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  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>UNITED STATES</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Washington, D.C. 20549</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 14pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FORM 10-Q</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">[X] Quarterly Report Pursuant to Section 13
  or 15(d) of The Securities Exchange Act of 1934</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>For The Quarterly Period Ended: <U>December
  31, 2012</U></B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">&nbsp;</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">[ ] Transition
  Report Pursuant to Section 13 or 15(d) of </FONT>The Securities Exchange Act of 1934</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">&nbsp;</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">For The Transition
  Period From ___________ to _______________</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">&nbsp;</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">&nbsp;</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-style: normal">Commission
  File Number:</FONT><I> </I><FONT STYLE="font-style: normal"><U>000-29621</U></FONT></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B><U>XSUNX, INC. </U></B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Exact name of registrant as specified in its
  charter)</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font-family: Times New Roman, Times, Serif">
  <TR>
      <TD STYLE="vertical-align: top; width: 44%; font-size: 10pt; text-decoration: underline; text-align: center"><FONT STYLE="font-size: 10pt"><U>Colorado</U></FONT></TD>
      <TD STYLE="width: 13%; border-bottom: white 1pt solid; font-size: 12pt">&nbsp;</TD>
      <TD STYLE="vertical-align: top; width: 43%; font-size: 10pt; text-decoration: underline; text-align: center"><FONT STYLE="font-size: 10pt"><U>84-1384159</U></FONT></TD></TR>
  <TR>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt">(State of incorporation)</FONT></TD>
      <TD STYLE="font-size: 12pt">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt">(I.R.S. Employer Identification No.)</FONT></TD></TR>
  </TABLE>
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><U>65 Enterprise, Aliso Viejo, CA 92656 </U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Address of principal executive offices) (Zip
  Code)</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Registrant's telephone number: <U>(949) 330-8060</U></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Indicate by check mark whether the registrant
  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during
  the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has
  been subject to such filing requirements for the past 90 days. Yes<FONT STYLE="font-family: Wingdings">x</FONT> No <FONT STYLE="font-family: Wingdings">o</FONT></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Indicate by check mark whether the registrant
  has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
  and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
  was required to submit and post such files). Yes <FONT STYLE="font-family: Wingdings">x </FONT>No <FONT STYLE="font-family: Wingdings">o</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Indicate by check mark whether the registrant
  is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <TR STYLE="vertical-align: top">
      <TD STYLE="width: 25%"><FONT STYLE="font-size: 10pt">Large accelerated filer <FONT STYLE="font-family: Wingdings">&#168;</FONT></FONT></TD>
      <TD STYLE="width: 23%; text-align: center"><FONT STYLE="font-size: 10pt">Accelerated filer <FONT STYLE="font-family: Wingdings">&#168;</FONT></FONT></TD>
      <TD STYLE="width: 21%; text-align: center"><FONT STYLE="font-size: 10pt">Non-accelerated filer <FONT STYLE="font-family: Wingdings">&#168;</FONT></FONT></TD>
      <TD STYLE="width: 31%; text-align: right"><FONT STYLE="font-size: 10pt">Smaller reporting company <FONT STYLE="font-family: Wingdings">x</FONT></FONT></TD></TR>
  </TABLE>
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Exchange Act). Yes <FONT STYLE="font-family: Wingdings">o</FONT> No <FONT STYLE="font-family: Wingdings">x</FONT></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The number of shares of common stock issued and outstanding as of
  February 14, 2013 was <FONT STYLE="color: black">338,075,848</FONT>.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B><A NAME="a_001"></A>TABLE OF CONTENTS</B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 12pt Times New Roman, Times, Serif; width: 100%">
  <TR>
      <TD STYLE="vertical-align: bottom; width: 93%; border-bottom: white 1pt solid">&nbsp;</TD>
      <TD STYLE="width: 1%; border-bottom: white 1pt solid">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; width: 5%; border-bottom: black 1pt solid; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">PAGE</FONT></TD>
      <TD STYLE="vertical-align: bottom; width: 1%; border-bottom: black 1pt solid">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt"><A HREF="#a_002">PART I - FINANCIAL INFORMATION</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_003">Item 1. Financial Statements</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;3 &nbsp;</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_004">Balance Sheets December 31, 2012 (unaudited) and September 30, 2012 (audited)</A> </FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">3&nbsp; </FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_005">Statements of Operations for the Three Months ended December 31, 2012 and 2011 (unaudited) and the period February 25, 1997 (inception) to December 31, 2012 (unaudited)</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">4&nbsp; </FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_006">Statements of Shareholders
      Deficit  for the Three Months ended December 31, 2012 (unaudited)</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">5&nbsp; </FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_007">Statements of Cash Flows for the Three Months ended December 31, 2012 and 2011 (unaudited) and the period February 27, 1997 (inception) to December 31, 2012 (unaudited)</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">6&nbsp; </FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_008">Notes to Financial Statements (unaudited)</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">7&nbsp;</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_009">Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">14</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_010">Item 3 Qualitative and Quantitative Disclosures About Market Risk</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">17</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_011">Item 4. Controls and Procedures</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">17</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt"><A HREF="#a_012">PART II - OTHER INFORMATION</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><A HREF="#a_013"><FONT STYLE="font-size: 10pt">Item 1. Legal Proceedings</FONT></A></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">18</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_014">Item 1A.Risk Factors</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">18</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_015">Item 2. Unregistered Sales of Equity Securities and Use of Proceeds</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">18</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_016">Item 3. Defaults upon Senior Securities</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">19</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_017">Item 4. (Removed and Reserved)</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">19</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_018">Item 5. Other Information</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">19</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_019">Item 6. Exhibits</A> </FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">21</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
      <TD STYLE="vertical-align: bottom">&nbsp;</TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
      <TD STYLE="vertical-align: bottom; font-size: 10pt"><FONT STYLE="font-size: 10pt"><A HREF="#a_020">Signatures</A></FONT></TD>
      <TD>&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt; text-align: right"><FONT STYLE="font-size: 10pt">22</FONT></TD>
      <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
  </TABLE>
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_002"></A><B>PART I &ndash; FINANCIAL INFORMATION</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><A NAME="a_003"></A><B>Item 1. Financial Statements.</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-weight: normal">XSUNX, INC.</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-weight: normal">(A Development
  Stage Company)</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-weight: normal"><A NAME="a_004"></A>BALANCE SHEETS</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 9pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">December 31, 2012</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">September 30, 2012</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: center">ASSETS</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">CURRENT ASSETS</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="width: 56%; text-align: left">Cash</TD><TD STYLE="width: 8%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">37,867</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">44,527</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Prepaid expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">84,883</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">162,186</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Total Current Assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">122,750</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">206,713</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">PROPERTY &amp; EQUIPMENT</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Office &amp; miscellaneous equipment</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,853</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,853</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Machinery &amp; equipment</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">232,084</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">232,084</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Leasehold improvements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">285,437</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">285,437</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Less accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(220,830</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(206,178</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Net Property &amp; Equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">64,607</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">79,259</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">OTHER ASSETS</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Manufacturing equipment in progress</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">389,187</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">309,082</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Security deposit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,700</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,700</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Total Other Assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">394,887</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">314,782</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">TOTAL ASSETS</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">582,244</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">600,754</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">LIABILITIES AND SHAREHOLDERS' DEFICIT</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">CURRENT LIABILITIES</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Accounts payable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">172,901</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">143,555</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Credit card payable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,783</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,623</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Accrued expenses</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">840</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Accrued interest on notes payable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,243</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Derivative liability</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">531,930</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">150,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Convertible promissory notes, net of $327,161 in discounts</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">251,202</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">63,465</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Unsecured promissory note</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">350,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Total Current Liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">974,676</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">751,652</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">TOTAL LIABILITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">974,676</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">751,652</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">SHAREHOLDERS' DEFICIT</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Preferred stock, $0.01 par value;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">50,000,000 authorized preferred shares</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Common stock, no par value;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">500,000,000 authorized common shares</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">297,270,080 and 281,233,150 shares issued and outstanding, respectively</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,634,692</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,341,594</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Additional paid in capital</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,335,248</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,335,248</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Paid in capital, common stock warrants</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,764,913</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,764,913</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Deficit accumulated during the development stage</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(37,127,285</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(36,592,653</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">TOTAL SHAREHOLDERS' DEFICIT</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(392,432</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(150,898</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">582,244</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">600,754</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; color: Red; text-indent: 0.5in"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">The accompanying notes are an integral part
  of these financial statements</P>
  
  
  <!-- Field: Page; Sequence: 3 -->
      <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
      <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%"><A HREF="#a_001" TITLE="Table of Contents" STYLE="font-style: italic">Table of Contents</A></TD></TR></TABLE></DIV>
      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_005"></A>STATEMENTS OF OPERATIONS</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Unaudited)</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0"></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">From Inception</FONT></TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">February 25, 1997</FONT></TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="7" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">Three Months Ended</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">through</FONT></TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">December 31, 2012</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">December 31, 2011</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">December 31, 2012</FONT></TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 46%; padding-bottom: 1pt">REVENUE</TD><TD STYLE="width: 5%; padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 11%; border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 11%; border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 11%; border-bottom: Black 1pt solid; text-align: right">14,880</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">OPERATING EXPENSES</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">General and administrative expenses</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129,006</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">204,262</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,651,352</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Research and development</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,278</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,301,627</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Depreciation and amortization expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14,652</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,087</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">744,184</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">TOTAL OPERATING EXPENSES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">158,658</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">245,627</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22,697,163</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(158,658</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(245,627</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(22,682,283</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>OTHER INCOME/(EXPENSES)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Interest income</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">445,537</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Gain on sale of asset</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,423</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Impairment of assets</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,285,120</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Write down of inventory asset</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,177,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Gain on legal settlement</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,279,580</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Loan and commitment fees</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,966</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,096,690</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Gain on forgiveness of debt</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">592,154</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Loss on conversion of debt</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(126,470</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(214,435</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(567,992</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Gain/(loss) on change in derivative</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(92,468</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">37,634</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(52,499</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Other, non-operating expenses</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,215</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Penalties</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(22</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(619</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Interest expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(148,070</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(26,003</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(593,561</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">TOTAL OTHER INCOME/(EXPENSES)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(375,974</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(202,826</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,445,002</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">NET LOSS</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(534,632</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(448,453</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(37,127,285</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">BASIC AND DILUTED LOSS PER SHARE</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.00</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.00</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">BASIC AND DILUTED</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">287,343,603</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">230,172,550</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0"></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">The accompanying notes are an integral part
  of these financial statements</P>
  
  
  <!-- Field: Page; Sequence: 4 -->
      <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->4<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
      <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%"><A HREF="#a_001" TITLE="Table of Contents" STYLE="font-style: italic">Table of Contents</A></TD></TR></TABLE></DIV>
      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_006"></A>STATEMENT OF SHAREHOLDERS&rsquo; DEFICIT</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; color: Red"></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Deficit</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Accumulated</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Additional</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Stock Options/</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">during the</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">Preferred Stock</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">Common Stock</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Paid-in</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Warrants</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Total</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 35%">Balance at September 30, 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">281,233,150</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">27,341,594</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">5,335,248</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 6%; text-align: right">3,764,913</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">(36,592,653</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">(150,898</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Issuance of common stock for conversion of notes and interest</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,265,139</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">96,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">96,800</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Write down of fair value of notes converted</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,112</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,112</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Issuance of common stock for debt</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,271,791</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">125,436</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">125,436</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Issuance of common stock for commitment fees</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Original issue discount</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,250</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,250</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 1pt">Net loss for the three months ended December 31, 2012</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(534,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(534,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 2.5pt">Balance at December 31, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">297,270,080</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">27,634,692</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">5,335,248</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,764,913</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(37,127,285</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(392,432</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0"></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0"></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">The accompanying notes are an integral part
  of these financial statements</P>
  
