibit
      F
      (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 later 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 later date as is mutually agreed
      to by the Company and the Buyer(s)) (the “Second
      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)).
      

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    (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 David Gonzalez, Esq.,
      as
      escrow agent (the “Escrow
      Agent”),
      pursuant to the terms of an escrow agreement between the Company, the Buyer(s)
      and the Escrow Agent in the form attached hereto as Exhibit
      B
      (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
      unpaid structuring fees and expenses of Yorkville Advisors Management, LLC
      of
      Ten Thousand Dollars ($10,000) which shall be paid directly from the gross
      proceeds held in escrow of the First Closing, the unpaid due diligence fee
      of
      $3,000 which shall be paid directly out of the Gross Proceeds of the Second
      Closing, 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 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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (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 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. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    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 (including the Schedules attached hereto) and each representation,
      warranty and covenant set forth herein, the Security Agreement, the Investor
      Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
      Agent Agreement, and the Pledge and Escrow Agreement; (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 March 31, 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. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company represents and warrants to each of the Buyers that, except as set forth
      in the SEC Documents (as defined herein):

     

    (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 and Escrow Agreement, the Officer Pledge Agreement,
      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.
      As of
      the date hereof 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 121,196,239 shares of Common Stock 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. Except as set forth in Schedule 3(c)
      and
      except as disclosed in the SEC Documents (as defined in Section 3(f)), 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. Except as set
      forth in Schedule 3(c) and except as disclosed in the SEC Documents, 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 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. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (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.
      Except
      as disclosed in the SEC Documents, 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
      Certificate 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. Except as disclosed in the SEC
      Documents, 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 Agreement or the Registration
      Rights Agreement in accordance with the terms hereof or thereof. Except as
      disclosed in the SEC Documents, 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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (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 of 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.
      Except
      as disclosed in the SEC Documents, 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) except as expressly disclosed in the SEC Documents, 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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (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.

     

    (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.
      Except
      as set forth in the SEC Documents, 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. Except as set forth
      in the SEC Documents, 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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (t)  Tax
      Status.
      Except
      as set forth in the SEC Documents, 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 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
      as set forth in the SEC Documents, and 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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (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.

     

    (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.
      

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (iii)  
      The
      Company shall pay a due diligence fee of Three Thousand Dollars ($3,000), which
      shall be paid directly out of the Gross Proceeds of the Second Closing.

     

    (iv)  
      The
      Company shall issue to the Buyer a warrant to purchase 4,250,000 shares of
      Common Stock for a period of five (5) years at an exercise price of
      $0.15
      per share, and a warrant to purchase 2,125,000 shares of Common Stock for
      a
      period of five (5) years at an exercise price of $0.20 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. 

     

    (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. 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.

     

    (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.

     

    (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).

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (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 warrant, option, right, contract, call, or other
      security 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 value 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 (x) the consideration received for such issuance
      is
      ten cents ($0.10) per share or greater, and (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..

     

    (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
      Debenture or warrants to purchase the Warrant Shares shall remain outstanding.
      

     

    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 he acts pursuant to the Irrevocable Transfer Agent Instructions. David
      Gonzalez, Esq. shall notify the Company of any such action simultaneously with
      the delivery to the transfer agent of instructions relating to such action.
      The
      Company shall not change its transfer agent without the express written consent
      of the Buyer(s), which shall not be unreasonably withheld provided that the
      new
      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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    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:

     

    (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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (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.

     

    (v)  The
      Buyer(s) shall have received an opinion of counsel from Sichenzia Ross Friedman
      & Ference LLP 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 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 dated the date hereof and provided proof of such filing to the
      Buyer(s).

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (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.

     

    (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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    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
      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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    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:

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    
      	
              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).

     

    (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.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (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]

    

    
       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

    

    

    

    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

            
	 	 

    

    

    

    

    

    
       

      
        21

        
          

        

      

      
        
          
          

        

         

         

      

    

    

    EXHIBIT
      A

     

    FORM
      OF INVESTOR REGISTRATION RIGHTS AGREEMENT

     

    

    

    

    

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    

    EXHIBIT
      B

     

    FORM
      OF ESCROW AGREEMENT

     

    

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    EXHIBIT
      C

     

    SECURITY
      AGREEMENT

     

    

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      D

    

    PLEDGE
      AND ESCROW AGREEMENT

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      E

    

    OFFICER
      PLEDGE AGREEMENT

    

    

    

    
       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    EXHIBIT
      F

    

    IRREVOCABLE
      TRANSFER AGENT INSTRUCTIONS

    

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    SCHEDULE
      I

     

     

    SCHEDULE
      OF BUYERS 

     

    

    
      	
              Name

            	
              Signature

            	
              Address/Facsimile
                

              Number
                of Buyer

            	
              Amount
                of Subscription

            
	 	 	 	 
	 	 	 	 
	
              Cornell
                Capital Partners, LP

            	
              By: Yorkville
                Advisors, LLC

            	
              101
                Hudson Street - Suite 3700

            	
              $850,000

            
	 	
              Its: General
                Partner

            	
              Jersey
                City, NJ 07303

            	 
	 	 	
              Facsimile: (201)
                985-8266

            	 
	 	 	 	 
	 	
              By:_______________________   

            	 	 
	 	
              Name: Mark
                Angelo

            	 	 
	 	
              Its: Portfolio
                Manager

            	 	 
	 	 	 	 
	
              With
                a copy to: 

            	
              Troy
                Rillo, Esq.

            	
              101
                Hudson Street - Suite 3700

            	 
	 	 	
              Jersey
                City, NJ 07302

            	 
	 	 	
              Facsimile:
                (201) 985-8266

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