  
  <!-- Field: Page; Sequence: 5 -->
      <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
      <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%"><A HREF="#a_001" TITLE="Table of Contents" STYLE="font-style: italic">Table of Contents</A></TD></TR></TABLE></DIV>
      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_007"></A>STATEMENTS OF CASH FLOWS</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Unaudited)</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; color: Red"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">From Inception</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">February 25,1997</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center">Three Months Ended</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">through</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">December 31, 2012</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">December 31, 2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">December 31, 2012</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">CASH FLOWS FROM OPERATING ACTIVITIES:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="width: 46%; text-align: left">Net loss</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">(534,632</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">(448,453</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">(37,127,285</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Adjustment to reconcile net loss to net cash</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">used in operating activities</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Depreciation &amp; amortization</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,652</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,087</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">744,184</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Common stock issued for services and other expenses</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,160,232</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Common stock issued for rent</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,750</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Stock option and warrant expense</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">84,835</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,039,103</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Beneficial conversion and commitment fees</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,966</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,780,273</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Asset impairment</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,285,120</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Write down of inventory asset</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,177,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">(Gain)/loss on conversion and settlement of debt</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126,470</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">214,435</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,031</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Gain on sale of asset</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,423</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Contributed capital and services</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97,035</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Settlement of lease</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59,784</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Change in derivative liability</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">92,468</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(37,634</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">52,499</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Original issue discount</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,250</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,250</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Amortization of debt discount recorded as interest expense</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">127,520</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,034</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">333,985</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Common stock issued for interest payable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,300</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,420</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Change in Assets and Liabilities:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">(Increase) Decrease in:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Prepaid expenses</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26,815</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(14,887</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,481</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Inventory held for sale</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,417,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Other receivable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Other assets</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,700</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Increase (Decrease) in:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Accounts payable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,506</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,732</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,399,050</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Accrued expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">11,640</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,242</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">162,096</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 36px">NET CASH USED IN OPERATING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(94,545</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136,609</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,137,615</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-left: 36px">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">CASH FLOWS FROM INVESTING ACTIVITIES:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Purchase of manufacturing equipment and facilities in process</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(29,615</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,939,528</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Payments on note receivable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,500,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Proceeds from sale of assets</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">261,100</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Receipts on note receivable</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,500,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Purchase of marketable prototype</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,780,396</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Purchase of fixed assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(597,972</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-left: 36px">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 36px">NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(29,615</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(8,056,796</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-left: 36px">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">CASH FLOWS FROM FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Proceeds from warrant conversion</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,306,250</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Proceeds from convertible promissory notes</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">117,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">95,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,278,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Proceeds for issuance of common stock, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,648,028</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-left: 36px">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 36px">NET CASH PROVIDED BY FINANCING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">117,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22,232,278</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-left: 36px">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-left: 45px">NET INCREASE (DECREASE) IN CASH</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,660</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(41,109</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">37,867</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 1pt">CASH, BEGINNING OF PERIOD</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">44,527</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">66,576</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 2.5pt">CASH, END OF PERIOD</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">37,867</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">25,467</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">37,867</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">Interest paid</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">119</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">120</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">120,733</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">Taxes paid</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD COLSPAN="13" STYLE="text-align: left">SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD COLSPAN="13" STYLE="text-align: left"><FONT STYLE="font-size: 7pt">During the three months ended December 31, 2012, the
      Company exchanged a demand note in the amount of $350,000 plus accrued interest of $35,863 for a new promissory note for an
      aggregate principal amount of $385,863. During the three months ended December 31, 2011, in exchange for the note of $456,920
      plus accrued interest of $98,645 that was due at September 1, 2011, the Company issued 7,000,000 restricted shares of common
      stock as payment for the reduction of $205,565 of the principal balance and accrued interest under the note, and issued a
      new unsecured promissory exchange note in the amount of $350,000. &nbsp;<BR></FONT></TD>
  </TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; color: Red"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0"></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">The accompanying notes are an integral part
  of these financial statements</P>
  
  
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      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_008"></A>Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><FONT STYLE="font-size: 10pt">1.</FONT><FONT STYLE="font: 7pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </FONT><FONT STYLE="font-size: 10pt">BASIS OF PRESENTATION</FONT></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in">&nbsp;</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><FONT STYLE="font-size: 10pt"><U></U></FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The accompanying unaudited financial
  statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim
  financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
  all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In
  the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating
  results for the three months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the
  year ending September 30, 2013. For further information refer to the financial statements and footnotes thereto included in the
  Company's Form 10-K for the year ended September 30, 2012.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;&#9;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><U>Going Concern</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The accompanying financial statements
  have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and
  liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments
  that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and
  has negative cash flows from operations, which raise substantial doubt about the Company&rsquo;s ability to continue as a going
  concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent
  upon, among other things, additional cash infusion. The Company has obtained funds from its shareholders since its inception through
  the period ended December 31, 2012. Management believes the existing shareholders and the prospective new investors will provide
  the additional cash needed to meet the Company&rsquo;s obligations as they become due, and will allow the development of its core
  of business.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-size: 10pt">2.</FONT></TD><TD><FONT STYLE="font-size: 10pt">SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES </FONT></TD></TR></TABLE>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">This summary of significant accounting
  policies of XsunX, Inc. is presented to assist in understanding the Company&rsquo;s financial statements. The financial statements
  and notes are representations of the Company&rsquo;s management, which is responsible for their integrity and objectivity. These
  accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
  applied in the preparation of the financial statements.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>&nbsp;</I></B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><U>Development Stage Activities
  and Operations</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The Company has been in its initial
  stages of formation and for the three months ended December 31, 2012, had no revenues. A development stage activity as one in which
  all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues
  are insignificant.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><U>Use of Estimates </U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The preparation of financial statements
  in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
  amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include
  the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options.
  Actual results could differ from those estimates.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><U>Cash and Cash Equivalents </U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in">For purposes of the statements of cash flows, cash and
  cash equivalents include cash in banks and money markets with an original maturity of three months or less.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><U>Fair Value of Financial Instruments </U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The Company&rsquo;s financial instruments,
  including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which approximates their fair
  value, due to the relatively short maturity of these instruments. As of December 31, 2012, and September 30, 2012, the Company&rsquo;s
  notes payable have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the
  Company believes the carrying value of these debt instruments approximates their fair value.</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><U>Loss per Share Calculations</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Loss per Share is the calculation
  of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available
  to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar
  to basic earnings per share except that the denominator is increased to include the number of additional common shares that would
  have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company&rsquo;s
  diluted loss per share is the same as the basic loss per share for the three months ended December 31, 2012, as the inclusion of
  any potential shares would have had an anti-dilutive effect due to the Company generating a loss.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><U>Revenue Recognition</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The Company recognizes revenue when
  services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk
  of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
  To date the Company has had minimal revenue and is still in the development stage.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in"><U>Stock-Based Compensation<B> </B></U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt 0.25in; text-align: justify">Share-based Payment applies to
  transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity
  may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value
  approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant.
  The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of
  the stock option. This has not had a material impact on our results of operations.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><U>Fair Value of Financial Instruments</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Fair Value of Financial Instruments,
  requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate
  that value. As of December 31, 2012, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses, and
  derivative liability approximate the fair value because of their short maturities.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">We adopted ASC Topic 820 (originally
  issued as SFAS 157, &ldquo;Fair Value Measurements&rdquo;) as of January 1, 2008 for financial instruments measured as fair value
  on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting
  principles generally accepted in the United States and expands disclosures about fair value measurements.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Fair value is defined as the price
  that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
  the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring
  fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
  (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-size: 10pt">Level 1, defined as observable inputs such as quoted prices for identical
  instruments in active markets;</FONT></TD></TR></TABLE>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-size: 10pt">Level 2, defined as inputs other than quoted prices in active markets
  that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices
  for identical or similar instruments in markets that are not active; and</FONT></TD></TR></TABLE>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-size: 10pt">Level 3, defined as unobservable inputs in which little or no market
  data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques
  in which one or more significant inputs or significant value drivers are unobservable.</FONT></TD></TR></TABLE>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">We measure certain financial instruments
  at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December
  31, 2012:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  
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  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in"><U>Fair Value
  of Financial Instruments</U> (Continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: justify; color: Red; text-indent: 0.25in"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 7pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level 1)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level 2)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level 3)</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 40%">Assets</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Total assets measured at fair value</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Liabilities</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Derivative Liability</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">531,930</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">531,930</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 1pt">Convertible Debenture, net of discount</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">251,202</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">251,202</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total liabilities measured at fair value</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">783,132</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">783,132</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: justify; color: Red; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><U>Recently Adopted Accounting
  Pronouncements</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Management reviewed accounting pronouncements
  issued during the three months ended December 30, 2012, and no pronouncements were adopted during the period.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">3.</TD><TD STYLE="text-align: justify">CAPITAL STOCK</TD></TR></TABLE>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">At December 31, 2012, the Company&rsquo;s
  authorized stock consisted of 500,000,000 shares of common stock, with no par value. The Company is also authorized to issue 50,000,000
  shares of preferred stock with a par value of $0.01 per share. The rights, preferences and privileges of the holders of the preferred
  stock will be determined by the Board of Directors prior to issuance of such shares.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">During the three months ended December
  31, 2012, a holder of Securities Purchase Agreements (the &quot;Purchase Agreements&quot;) each providing for the sale by the Company
  of 8% unsecured Convertible Notes (&ldquo;the Notes&rdquo;) in the principal amounts of $37,500 of which $22,500 remained, $37,500,
  and $32,500 converted the total remaining principal of $92,500 of principal and $4,300 in accrued interest retiring the notes.
  Upon conversion, the Company issued an aggregate of 9,265,139 shares respectively of common voting stock to the holder. Also, 500,000
  shares of common stock were issued at a price of $0.02 per share for an extension fee on a promissory note that had become due
  at September 30, 2012.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In accordance with the Stipulation
  for Settlement of Claims (&ldquo;Stipulation&rdquo;), dated June 27, 2012, by and between Ironridge Global IV, Ltd and the Company
  as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares (&ldquo;Shares&rdquo;)
  of the Company&rsquo;s common stock, no par value (&ldquo;Common Stock&rdquo;) to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the (&ldquo;Adjustment Shares&rdquo;). In
  accordance with the stipulation, on November 26, 2012, subject to a request by Ironridge, the Company issued 6,271,791 Adjustment
  Shares to Ironridge Global IV, Ltd.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
  <TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">4.</TD><TD STYLE="text-align: justify">STOCK OPTIONS AND WARRANTS</TD></TR></TABLE>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The Company adopted a Stock Option
  Plan for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and
  sets aside for the granting of Options for Twenty Million (20,000,000) shares of Common Stock. Options granted under the Plan may
  be either Incentive Options or Nonqualified Options and shall be administered by the Company's Board of Directors (&quot;Board&quot;).
  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements
  may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified
  in the Option agreement.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 50%; font: 7pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">For the period ended</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12/31/2012</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 45%; text-align: left">Risk free interest rate</TD><TD STYLE="width: 10%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 43%; text-align: right">1.14% to 2.77%</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Stock volatility factor</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90.56% to 104.73%</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Weighted average expected option life</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5 years</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Expected dividend yield</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">None</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 5pt 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  
  <!-- Field: Page; Sequence: 9 -->
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      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: 1in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-indent: -0.25in">4. &nbsp;&nbsp;&nbsp;&nbsp;STOCK OPTIONS AND WARRANTS (Continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: 1in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.25in">A summary of the Company&rsquo;s
  stock option activity and related information follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.25in">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 7pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center">For the period ended</TD>
      </TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">12/31/2012</TD>
      <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Weighted</TD>
      </TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Number</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">average</TD>
      </TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">of</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">exercise</TD>
      </TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Options</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">price</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 40%">Outstanding, beginning of the period</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">8,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.21</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>Granted</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Exercised</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="padding-bottom: 1pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,000,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.36</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 2.5pt">Outstanding, end of the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">5,000,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.11</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">Exercisable at the end of the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,000,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.14</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Weighted average fair value of</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD>
      </TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">options granted during the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
      </TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 5pt 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in">The weighted average remaining contractual life of options
  outstanding issued under the plan as of December 31, 2012 was as follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 7pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: center">Weighted</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: center">Average</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Stock</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Stock</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: center">Remaining</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="text-align: center">Exercisable</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Options</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Options</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: center">Contractual</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Prices</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Outstanding</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Exercisable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="text-align: center; border-bottom: Black 1pt solid">Life (years)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 19%; text-align: right">0.160</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 20%; text-align: right">2,500,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 20%; text-align: right">2,500,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 20%; text-align: center">1.25 years</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.100</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: center">2.80 years</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.045</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,500,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,500,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="text-align: center; padding-bottom: 1pt">4.03 years</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">5,000,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,000,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="text-align: right; padding-bottom: 2.5pt">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0; text-align: center; color: Red"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 5pt 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Stock-based compensation expense
  recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to
  vest. Stock-based compensation expense recognized in the financial statements of operations during the three months ended December
  31, 2012, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of December
  31, 2012 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent
  to December 31, 2012, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation
  expense recognized in the statement of operations during the three months ended December 31, 2012 and 2011 was $0 and $84,835,
  respectively.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><U>Warrants</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">A summary of the Company&rsquo;s warrants activity
  and related information follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0 0 0 0.5in; text-align: center; color: Red"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 7pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center">For the period ended</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">12/31/2012</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Weighted</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">Number</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">average</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">of</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center">exercise</TD></TR>
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">Options</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid">price</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 56%">Outstanding, beginning of the period</TD><TD STYLE="width: 8%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">3,333,332</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">0.63</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>Granted</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Exercised</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="padding-bottom: 1pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,333,332</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.63</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="padding-bottom: 2.5pt">Outstanding, end of the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">Exercisable at the end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD>Weighted average fair value of</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left; padding-bottom: 2.5pt">warrants granted during the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
      <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;&nbsp;&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0 0 0 0.5in; text-align: center; color: Red"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 5pt 0">&nbsp;</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">5. &nbsp;&nbsp;&nbsp;&nbsp;PROMISSORY NOTE</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In exchange for a promissory note
  (the &ldquo;Note&rdquo;) of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company issued
  a new unsecured promissory exchange note (the &ldquo;Exchange Note&rdquo;) in the amount of $385,863 in November 2012. The Holder
  and the Company exchanged the Note solely for (i) a 12% convertible promissory Exchange Note, (ii) and 500,000 shares of common
  stock.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">6.&nbsp;&nbsp;&nbsp;&nbsp;CONVERTIBLE PROMISSORY NOTES</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In exchange for a promissory note
  (the &ldquo;Note&rdquo;) of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company issued
  a new unsecured promissory exchange note (the &ldquo;Exchange Note&rdquo;) for $385,863 in November 2012. The Holder and the Company
  exchanged the Note solely for (i) a 12% promissory Exchange Note, (ii) and 500,000 shares of common stock. Interest on the Exchange
  note accrued interest at the rate of 18% per annum commencing on September 30, 2012 through October 31, 2012 and thereafter at
  the rate of 12%. The Exchange Note is convertible into securities of the Company by the Holder at the lesser of $0.025 or 70%
  of the lowest volume weighted average (VWAP) occurring during the ten consecutive trading days immediately preceding the date
  on which the Holder may elect to convert portions of the note. The Exchange Note matures on September 30, 2013 and the Company
  can prepay any then remaining principal and accrued interest balance upon first providing the holder with a ten day prepayment
  notice.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">On November 7, 2012, the Company
  consummated a securities purchase agreement providing for the sales of an 8% convertible promissory note note (the <FONT STYLE="font-size: 10pt">&ldquo;Note&rdquo;)
  </FONT>in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares of common stock at a conversion
  price of 60% of the average lowest three (3) closing bid prices for the common stock, during the ten (10) trading day period ending
  on the latest complete trading day prior to the conversion date. The Note matures on August 7, 2013. The Company has the right
  to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note
  under a variable redemption rate premium.</P>
  
  
  
  
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">On November 7, 2012, the Company
  issued a 10% unsecured convertible promissory note (the &ldquo;Promissory Note&rdquo;) for the principal sum of up to $78,000 plus
  accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advanced the sum
  of $25,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times as the
  Lender may choose in its sole discretion. The Promissory Note matures one year from its issuance and may be converted by the Lender
  into shares of common stock of the Company at the lesser of $.0125 per share at fifty percent (50%) of the lowest trade price in
  the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Promissory
  Note.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">On December 13, 2012, the Company
  issued a 10% unsecured convertible promissory note (the &ldquo;Promissory Note&rdquo;) for the principal sum of up to $250,000
  and accrued interest on any advanced principal funds. The consideration is $225,000 with an original issue discount of $25,000.
  Upon issuance of the Promissory Note the lender immediately advanced the sum of $50,000 to the Company, and may elect to pay additional
  consideration to the Company in such amounts and at such times as the Lender may choose in its sole discretion. The principal sum
  due the Lender shall be prorated based on the actual total consideration paid to the Company by the Lender such that the Company
  will only be required to repay the amount funded by the lender, nor shall any interest or other rights extend to any unfunded portion
  of the Promissory Note. If the Company repays the Promissory Note on or before 90 days from the issuance date, the interest rate
  shall be zero percent (0%). If the Company does not repay the Promissory Note on or before 90 days from the issuance date, a one-time
  Interest charge of 10% shall be applied to any advanced principal. The Promissory Note matures one year from its issuance and may
  be converted by the Lender into shares of common stock of the Company at the lesser of $.025 per share or sixty percent (60%) of
  the lowest trade price in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued
  interest under the Promissory Note.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">ASC Topic 815 provides guidance
  applicable to convertible debt issued by the Company in instances where the number into which the debt can be converted is not
  fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion,
  ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded
  at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability of $311,164 representing
  the estimated present value of the conversion feature considering the historic volatility of the Company&rsquo;s stock, and a discount
  of $303,842 representing the imputed interest associated with the embedded derivative. The discount is amortized over the life
  of the convertible debt, which resulted in the recognition of $127,520 in interest expense for the period ended December 31, 2011,
  and the</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CONVERTIBLE PROMISSORY NOTES (Continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">derivative liability is adjusted
  periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged
  to additional paid-in capital. For purpose of determining the fair market value of the derivative liability, the Company used Black
  Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0 0 0 0.25in; text-align: center; text-indent: -0.25in; color: Red"><B></B></P>
  
  <TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 9pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
      <TD>&nbsp;</TD><TD>&nbsp;</TD>
      <TD COLSPAN="3">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="width: 70%; text-align: left">Stock price on the valuation dates</TD><TD STYLE="width: 10%">&nbsp;</TD>
      <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 18%; text-align: right">0.02</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Conversion price for the debt</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.0144</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Dividend yield</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.00</TD><TD STYLE="text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD>Months to Maturity</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
      <TD STYLE="text-align: left">Risk free rate</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.12</TD><TD STYLE="text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
      <TD STYLE="text-align: left">Expected volatility</TD><TD>&nbsp;</TD>
      <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">85.15</TD><TD STYLE="text-align: left">%</TD></TR>
  </TABLE>
  
  
  
  <P STYLE="font: 9pt Sans-Serif; margin: 0 0 0 0.25in; text-align: center; text-indent: -0.25in; color: Red"><B></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 5pt 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">The value of the derivative liability
  at December 31, 2012 was $531,930.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENTS</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.25in">The following are items management
  has evaluated as subsequent events pursuant to the requirement of ASC Topic 855.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in"><B><I>&nbsp;</I></B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Effective January 9, 2013, as part
  of a continued effort that began in January 2012 to maximize the use of capital resources necessary to complete the assembly and
  marketing of the Company&rsquo;s CIGSolar technology through reductions to operating costs and functions that are redundant, the
  Company elected to consolidate its executive management operations which eliminated the need to have multiple officers performing
  similar functions. In furtherance of these efforts the Company&rsquo;s Board of Directors accepted the resignation of Joseph Grimes
  as the Company&rsquo;s President and Chief Operating Officer, effective immediately, and approved by unanimous consent the reorganization
  and appointment of executive&nbsp;&nbsp;management as follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In connection with the resignation
  of Mr. Grimes, the Board appointed Mr. Tom Djokovich to the position of President. Mr. Djokovich will continue to also serve as
  the Company&rsquo;s Chief Executive Officer (CEO), a Director, and Secretary duties which he has performed since October 2003.
  Mr. Djokovich will focus on the strategic oversight of the day-to-day operations and securities compliance. Mr. Djokovich did not
  enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption of
  duties as the Company&rsquo;s President. Mr. Djokovich is 55 years old.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">Mr. Grimes will continue to serve
  as a member of the Board of Directors and will assume the position of Executive Sales Manager. As Executive Sales Manager, Mr.
  Grimes will manage the marketing efforts associated with the Company&rsquo;s commercialization efforts of its CIGSolar thin film
  manufacturing technology. Mr. Grimes previously held the position of President and Chief Operating Officer. Mr. Grimes did not
  enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption of
  duties as the Company&rsquo;s executive sales manager. Mr. Grimes is 55 years old.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><FONT STYLE="font-size: 10pt">On
  January 14, 2013 , the Company consummated a securities purchase agreement providing for the sales of an 8% convertible promissory
  note (the &ldquo;Note&rdquo;) in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares
  of common stock at a conversion price of 60% of the average lowest five (5) closing bid prices for the common stock, during the
  ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Note matures on October
  17, 2013. The Company has the right to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty
  one days from issuance of the Note under a variable redemption rate premium.</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">XSUNX, INC.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(A Development Stage Company)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Notes to Financial Statements &ndash; (Unaudited)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENTS (continued)</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In accordance with the Stipulation
  for Settlement of Claims (&ldquo;Stipulation&rdquo;), dated June 27, 2012, by and between Ironridge Global IV, Ltd and the Company
  as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares (&ldquo;Shares&rdquo;)
  of the Company&rsquo;s common stock, no par value (&ldquo;Common Stock&rdquo;) to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the (&ldquo;Adjustment Shares&rdquo;). In
  accordance with the stipulation, on January 17, 2013, subject to a request by Ironridge, the Company issued 32,000,000 Adjustment
  Shares to Ironridge Global IV, Ltd.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In January 2013, a holder of Securities
  Purchase Agreement (the &quot;Purchase Agreement&quot;) providing for the sale by the Company of an 8% unsecured Convertible Note
  (&ldquo;the Note&rdquo;) in the principal amounts of $37,500 converted the total principal of $37,500 of principal and $1,500 in
  accrued interest retiring the note. Upon conversion, the Company issued an aggregate of 5,739,370 shares, respectively, of common
  voting stock to the holder.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">In January 2013, a holder of an
  Exchange Note (the &quot;Exchange Note&quot;) issued by the Company in November 2013 in the principal amount of $385,863 converted
  $25,000 of principal and $1,064 in accrued interest. Upon conversion, the Company issued an aggregate of 3,066,398 shares of common
  voting stock to the holder.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">O<FONT STYLE="font-size: 10pt">n
  February 12, 2013, the Company issued a securities purchase agreement providing for the sales of an 8% convertible promissory
  note (the &ldquo;Note&rdquo;)in the amount of $53,000, which amount was not immediately advanced at the time of sale and receipt
  of funding was pending at the time of this filing. After one hundred and eighty days from the date of funding, the Note can be
  converted into shares of common stock at a conversion price of 60% of the average lowest five (5) closing bid prices for the common
  stock, during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Note
  matures on October 17, 2013. The Company has the right to redeem a portion or all amounts outstanding under the Note prior to
  one hundred and eighty one days from issuance of the Note under a variable redemption rate premium.</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify">&nbsp;</P>
  
  
  <!-- Field: Page; Sequence: 13 -->
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 12pt Times New Roman, Times, Serif; width: 100%">
  <TR STYLE="vertical-align: top">
      <TD STYLE="width: 7%; font-size: 10pt; font-weight: bold"><FONT STYLE="font-size: 10pt"><B><A NAME="a_009"></A>Item 2. </B></FONT></TD>
      <TD STYLE="width: 93%; font-size: 10pt; font-weight: bold"><FONT STYLE="font-size: 10pt"><B>Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations. </B></FONT></TD></TR>
  </TABLE>
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>CAUTIONARY AND FORWARD LOOKING STATEMENTS </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 19.8pt">In addition to statements
  of historical fact, this Quarterly Report on Form 10-Q contains forward-looking statements. The presentation of future aspects
  of XsunX, Inc. (&quot;XsunX&quot;, the &quot;Company&quot; or &quot;issuer&quot;) found in these statements is subject to a number
  of risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Readers
  are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the
  date hereof. Without limiting the generality of the foregoing, words such as &quot;may&quot;, &quot;will&quot;, &quot;expect&quot;,
  &quot;believe&quot;, &quot;anticipate&quot;, &quot;intend&quot;, or &quot;could&quot; or the negative variations thereof or comparable
  terminology are intended to identify forward-looking statements. <FONT STYLE="color: black">Our actual results could differ materially
  from those anticipated by these forward-looking statements as a result of many factors, including those discussed under &ldquo;Item
  1A: Risk Factors&rdquo; in the Company&rsquo;s Annual Report on Form 10-K.</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">These forward-looking
  statements are subject to numerous assumptions, risks and uncertainties that may cause XsunX's actual results to be materially
  different from any future results expressed or implied by XsunX in those statements. Important facts that could prevent XsunX from
  achieving any stated goals include, but are not limited to, the following:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Some of these risks might
  include, but are not limited to, the following:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(a) volatility or decline of the Company's stock
  price;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(b) potential fluctuation in quarterly results;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(c) failure of the Company to earn revenues
  or profits;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; margin-left: 0.5in; text-indent: 0pt; text-align: justify">(d)
  inadequate capital to continue or expand its business, inability to raise additional capital or financing to implement its business
  plans;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(e) failure to commercialize its technology
  or to make sales;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(f) rapid and significant changes in markets;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(g) litigation with or legal claims and allegations
  by outside parties;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">(h) insufficient revenues to cover operating
  costs.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">There is no assurance
  that the Company will be profitable, the Company may not be able to successfully develop, manage or market its products and services.
  The Company may not be able to attract or retain qualified executives and technology personnel, the Company's products and services
  may become obsolete, government regulation may hinder the Company's business, additional dilution in outstanding stock ownership
  may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of warrants and stock options,
  and other risks inherent in the Company's businesses.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The Company undertakes
  no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date
  hereof. Readers should carefully review the factors described in other documents the Company files from time to time with the Securities
  and Exchange Commission, including the Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K filed by the Company and
  any Current Reports on Form 8-K filed by the Company.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Management believes the
  summary data presented herein is a fair presentation of the Company's results of operations for the periods presented. Due to the
  Company's change in primary business focus and new business opportunities these historical results may not necessarily be indicative
  of results to be expected for any future period. As such, future results of the Company may differ significantly from previous
  periods.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Business Overview</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">XsunX, Inc. is developing
  and has begun to market a hybrid manufacturing solution to produce high performance Copper Indium Gallium (di) Selenide (CIGS)
  thin film solar cells. Our patent pending processing technology, which we call CIGSolar&reg;, focuses on the mass production of
  thin-film CIGS solar cells utilizing a proprietary multi-area thermal deposition process to minimize processing defects to create
  highly uniform CIGS films. The system allows for the use of stainless steel</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">wafers or foils that, in their final size format,
  can match silicon solar cell dimensions and can be offered as a non-toxic, high-efficiency and lowest-cost alternative to the use
  of silicon solar cells. We intend to offer licenses for the use of the CIGSolar&reg; process technology thereby generating revenue
  streams through licensing fees and manufacturing royalties for the use of the technology.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Our efforts have been
  focused on the development and customization of a series of specialized processing tools that when combined provide a turn-key
  high-throughput manufacturing system to produce CIGS solar cells.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Core attributes to our
  process method are the use of multi-area thermal co-evaporation techniques coupled with state-of-the-art sputter deposition technologies
  to improve manufacturing output, increase cell efficiency, production yields, and lower the costs for the production of high efficiency
  CIGS cells.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">There are five (5) core
  process tools that when combined will produce thin-film CIGS solar cells. We believe that it will be the ability of our system
  to minimize processing defects while maintaining exceptional per hour production rates that will provide superior commercial opportunities.
  CIGSolar&reg; cells can be manufactured on stainless steel squares sized to match silicon solar cells currently used in more than
  75% of all solar modules manufactured today.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;This innovative
  approach bridges the gap between inexpensive thin-film and more costly high efficiency silicon wafer technologies to produce a
  new breed of solar cell combining what we believe are the best attributes of each technology. The mass production of individual,
  high performance CIGS solar cells &ndash; like solar building blocks &ndash; we believe will allow solar power to finally compete
  effectively against other sources of electrical energy.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER
  31, 2012 COMPARED TO THE SAME PERIOD IN 2011 </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><U>Revenue:</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The Company generated
  no revenues for the periods ended December 31, 2012 and 2011 respectively. Additionally, there was no associated cost of sales.<FONT STYLE="color: black">
  </FONT>The Company to date has had minimal revenue and cost of sales, and is still in the development stage.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="color: White">&nbsp;</FONT></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><U>General and Administrative Expenses:</U></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify; text-indent: 0.25in">General and administrative
  expenses for the three month period ending December 31, 2012 were $129,006 as compared to $204,262 during the same period in 2011.
  The decrease of $(75,256) was related primarily to a general reduction to salaries, staffing, and operating expenses under the
  Company&rsquo;s re-focused plan of operations that began in January 2012 and focused on the development of its new CIGSolar&reg;
  thin film solar manufacturing technology.<FONT STYLE="color: black"> </FONT>We anticipate that expenditures associated with the
  commercial development and sales of our thin-film solar manufacturing technologies will increase SG&amp;A expenditures in the future.
  However, we plan to offer our technology as a licensable process to existing solar product manufacturers which we anticipate will
  mitigate future expenditures that would normally be associated with our need to establish direct large scale manufacturing capabilities
  and the associated facility infrastructure.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><U>Research and Development</U>:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify; text-indent: 0.25in">Research and development
  for the three month period ended December 31, 2012 were $15,000 as compared to $32,278 during the same period in 2011. The decrease
  of $(17,278) was primarily due to a reduction in research related efforts used in the period on the development of our new thin
  film solar manufacturing technology CIGSolar&reg;. During the period research related efforts were minimized and the majority of
  resources were focused on our efforts to complete the assembly of a full sized multi-chamber CIGSolar&reg; processing system for
  use in continued process improvement, marketing efforts, and future systems sales support. We anticipate that future R&amp;D expense
  will again increase as we complete this process.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><U>Net Loss</U>:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The net loss for the three
  months ended December 31, 2012 was $(534,632) as compared to a net loss of $(448,453) for the same period 2011. The increase in
  net loss of $(86,179) primarily includes the reduction to operating expenses of $(86,969) and an increase in other expenses of
  $(173,148), which consisted primarily of a reduction in loss on loan and conversion of debt for $87,965, an increase in amortization
  of debt discount and interest expense of $(122,067), and the loss on change in derivative of $(130,102), and commitment fees of
  $(8,966). The Company anticipates the trend of losses to continue in future periods until the Company can recognize sales of significance
  of which there is no assurance.</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>LIQUIDITY AND CAPITAL RESOURCES </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">As of December 31, 2012,
  we had a working capital deficit of $(851,926) as compared to $(544,939) at September 30, 2012. This increase in working capital
  deficit of $(306,987) was due primarily to a increase in accounts payable and convertible promissory notes.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">During the three months
  ended December 31, 2012, the Company used $(94,545) of cash for operating activities, as compared to cash used of $(136,609) for
  the same period 2011. The decrease in cash used of $(42,064) for operating activities was primarily due to an decrease in prepaid
  expenses, accounts payable, and a general reduction to salaries, staffing, and operating expenses under the Company&rsquo;s re-focused
  plan of operations that began in January 2012 and focused on the development of its new CIGSolar&reg; thin film solar manufacturing
  technology.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Cash used by investing
  activities for the three months ended December 31, 2012 was $(29,615), as compared to cash used of $0 for the same period 2011.
  The net increase of cash used in investing activities was primarily due to an increase in the cost to produce machinery.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Cash provided by financing
  activities for the three months ended December 31, 2012 was $117,500, as compared to $95,500 for the same period 2011. Our capital
  needs have primarily been met from the proceeds of private placements and the sale of convertible debt, as we are currently in
  the development stage and had no revenues.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Our financial statements
  as of December 31, 2012 have been prepared under the assumption that we will continue as a going concern from inception (February
  25, 1997) through December 31, 2012. Our independent registered public accounting firm has issued their report dated February 13,
  2013, that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without
  additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate
  a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies
  and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from
  the outcome of this uncertainty.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">For the three months ended
  December 31, 2012, the Company's capital needs have been met from the use of working capital provided by the proceeds of (i) the
  Company&rsquo;s working capital and (ii) the sale of convertible debt proceeds totaling $117,500.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>DEVELOPMENT STAGE COMPANY</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The Company is currently
  engaged in efforts to develop a cross-industry thin film solar manufacturing concept that we believe provides an opportunity for
  XsunX to establish a competitive advantage within the solar industry, and as of the period ended December 31, 2012, did not have
  any significant revenues. The transition to revenue recognition may exceed cash generated from operations in the current and future
  periods. We have in the past experienced substantial losses and negative cash flow from operations and have required financing,
  including equity and debt financing, in order to pursue the commercialization of products based on our technologies. We expect
  that we will continue to need significant financing to operate our business. If additional financing is not available or not available
  on terms acceptable to us, our ability to fund our operations, maintain our research and development efforts necessary to complete
  the development of marketable products or otherwise respond to competitive pressures may be significantly impaired. We could also
  be forced to curtail our business operations, reduce our investments, decrease or eliminate capital expenditures and delay the
  execution of our business plan which would have a material adverse effect on our business.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">While we have been able
  to raise capital in a series of equity and debt offerings in the past there can be no assurances that we will be able to obtain
  such additional financing, on terms acceptable to us and at the times required, or at all.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Irrespective of whether
  the Company's cash assets prove to be inadequate to meet the Company's operational needs, the Company might seek to compensate
  providers of services by issuances of stock in lieu of cash.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>OFF-BALANCE SHEET ARRANGEMENTS</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">We do not have any off
  balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues,
  results of operations, liquidity or capital expenditures.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><A NAME="a_010"></A>Item 3. Quantitative and Qualitative Disclosures About Market
  Risk. </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">We do not have any market
  risk sensitive instruments. Since all operations are in U.S. dollar denominated accounts, we do not have foreign currency risk.
  Our operating costs are reported in U.S. dollars.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The Company does not invest
  in term financial products or instruments or derivatives involving risk other than money market accounts, which fluctuate with
  interest rates at market.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><A NAME="a_011"></A><B>Item 4. Controls and Procedures. </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Evaluation of Disclosure Controls and Procedures</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">We maintain disclosure
  controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange
  Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC&rsquo;s
  rules and forms, and that such information is accumulated and communicated to our management, including our principal executive
  officer, principal financial officer, and principal operating officer, as appropriate, to allow timely decisions regarding required
  disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures,
  no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">As required by SEC Rule
  15d-15(e), our management carried out an evaluation, under the supervision and with the participation of our principal executive
  officer, principal financial officer, and principal operating officer, of the effectiveness of our disclosure controls and procedures
  as of the end of the period covered by this report. Based on that evaluation, our principal executive officer, principal financial
  officer, and principal accounting officer concluded that our disclosure controls and procedures were effective at a reasonable
  assurance level as of the end of the period covered by this report.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Changes in Internal Control over Financial Reporting</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">There have not been any
  changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
  Act) during the three months ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect,
  our internal control over financial reporting.</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><A NAME="a_012"></A><B>PART II - OTHER INFORMATION </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><A NAME="a_013"></A>Item 1. Legal Proceedings. </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In the ordinary conduct
  of our business, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to
  time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have,
  individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><A NAME="a_014"></A>Item 1A. Risk Factors </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">There are no material
  changes from the risk factors previously disclosed in the Registrant&rsquo;s Form 10-K filed on January 11, 2013.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><A NAME="a_015"></A><B>Item 2. Unregistered Sales of Equity Securities and Use of Proceeds</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">During the three month
  period ended December 31, 2012, a holder of Securities Purchase Agreements (the &quot;Purchase Agreements&quot;) each providing
  for the sale by the Company of 8% unsecured Convertible Notes (&ldquo;the Notes&rdquo;) in the principal amounts of $37,500 of
  which $22,500 remained, $37,500, and $32,500 converted the total remaining principal of $92,500 of principal and $4,300 in accrued
  interest retiring the notes. Upon conversion, the Company issued an aggregate of 9,265,139 shares respectively of common voting
  stock to the holder.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In exchange for a promissory
  note (the &ldquo;Note&rdquo;) of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company
  issued a new unsecured promissory exchange note (the &ldquo;Exchange Note&rdquo;) in the amount of $385,863 in November 2012. The
  Holder and the Company exchanged the Note solely for (i) a 12% promissory Exchange Note, (ii) and 500,000 shares of common stock.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In accordance with the
  Stipulation for Settlement of Claims (&ldquo;Stipulation&rdquo;), dated June 27, 2012, by and between Ironridge Global IV, Ltd
  and the Company as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares (&ldquo;Shares&rdquo;)
  of the Company&rsquo;s common stock, no par value (&ldquo;Common Stock&rdquo;) to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the (&ldquo;Adjustment Shares&rdquo;). In
  accordance with the stipulation on November 26, 2012, subject to a request by Ironridge, the Company issued 6,271,791 Adjustment
  Shares to Ironridge Global IV, Ltd.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">On November 7, 2012,
  the Company consummated a securities purchase agreement providing for the sales of an 8% convertible promissory note (the <FONT STYLE="font: 8pt Times New Roman, Times, Serif"></FONT><FONT STYLE="font-size: 10pt">&ldquo;Note&rdquo;)
  </FONT>in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares of common stock at a conversion
  price of 60% of the average lowest three (3) closing bid prices for the common stock, during the ten (10) trading day period ending
  on the latest complete trading day prior to the conversion date. The Note matures on August 7, 2013. The Company has the right
  to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note
  under a variable redemption rate premium.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">On November 7, 2012, the
  Company issued a 10% unsecured convertible promissory note (the &ldquo;Promissory Note&rdquo;) for the principal sum of up to $78,000
  plus accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advanced the
  sum of $25,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times as
  the Lender may choose in its sole discretion. The Promissory Note matures one year from its issuance and may be converted by the
  Lender into shares of common stock of the Company at the lesser of $.0125 per share at fifty percent of the lowest trade price
  in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the
  Promissory Note.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">On December 13, 2012,
  the Company issued a 10% unsecured convertible promissory note (the &ldquo;Promissory Note&rdquo;) for the principal sum of up
  to $250,000 and accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advance
  the sum of $50,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times
  as the Lender may choose in its sole discretion. The principal sum due the Lender shall be prorated based on the actual total consideration
  paid to the Company by the Lender such that the Company will only be required to repay the amount funded by the lender, nor shall
  any interest or other rights extend to any unfunded portion of the Promissory Note. If the Company repays the Promissory Note on
  or before 90 days from the issuance date, the interest rate shall be zero percent (0%). If the Company does not repay the Promissory
  Note on or before 90 days from the issuance date, a one-time Interest charge of 10% shall be applied to any advanced principal.
  The Promissory Note matures one year from its issuance and may be converted by the Lender into shares of common stock of the Company
  at the lesser of $.025 per share of at a sixty percent (60%) of the lowest trade price in the twenty five trading days prior to
  the conversion of any outstanding funded principal or accrued interest under the Promissory Note.</P>
  
  
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Use of Proceeds from the Sale of Securities</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The proceeds from the
  above sales of securities were and are being used primarily to fund efforts by the Company to develop marketable technologies for
  the manufacture of thin film solar technologies, and in the day-to-day operations of the Company and to pay the accrued liabilities
  associated with these operations.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><A NAME="a_016"></A>Item 3. Defaults Upon Senior Securities </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">None.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><A NAME="a_017"></A>Item 4. (Removed and Reserved) </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><A NAME="a_018"></A><B>Item 5. Other information </B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Effective January 9, 2013,
  as part of a continued effort that began in January 2012 to maximize the use of capital resources necessary to complete the assembly
  and marketing of the Company&rsquo;s CIGSolar technology through reductions to operating costs and functions that are redundant,
  the Company elected to consolidate its executive management operations which has eliminated the need to have multiple officers
  performing similar functions. In furtherance of these efforts the Company&rsquo;s Board of Directors accepted the resignation of
  Joseph Grimes as the Company&rsquo;s President and Chief Operating Officer, effective immediately, and approved by unanimous consent
  the reorganization and appointment of executive&nbsp;&nbsp;management as follows:</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In connection with the
  resignation of Mr. Grimes, the Board appointed Mr. Tom Djokovich to the position of President. Mr. Djokovich will continue to also
  serve as the Company&rsquo;s Chief Executive Officer (CEO), a Director, and Secretary duties which he has performed since October
  2003. Mr. Djokovich will focus on the strategic oversight of the day-to-day operations and securities compliance. Mr. Djokovich
  did not enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption
  of duties as the Company&rsquo;s President. Mr. Djokovich is 55 years old.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Mr. Grimes will continue
  to serve as a member of the Board of Directors and will assume the position of Executive Sales Manager. As Executive Sales Manager,
  Mr. Grimes will manage the marketing efforts associated with the Company&rsquo;s commercialization efforts of its CIGSolar thin
  film manufacturing technology. Mr. Grimes previously held the position of President and Chief Operating Officer. Mr. Grimes did
  not enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption
  of duties as the Company&rsquo;s executive sales manager. Mr. Grimes is 55 years old.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">On<FONT STYLE="font: 10pt Times New Roman, Times, Serif"> January 14, 2013 , the Company consummated a securities
  purchase agreement providing for the sales of an 8% convertible promissory note (the &ldquo;Note&rdquo;) in the amount of $37,500,
  which, after one hundred and eighty days, can be converted into shares of common stock at a conversion price of 60% of the average
  lowest five (5) closing bid prices for the common stock, during the ten (10) trading day period ending on the latest complete
  trading day prior to the conversion date. The Note matures on October 17, 2013. The Company has the right to redeem a portion
  or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note under a variable
  redemption rate premium.</FONT></P>
  
  <P STYLE="margin: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT>&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In accordance with the
  Stipulation for Settlement of Claims (&ldquo;Stipulation&rdquo;), dated June 27, 2012, by and between Ironridge Global IV, Ltd
  and the Company as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares (&ldquo;Shares&rdquo;)
  of the Company&rsquo;s common stock, no par value (&ldquo;Common Stock&rdquo;) to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the (&ldquo;Adjustment Shares&rdquo;). In
  accordance with the stipulation, on January 17, 2013, subject to a request by Ironridge, the Company issued 32,000,000 Adjustment
  Shares to Ironridge Global IV, Ltd.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In January 2013, a holder
  of Securities Purchase Agreement (the &quot;Purchase Agreement&quot;) providing for the sale by the Company of an 8% unsecured
  Convertible Note (&ldquo;the Note&rdquo;) in the principal amounts of $37,500 converted the total principal of $37,500 of principal
  and $1,500 in accrued interest retiring the note. Upon conversion, the Company issued an aggregate of 5,739,370 shares, respectively,
  of common voting stock to the holder.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In January 2013, a holder
  of an Exchange Note (the &quot;Exchange Note&quot;) issued by the Company in November 2013 in the principal amount of $385,863
  converted $25,000 of principal and $1,064.38 in accrued interest. Upon conversion, the Company issued an aggregate of 3,066,398
  shares of common voting stock to the holder.</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"></P>
  
  <!-- Field: Page; Sequence: 19 -->
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  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">On <FONT STYLE="font-size: 10pt">February 12, 2013, the Company issued a securities purchase agreement providing
  for the sales of an 8% convertible promissory note (the &ldquo;Note&rdquo;)in the amount of $53,000, which amount was not immediately
  advanced at the time of sale and receipt of funding was pending at the time of this filing. After one hundred and eighty days
  from the date of funding, the Note can be converted into shares of common stock at a conversion price of 60% of the average lowest
  five (5) closing bid prices for the common stock, during the ten (10) trading day period ending on the latest complete trading
  day prior to the conversion date. The Note matures on October 17, 2013. The Company has the right to redeem a portion or all amounts
  outstanding under the Note prior to one hundred and eighty one days from issuance of the Note under a variable redemption rate
  premium.</FONT></P>
  
  
  <!-- Field: Page; Sequence: 20 -->
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      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><A NAME="a_019"></A><B>Item 6. Exhibits</B></P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
      <TD COLSPAN="3" STYLE="border-bottom: black 1pt solid; font-size: 10pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>Exhibit</B></FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-size: 10pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>Description</B></FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">3.1</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black">Articles of Incorporation</FONT><FONT STYLE="font-size: 7pt">(1)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">3.2</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black">Bylaws</FONT><FONT STYLE="font-size: 7pt">(2)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.1</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black">XsunX Plan of Reorganization and Asset Purchase Agreement, dated September 23, 2003.</FONT><FONT STYLE="font-size: 7pt">(3)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.2</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black">XsunX 2007 Stock Option Plan, dated January 5, 2007.</FONT><FONT STYLE="font-size: 7pt">(4)</FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.3</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of $350,000 Exchange Agreement and Exchange Note used in connection with the exchange, partial repayment, and extension to a promissory note that had become due September 1, 2011.</FONT><FONT STYLE="font-size: 7pt"> (5)</FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.4</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of Securities Purchase Agreements and Convertible Promissory Notes (&ldquo;Notes&rdquo;) used in connection with the conversion by the holder of three Notes totaling $92,500 in principal and $4,800 in accrued interest causing the issuance of 9,265,139 shares of common stock by the Company.</FONT><FONT STYLE="font-size: 7pt"> (5)</FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.5</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of Securities Purchase Agreement and Convertible Promissory
      Note used in connection with the sale in November 7, 2012, and January 14, 2013, of convertible promissory notes each in the
      amount of $37,500 and on February 12, 2013 in the amount of $53,000.</FONT><FONT STYLE="font-size: 7pt"> (5) </FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.6</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt">June 27, 2012 Order for Approval of Stipulation for settlement of claims between the Company and Ironridge used to settle approximately $494,561 in claims, the issuance of 27,500,000 initial shares, 6,271,791 adjustment shares in November 2012, and 32,000,000 adjustment shares in January 2013.</FONT><FONT STYLE="font-size: 7pt; color: black"> (6)</FONT><FONT STYLE="font-size: 10pt"> </FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.7</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of Exchange Agreement and Exchange Note used in connection with the exchange and 12 month extension to a promissory note that had become due September 1, 2012, the issuance of 500,000 shares as an extension fee thereunder, and the conversion by the holder of $26,064 dollars of principal and interest causing the issuance of 3,066,398 shares.</FONT><FONT STYLE="font-size: 7pt"> (6)</FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.8</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of Convertible Promissory Note used in connection with the sale on November 7, 2012 of a convertible promissory note in the amount of up to $78,000.</FONT><FONT STYLE="font-size: 7pt"> (6)</FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD COLSPAN="3" STYLE="font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">10.9</FONT></TD>
      <TD STYLE="font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2"><FONT STYLE="font-size: 10pt; color: black">Form of Convertible Promissory Note used in connection with the sale of a convertible promissory note on December 13, 2012 in the amount of up to $250,000.</FONT><FONT STYLE="font-size: 7pt"> (6)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">31.1</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black"><A HREF="ex31_1302cert.htm">Sarbanes-Oxley Certification</A></FONT><FONT STYLE="font-size: 7pt">(7)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">31.2</FONT></TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt; color: black"><A HREF="ex32_1906cert.htm">Sarbanes-Oxley Certification</A></FONT><FONT STYLE="font-size: 7pt">(7)</FONT></TD></TR>
  <TR>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt; text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: bottom; font-size: 10pt">&nbsp;</TD>
      <TD COLSPAN="2" STYLE="vertical-align: top; font-size: 10pt">&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(1)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt; color: black">Incorporated by reference to Registration Statement Form 10SB12G #000-29621 dated February 18, 2000 and by reference to exhibits included with the Company&rsquo;s prior Report on Form 8-K/A filed with the Securities and Exchange Commission dated October 29, 2003.</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(2)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt; color: black">Incorporated by reference to Registration Statement Form 10SB12G #000-29621 filed with the Securities and Exchange Commission dated February 18, 2000.</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(3)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt; color: black">Incorporated by reference to exhibits included with the Company&rsquo;s Report on Form 8-K/A filed with the Securities and Exchange Commission dated October 29, 2003.</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(4)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt; color: black">Incorporated by reference to exhibits included with the Company&rsquo;s Report on Form 8-K filed with the Securities and Exchange Commission dated January 5, 2007.</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(5)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt; color: black">Incorporated by reference to exhibits included with the Company&rsquo;s Report on Form 10-K filed with the Securities and Exchange Commission dated December 29, 2011.</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(6)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top">
          <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Incorporated by reference to exhibits included with the Company&rsquo;s
          Report on Form 10-K filed with the Securities and Exchange Commission dated January 11, 2013.</P>
          <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="text-align: center">&nbsp;</TD>
      <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center"><FONT STYLE="font-size: 10pt; color: black">(7)</FONT></TD>
      <TD COLSPAN="3" STYLE="vertical-align: top; font-size: 10pt"><FONT STYLE="font-size: 10pt">Provided Herewith</FONT></TD>
      <TD>&nbsp;</TD></TR>
  <TR>
      <TD STYLE="width: 1%; text-align: center">&nbsp;</TD>
      <TD STYLE="width: 4%; text-align: center">&nbsp;</TD>
      <TD STYLE="width: 10%; text-align: center">&nbsp;</TD>
      <TD STYLE="width: 8%">&nbsp;</TD>
      <TD STYLE="width: 67%">&nbsp;</TD>
      <TD STYLE="width: 10%">&nbsp;</TD></TR>
  </TABLE>
  
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      <!-- Field: /Page -->
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B><U><A NAME="a_020"></A>SIGNATURES</U></B></P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Pursuant to the requirements of Section 13 or 15(d) of the Securities
  Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
  duly authorized.</P>
  
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  <TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 12pt Times New Roman, Times, Serif; width: 100%">
  <TR STYLE="vertical-align: top">
      <TD>&nbsp;</TD>
      <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold"><FONT STYLE="font-size: 10pt; font-style: normal"><B>XSUNX, INC.</B></FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD STYLE="width: 51%">&nbsp;</TD>
      <TD STYLE="width: 5%">&nbsp;</TD>
      <TD STYLE="width: 44%">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: top">
      <TD STYLE="font-size: 10pt; font-style: italic"><FONT STYLE="font-size: 10pt"><I>Dated: February 14, 2013</I></FONT></TD>
      <TD STYLE="font-size: 10pt; font-style: italic"><FONT STYLE="font-size: 10pt"><I>By:</I></FONT></TD>
      <TD STYLE="border-bottom: black 1pt solid; font-size: 10pt; font-style: italic"><FONT STYLE="font-size: 10pt"><I>/s/ Tom M. Djokovich</I></FONT></TD></TR>
  <TR STYLE="vertical-align: top">
      <TD>
          <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
          <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD>
      <TD>&nbsp;</TD>
      <TD>
          <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>Tom M. Djokovich, </I></P>
          <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>Principal Executive and Financial Officer</I></P></TD></TR>
  </TABLE>
  <P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
  
  
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metadata_documents: [{"type": "10-Q", "sequence": "1", "filename": "f10q_xsunx.htm", "description": "FORM 10-Q XSUNX, INC.", "secsgml_size_bytes": 288596}]
metadata_filer: {"company-data": {"conformed-name": "XSUNX INC", "cik": "0001039466", "assigned-sic": "3081", "irs-number": "841384159", "state-of-incorporation": "CO", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-29621", "film-number": "13615206"}, "business-address": {"street1": "65 ENTERPRISE", "city": "ALISO VIEJO", "state": "CA", "zip": "92656", "phone": "949 330 8060"}, "mail-address": {"street1": "7609 RALSTON ROAD", "city": "ARVADA", "state": "CO", "zip": "80002"}, "former-company": {"former-conformed-name": "SUN RIVER MINING INC", "date-changed": "20000218"}}
text: UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549
  FORM 10-Q
  [X] Quarterly Report Pursuant to Section 13
  or 15(d) of The Securities Exchange Act of 1934
  For The Quarterly Period Ended:
  December
  31, 2012
  [ ] Transition
  Report Pursuant to Section 13 or 15(d) of
  The Securities Exchange Act of 1934
  For The Transition
  Period From ___________ to _______________
  Commission
  File Number:
  000-29621
  XSUNX, INC.
  (Exact name of registrant as specified in its
  charter)
  Colorado
  84-1384159
  (State of incorporation)
  (I.R.S. Employer Identification No.)
  65 Enterprise, Aliso Viejo, CA 92656
  (Address of principal executive offices) (Zip
  Code)
  Registrant's telephone number:
  (949) 330-8060
  Indicate by check mark whether the registrant
  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during
  the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has
  been subject to such filing requirements for the past 90 days. Yes
  x
  No
  o
  Indicate by check mark whether the registrant
  has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
  and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
  was required to submit and post such files). Yes
  x
  No
  o
  Indicate by check mark whether the registrant
  is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
  Large accelerated filer
  ¨
  Accelerated filer
  ¨
  Non-accelerated filer
  ¨
  Smaller reporting company
  x
  Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Exchange Act). Yes
  o
  No
  x
  The number of shares of common stock issued and outstanding as of
  February 14, 2013 was
  338,075,848
  .
  Table of Contents
  TABLE OF CONTENTS
  PAGE
  PART I - FINANCIAL INFORMATION
  Item 1. Financial Statements
  3
  Balance Sheets December 31, 2012 (unaudited) and September 30, 2012 (audited)
  3
  Statements of Operations for the Three Months ended December 31, 2012 and 2011 (unaudited) and the period February 25, 1997 (inception) to December 31, 2012 (unaudited)
  4
  Statements of Shareholders
      Deficit  for the Three Months ended December 31, 2012 (unaudited)
  5
  Statements of Cash Flows for the Three Months ended December 31, 2012 and 2011 (unaudited) and the period February 27, 1997 (inception) to December 31, 2012 (unaudited)
  6
  Notes to Financial Statements (unaudited)
  7
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  14
  Item 3 Qualitative and Quantitative Disclosures About Market Risk
  17
  Item 4. Controls and Procedures
  17
  PART II - OTHER INFORMATION
  Item 1. Legal Proceedings
  18
  Item 1A.Risk Factors
  18
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  18
  Item 3. Defaults upon Senior Securities
  19
  Item 4. (Removed and Reserved)
  19
  Item 5. Other Information
  19
  Item 6. Exhibits
  21
  Signatures
  22
  2
  Table of Contents
  PART I – FINANCIAL INFORMATION
  Item 1. Financial Statements.
  XSUNX, INC.
  (A Development
  Stage Company)
  BALANCE SHEETS
  December 31, 2012
  September 30, 2012
  (Unaudited)
  ASSETS
  CURRENT ASSETS
  Cash
  $
  37,867
  $
  44,527
  Prepaid expenses
  84,883
  162,186
  Total Current Assets
  122,750
  206,713
  PROPERTY & EQUIPMENT
  Office & miscellaneous equipment
  35,853
  35,853
  Machinery & equipment
  232,084
  232,084
  Leasehold improvements
  17,500
  17,500
  285,437
  285,437
  Less accumulated depreciation
  (220,830
  )
  (206,178
  )
  Net Property & Equipment
  64,607
  79,259
  OTHER ASSETS
  Manufacturing equipment in progress
  389,187
  309,082
  Security deposit
  5,700
  5,700
  Total Other Assets
  394,887
  314,782
  TOTAL ASSETS
  $
  582,244
  $
  600,754
  LIABILITIES AND SHAREHOLDERS' DEFICIT
  CURRENT LIABILITIES
  Accounts payable
  $
  172,901
  $
  143,555
  Credit card payable
  1,783
  2,623
  Accrued expenses
  100
  840
  Accrued interest on notes payable
  16,760
  40,243
  Derivative liability
  531,930
  150,926
  Convertible promissory notes, net of $327,161 in discounts
  251,202
  63,465
  Unsecured promissory note
  —
  350,000
  Total Current Liabilities
  974,676
  751,652
  TOTAL LIABILITIES
  974,676
  751,652
  SHAREHOLDERS' DEFICIT
  Preferred stock, $0.01 par value;
  50,000,000 authorized preferred shares
  —
  —
  Common stock, no par value;
  500,000,000 authorized common shares
  297,270,080 and 281,233,150 shares issued and outstanding, respectively
  27,634,692
  27,341,594
  Additional paid in capital
  5,335,248
  5,335,248
  Paid in capital, common stock warrants
  3,764,913
  3,764,913
  Deficit accumulated during the development stage
  (37,127,285
  )
  (36,592,653
  )
  TOTAL SHAREHOLDERS' DEFICIT
  (392,432
  )
  (150,898
  )
  TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
  $
  582,244
  $
  600,754
  The accompanying notes are an integral part
  of these financial statements
  3
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  STATEMENTS OF OPERATIONS
  (Unaudited)
  From Inception
  February 25, 1997
  Three Months Ended
  through
  December 31, 2012
  December 31, 2011
  December 31, 2012
  REVENUE
  $
  —
  $
  —
  $
  14,880
  OPERATING EXPENSES
  General and administrative expenses
  129,006
  204,262
  18,651,352
  Research and development
  15,000
  32,278
  3,301,627
  Depreciation and amortization expense
  14,652
  9,087
  744,184
  TOTAL OPERATING EXPENSES
  158,658
  245,627
  22,697,163
  LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)
  (158,658
  )
  (245,627
  )
  (22,682,283
  )
  OTHER INCOME/(EXPENSES)
  Interest income
  —
  —
  445,537
  Gain on sale of asset
  —
  —
  16,423
  Impairment of assets
  —
  —
  (7,285,120
  )
  Write down of inventory asset
  —
  —
  (1,177,000
  )
  Gain on legal settlement
  —
  —
  1,279,580
  Loan and commitment fees
  (8,966
  )
  —
  (7,096,690
  )
  Gain on forgiveness of debt
  —
  —
  592,154
  Loss on conversion of debt
  (126,470
  )
  (214,435
  )
  (567,992
  )
  Gain/(loss) on change in derivative
  (92,468
  )
  37,634
  (52,499
  )
  Other, non-operating expenses
  —
  —
  (5,215
  )
  Penalties
  —
  (22
  )
  (619
  )
  Interest expense
  (148,070
  )
  (26,003
  )
  (593,561
  )
  TOTAL OTHER INCOME/(EXPENSES)
  (375,974
  )
  (202,826
  )
  (14,445,002
  )
  NET LOSS
  $
  (534,632
  )
  $
  (448,453
  )
  $
  (37,127,285
  )
  BASIC AND DILUTED LOSS PER SHARE
  $
  (0.00
  )
  $
  (0.00
  )
  WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
  BASIC AND DILUTED
  287,343,603
  230,172,550
  The accompanying notes are an integral part
  of these financial statements
  4
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  STATEMENT OF SHAREHOLDERS' DEFICIT
  Deficit
  Accumulated
  Additional
  Stock Options/
  during the
  Preferred Stock
  Common Stock
  Paid-in
  Warrants
  Development
  Total
  Balance at September 30, 2012
  —
  $
  —
  281,233,150
  $
  27,341,594
  $
  5,335,248
  $
  3,764,913
  $
  (36,592,653
  )
  $
  (150,898
  )
  Issuance of common stock for conversion of notes and interest
  —
  —
  9,265,139
  96,800
  —
  —
  —
  96,800
  Write down of fair value of notes converted
  —
  —
  —
  62,112
  —
  —
  —
  62,112
  Issuance of common stock for debt
  —
  —
  6,271,791
  125,436
  —
  —
  —
  125,436
  Issuance of common stock for commitment fees
  —
  —
  500,000
  10,000
  —
  —
  —
  10,000
  Original issue discount
  —
  —
  —
  (1,250
  )
  —
  —
  —
  (1,250
  )
  Net loss for the three months ended December 31, 2012
  —
  —
  —
  —
  —
  —
  (534,632
  )
  (534,632
  )
  Balance at December 31, 2012
  —
  $
  —
  297,270,080
  $
  27,634,692
  $
  5,335,248
  $
  3,764,913
  $
  (37,127,285
  )
  $
  (392,432
  )
  The accompanying notes are an integral part
  of these financial statements
  5
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  STATEMENTS OF CASH FLOWS
  (Unaudited)
  From Inception
  February 25,1997
  Three Months Ended
  through
  December 31, 2012
  December 31, 2011
  December 31, 2012
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss
  $
  (534,632
  )
  $
  (448,453
  )
  $
  (37,127,285
  )
  Adjustment to reconcile net loss to net cash
  used in operating activities
  Depreciation & amortization
  14,652
  9,087
  744,184
  Common stock issued for services and other expenses
  —
  —
  2,160,232
  Common stock issued for rent
  —
  —
  13,750
  Stock option and warrant expense
  —
  84,835
  4,039,103
  Beneficial conversion and commitment fees
  8,966
  —
  5,780,273
  Asset impairment
  —
  —
  7,285,120
  Write down of inventory asset
  —
  —
  1,177,000
  (Gain)/loss on conversion and settlement of debt
  126,470
  214,435
  101,031
  Gain on sale of asset
  —
  —
  (16,423
  )
  Contributed capital and services
  —
  —
  97,035
  Settlement of lease
  —
  —
  59,784
  Change in derivative liability
  92,468
  (37,634
  )
  52,499
  Original issue discount
  (1,250
  )
  —
  (1,250
  )
  Amortization of debt discount recorded as interest expense
  127,520
  16,034
  333,985
  Common stock issued for interest payable
  4,300
  —
  9,420
  Change in Assets and Liabilities:
  (Increase) Decrease in:
  Prepaid expenses
  26,815
  (14,887
  )
  15,481
  Inventory held for sale
  —
  —
  (1,417,000
  )
  Other receivable
  —
  —
  —
  Other assets
  —
  —
  (5,700
  )
  Increase (Decrease) in:
  Accounts payable
  28,506
  27,732
  2,399,050
  Accrued expenses
  11,640
  12,242
  162,096
  NET CASH USED IN OPERATING ACTIVITIES
  (94,545
  )
  (136,609
  )
  (14,137,615
  )
  CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of manufacturing equipment and facilities in process
  (29,615
  )
  —
  (5,939,528
  )
  Payments on note receivable
  —
  —
  (1,500,000
  )
  Proceeds from sale of assets
  —
  —
  261,100
  Receipts on note receivable
  —
  —
  1,500,000
  Purchase of marketable prototype
  —
  —
  (1,780,396
  )
  Purchase of fixed assets
  —
  —
  (597,972
  )
  NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES
  (29,615
  )
  —
  (8,056,796
  )
  CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from warrant conversion
  —
  —
  3,306,250
  Proceeds from convertible promissory notes
  117,500
  95,500
  6,278,000
  Proceeds for issuance of common stock, net
  —
  —
  12,648,028
  NET CASH PROVIDED BY FINANCING ACTIVITIES
  117,500
  95,500
  22,232,278
  NET INCREASE (DECREASE) IN CASH
  (6,660
  )
  (41,109
  )
  37,867
  CASH, BEGINNING OF PERIOD
  44,527
  66,576
  —
  CASH, END OF PERIOD
  $
  37,867
  $
  25,467
  $
  37,867
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid
  $
  119
  $
  120
  $
  120,733
  Taxes paid
  $
  —
  $
  —
  $
  —
  SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
  During the three months ended December 31, 2012, the
      Company exchanged a demand note in the amount of $350,000 plus accrued interest of $35,863 for a new promissory note for an
      aggregate principal amount of $385,863. During the three months ended December 31, 2011, in exchange for the note of $456,920
      plus accrued interest of $98,645 that was due at September 1, 2011, the Company issued 7,000,000 restricted shares of common
      stock as payment for the reduction of $205,565 of the principal balance and accrued interest under the note, and issued a
      new unsecured promissory exchange note in the amount of $350,000.
  The accompanying notes are an integral part
  of these financial statements
  6
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  1.
  BASIS OF PRESENTATION
  The accompanying unaudited financial
  statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim
  financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
  all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In
  the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating
  results for the three months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the
  year ending September 30, 2013. For further information refer to the financial statements and footnotes thereto included in the
  Company's Form 10-K for the year ended September 30, 2012.
  Going Concern
  The accompanying financial statements
  have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and
  liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments
  that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and
  has negative cash flows from operations, which raise substantial doubt about the Company's ability to continue as a going
  concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent
  upon, among other things, additional cash infusion. The Company has obtained funds from its shareholders since its inception through
  the period ended December 31, 2012. Management believes the existing shareholders and the prospective new investors will provide
  the additional cash needed to meet the Company's obligations as they become due, and will allow the development of its core
  of business.
  2.
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  This summary of significant accounting
  policies of XsunX, Inc. is presented to assist in understanding the Company's financial statements. The financial statements
  and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These
  accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
  applied in the preparation of the financial statements.
  Development Stage Activities
  and Operations
  The Company has been in its initial
  stages of formation and for the three months ended December 31, 2012, had no revenues. A development stage activity as one in which
  all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues
  are insignificant.
  Use of Estimates
  The preparation of financial statements
  in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
  amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include
  the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options.
  Actual results could differ from those estimates.
  Cash and Cash Equivalents
  For purposes of the statements of cash flows, cash and
  cash equivalents include cash in banks and money markets with an original maturity of three months or less.
  Fair Value of Financial Instruments
  The Company's financial instruments,
  including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which approximates their fair
  value, due to the relatively short maturity of these instruments. As of December 31, 2012, and September 30, 2012, the Company's
  notes payable have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the
  Company believes the carrying value of these debt instruments approximates their fair value.
  7
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Loss per Share Calculations
  Loss per Share is the calculation
  of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available
  to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar
  to basic earnings per share except that the denominator is increased to include the number of additional common shares that would
  have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company's
  diluted loss per share is the same as the basic loss per share for the three months ended December 31, 2012, as the inclusion of
  any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
  Revenue Recognition
  The Company recognizes revenue when
  services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk
  of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
  To date the Company has had minimal revenue and is still in the development stage.
  Stock-Based Compensation
  Share-based Payment applies to
  transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity
  may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value
  approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant.
  The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of
  the stock option. This has not had a material impact on our results of operations.
  Fair Value of Financial Instruments
  Fair Value of Financial Instruments,
  requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate
  that value. As of December 31, 2012, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses, and
  derivative liability approximate the fair value because of their short maturities.
  We adopted ASC Topic 820 (originally
  issued as SFAS 157, "Fair Value Measurements") as of January 1, 2008 for financial instruments measured as fair value
  on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting
  principles generally accepted in the United States and expands disclosures about fair value measurements.
  Fair value is defined as the price
  that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
  the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring
  fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
  (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
  ·
  Level 1, defined as observable inputs such as quoted prices for identical
  instruments in active markets;
  ·
  Level 2, defined as inputs other than quoted prices in active markets
  that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices
  for identical or similar instruments in markets that are not active; and
  ·
  Level 3, defined as unobservable inputs in which little or no market
  data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques
  in which one or more significant inputs or significant value drivers are unobservable.
  We measure certain financial instruments
  at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December
  31, 2012:
  8
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Fair Value
  of Financial Instruments
  (Continued)
  Total
  (Level 1)
  (Level 2)
  (Level 3)
  Assets
  $
  —
  $
  —
  $
  —
  $
  —
  Total assets measured at fair value
  $
  —
  $
  —
  $
  —
  $
  —
  Liabilities
  Derivative Liability
  $
  531,930
  $
  —
  $
  —
  $
  531,930
  Convertible Debenture, net of discount
  251,202
  —
  —
  251,202
  Total liabilities measured at fair value
  $
  783,132
  $
  —
  $
  —
  $
  783,132
  Recently Adopted Accounting
  Pronouncements
  Management reviewed accounting pronouncements
  issued during the three months ended December 30, 2012, and no pronouncements were adopted during the period.
  3.
  CAPITAL STOCK
  At December 31, 2012, the Company's
  authorized stock consisted of 500,000,000 shares of common stock, with no par value. The Company is also authorized to issue 50,000,000
  shares of preferred stock with a par value of $0.01 per share. The rights, preferences and privileges of the holders of the preferred
  stock will be determined by the Board of Directors prior to issuance of such shares.
  During the three months ended December
  31, 2012, a holder of Securities Purchase Agreements (the "Purchase Agreements") each providing for the sale by the Company
  of 8% unsecured Convertible Notes ("the Notes") in the principal amounts of $37,500 of which $22,500 remained, $37,500,
  and $32,500 converted the total remaining principal of $92,500 of principal and $4,300 in accrued interest retiring the notes.
  Upon conversion, the Company issued an aggregate of 9,265,139 shares respectively of common voting stock to the holder. Also, 500,000
  shares of common stock were issued at a price of $0.02 per share for an extension fee on a promissory note that had become due
  at September 30, 2012.
  In accordance with the Stipulation
  for Settlement of Claims ("Stipulation"), dated June 27, 2012, by and between Ironridge Global IV, Ltd and the Company
  as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares ("Shares")
  of the Company's common stock, no par value ("Common Stock") to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the ("Adjustment Shares"). In
  accordance with the stipulation, on November 26, 2012, subject to a request by Ironridge, the Company issued 6,271,791 Adjustment
  Shares to Ironridge Global IV, Ltd.
  4.
  STOCK OPTIONS AND WARRANTS
  The Company adopted a Stock Option
  Plan for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and
  sets aside for the granting of Options for Twenty Million (20,000,000) shares of Common Stock. Options granted under the Plan may
  be either Incentive Options or Nonqualified Options and shall be administered by the Company's Board of Directors ("Board").
  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements
  may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified
  in the Option agreement.
  For the period ended
  12/31/2012
  Risk free interest rate
  1.14% to 2.77%
  Stock volatility factor
  90.56% to 104.73%
  Weighted average expected option life
  5 years
  Expected dividend yield
  None
  9
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  4.     STOCK OPTIONS AND WARRANTS (Continued)
  A summary of the Company's
  stock option activity and related information follows:
  For the period ended
  12/31/2012
  Weighted
  Number
  average
  of
  exercise
  Options
  price
  Outstanding, beginning of the period
  8,000,000
  $
  0.21
  Granted
  —
  —
  Exercised
  —
  —
  Expired
  (3,000,000
  )
  0.36
  Outstanding, end of the period
  5,000,000
  $
  0.11
  Exercisable at the end of the period
  4,000,000
  $
  0.14
  Weighted average fair value of
  options granted during the period
  $
  —
  The weighted average remaining contractual life of options
  outstanding issued under the plan as of December 31, 2012 was as follows:
  Weighted
  Average
  Stock
  Stock
  Remaining
  Exercisable
  Options
  Options
  Contractual
  Prices
  Outstanding
  Exercisable
  Life (years)
  $
  0.160
  2,500,000
  2,500,000
  1.25 years
  $
  0.100
  1,000,000
  —
  2.80 years
  $
  0.045
  1,500,000
  1,500,000
  4.03 years
  5,000,000
  4,000,000
  Stock-based compensation expense
  recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to
  vest. Stock-based compensation expense recognized in the financial statements of operations during the three months ended December
  31, 2012, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of December
  31, 2012 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent
  to December 31, 2012, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation
  expense recognized in the statement of operations during the three months ended December 31, 2012 and 2011 was $0 and $84,835,
  respectively.
  Warrants
  A summary of the Company's warrants activity
  and related information follows:
  For the period ended
  12/31/2012
  Weighted
  Number
  average
  of
  exercise
  Options
  price
  Outstanding, beginning of the period
  3,333,332
  $
  0.63
  Granted
  —
  $
  —
  Exercised
  —
  $
  —
  Expired
  (3,333,332
  )
  $
  0.63
  Outstanding, end of the period
  —
  $
  —
  Exercisable at the end of period
  —
  $
  —
  Weighted average fair value of
  warrants granted during the period
  $
  —
  10
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  5.     PROMISSORY NOTE
  In exchange for a promissory note
  (the "Note") of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company issued
  a new unsecured promissory exchange note (the "Exchange Note") in the amount of $385,863 in November 2012. The Holder
  and the Company exchanged the Note solely for (i) a 12% convertible promissory Exchange Note, (ii) and 500,000 shares of common
  stock.
  6.    CONVERTIBLE PROMISSORY NOTES
  In exchange for a promissory note
  (the "Note") of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company issued
  a new unsecured promissory exchange note (the "Exchange Note") for $385,863 in November 2012. The Holder and the Company
  exchanged the Note solely for (i) a 12% promissory Exchange Note, (ii) and 500,000 shares of common stock. Interest on the Exchange
  note accrued interest at the rate of 18% per annum commencing on September 30, 2012 through October 31, 2012 and thereafter at
  the rate of 12%. The Exchange Note is convertible into securities of the Company by the Holder at the lesser of $0.025 or 70%
  of the lowest volume weighted average (VWAP) occurring during the ten consecutive trading days immediately preceding the date
  on which the Holder may elect to convert portions of the note. The Exchange Note matures on September 30, 2013 and the Company
  can prepay any then remaining principal and accrued interest balance upon first providing the holder with a ten day prepayment
  notice.
  On November 7, 2012, the Company
  consummated a securities purchase agreement providing for the sales of an 8% convertible promissory note note (the
  "Note")
  in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares of common stock at a conversion
  price of 60% of the average lowest three (3) closing bid prices for the common stock, during the ten (10) trading day period ending
  on the latest complete trading day prior to the conversion date. The Note matures on August 7, 2013. The Company has the right
  to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note
  under a variable redemption rate premium.
  On November 7, 2012, the Company
  issued a 10% unsecured convertible promissory note (the "Promissory Note") for the principal sum of up to $78,000 plus
  accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advanced the sum
  of $25,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times as the
  Lender may choose in its sole discretion. The Promissory Note matures one year from its issuance and may be converted by the Lender
  into shares of common stock of the Company at the lesser of $.0125 per share at fifty percent (50%) of the lowest trade price in
  the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Promissory
  Note.
  On December 13, 2012, the Company
  issued a 10% unsecured convertible promissory note (the "Promissory Note") for the principal sum of up to $250,000
  and accrued interest on any advanced principal funds. The consideration is $225,000 with an original issue discount of $25,000.
  Upon issuance of the Promissory Note the lender immediately advanced the sum of $50,000 to the Company, and may elect to pay additional
  consideration to the Company in such amounts and at such times as the Lender may choose in its sole discretion. The principal sum
  due the Lender shall be prorated based on the actual total consideration paid to the Company by the Lender such that the Company
  will only be required to repay the amount funded by the lender, nor shall any interest or other rights extend to any unfunded portion
  of the Promissory Note. If the Company repays the Promissory Note on or before 90 days from the issuance date, the interest rate
  shall be zero percent (0%). If the Company does not repay the Promissory Note on or before 90 days from the issuance date, a one-time
  Interest charge of 10% shall be applied to any advanced principal. The Promissory Note matures one year from its issuance and may
  be converted by the Lender into shares of common stock of the Company at the lesser of $.025 per share or sixty percent (60%) of
  the lowest trade price in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued
  interest under the Promissory Note.
  ASC Topic 815 provides guidance
  applicable to convertible debt issued by the Company in instances where the number into which the debt can be converted is not
  fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion,
  ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded
  at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability of $311,164 representing
  the estimated present value of the conversion feature considering the historic volatility of the Company's stock, and a discount
  of $303,842 representing the imputed interest associated with the embedded derivative. The discount is amortized over the life
  of the convertible debt, which resulted in the recognition of $127,520 in interest expense for the period ended December 31, 2011,
  and the
  11
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  6.     CONVERTIBLE PROMISSORY NOTES (Continued)
  derivative liability is adjusted
  periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged
  to additional paid-in capital. For purpose of determining the fair market value of the derivative liability, the Company used Black
  Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
  Stock price on the valuation dates
  $
  0.02
  Conversion price for the debt
  $
  0.0144
  Dividend yield
  0.00
  %
  Months to Maturity
  9
  Risk free rate
  0.12
  %
  Expected volatility
  85.15
  %
  The value of the derivative liability
  at December 31, 2012 was $531,930.
  7.     SUBSEQUENT EVENTS
  The following are items management
  has evaluated as subsequent events pursuant to the requirement of ASC Topic 855.
  Effective January 9, 2013, as part
  of a continued effort that began in January 2012 to maximize the use of capital resources necessary to complete the assembly and
  marketing of the Company's CIGSolar technology through reductions to operating costs and functions that are redundant, the
  Company elected to consolidate its executive management operations which eliminated the need to have multiple officers performing
  similar functions. In furtherance of these efforts the Company's Board of Directors accepted the resignation of Joseph Grimes
  as the Company's President and Chief Operating Officer, effective immediately, and approved by unanimous consent the reorganization
  and appointment of executive  management as follows:
  In connection with the resignation
  of Mr. Grimes, the Board appointed Mr. Tom Djokovich to the position of President. Mr. Djokovich will continue to also serve as
  the Company's Chief Executive Officer (CEO), a Director, and Secretary duties which he has performed since October 2003.
  Mr. Djokovich will focus on the strategic oversight of the day-to-day operations and securities compliance. Mr. Djokovich did not
  enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption of
  duties as the Company's President. Mr. Djokovich is 55 years old.
  Mr. Grimes will continue to serve
  as a member of the Board of Directors and will assume the position of Executive Sales Manager. As Executive Sales Manager, Mr.
  Grimes will manage the marketing efforts associated with the Company's commercialization efforts of its CIGSolar thin film
  manufacturing technology. Mr. Grimes previously held the position of President and Chief Operating Officer. Mr. Grimes did not
  enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption of
  duties as the Company's executive sales manager. Mr. Grimes is 55 years old.
  On
  January 14, 2013 , the Company consummated a securities purchase agreement providing for the sales of an 8% convertible promissory
  note (the "Note") in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares
  of common stock at a conversion price of 60% of the average lowest five (5) closing bid prices for the common stock, during the
  ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Note matures on October
  17, 2013. The Company has the right to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty
  one days from issuance of the Note under a variable redemption rate premium.
  12
  Table of Contents
  XSUNX, INC.
  (A Development Stage Company)
  Notes to Financial Statements – (Unaudited)
  December 31, 2012
  7.     SUBSEQUENT EVENTS (continued)
  In accordance with the Stipulation
  for Settlement of Claims ("Stipulation"), dated June 27, 2012, by and between Ironridge Global IV, Ltd and the Company
  as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares ("Shares")
  of the Company's common stock, no par value ("Common Stock") to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the ("Adjustment Shares"). In
  accordance with the stipulation, on January 17, 2013, subject to a request by Ironridge, the Company issued 32,000,000 Adjustment
  Shares to Ironridge Global IV, Ltd.
  In January 2013, a holder of Securities
  Purchase Agreement (the "Purchase Agreement") providing for the sale by the Company of an 8% unsecured Convertible Note
  ("the Note") in the principal amounts of $37,500 converted the total principal of $37,500 of principal and $1,500 in
  accrued interest retiring the note. Upon conversion, the Company issued an aggregate of 5,739,370 shares, respectively, of common
  voting stock to the holder.
  In January 2013, a holder of an
  Exchange Note (the "Exchange Note") issued by the Company in November 2013 in the principal amount of $385,863 converted
  $25,000 of principal and $1,064 in accrued interest. Upon conversion, the Company issued an aggregate of 3,066,398 shares of common
  voting stock to the holder.
  O
  n
  February 12, 2013, the Company issued a securities purchase agreement providing for the sales of an 8% convertible promissory
  note (the "Note")in the amount of $53,000, which amount was not immediately advanced at the time of sale and receipt
  of funding was pending at the time of this filing. After one hundred and eighty days from the date of funding, the Note can be
  converted into shares of common stock at a conversion price of 60% of the average lowest five (5) closing bid prices for the common
  stock, during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The Note
  matures on October 17, 2013. The Company has the right to redeem a portion or all amounts outstanding under the Note prior to
  one hundred and eighty one days from issuance of the Note under a variable redemption rate premium.
  13
  Table of Contents
  Item 2.
  Management's Discussion and Analysis of Financial Condition and Results of Operations.
  CAUTIONARY AND FORWARD LOOKING STATEMENTS
  In addition to statements
  of historical fact, this Quarterly Report on Form 10-Q contains forward-looking statements. The presentation of future aspects
  of XsunX, Inc. ("XsunX", the "Company" or "issuer") found in these statements is subject to a number
  of risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Readers
  are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the
  date hereof. Without limiting the generality of the foregoing, words such as "may", "will", "expect",
  "believe", "anticipate", "intend", or "could" or the negative variations thereof or comparable
  terminology are intended to identify forward-looking statements.
  Our actual results could differ materially
  from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Item
  1A: Risk Factors" in the Company's Annual Report on Form 10-K.
  These forward-looking
  statements are subject to numerous assumptions, risks and uncertainties that may cause XsunX's actual results to be materially
  different from any future results expressed or implied by XsunX in those statements. Important facts that could prevent XsunX from
  achieving any stated goals include, but are not limited to, the following:
  Some of these risks might
  include, but are not limited to, the following:
  (a) volatility or decline of the Company's stock
  price;
  (b) potential fluctuation in quarterly results;
  (c) failure of the Company to earn revenues
  or profits;
  (d)
  inadequate capital to continue or expand its business, inability to raise additional capital or financing to implement its business
  plans;
  (e) failure to commercialize its technology
  or to make sales;
  (f) rapid and significant changes in markets;
  (g) litigation with or legal claims and allegations
  by outside parties;
  (h) insufficient revenues to cover operating
  costs.
  There is no assurance
  that the Company will be profitable, the Company may not be able to successfully develop, manage or market its products and services.
  The Company may not be able to attract or retain qualified executives and technology personnel, the Company's products and services
  may become obsolete, government regulation may hinder the Company's business, additional dilution in outstanding stock ownership
  may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of warrants and stock options,
  and other risks inherent in the Company's businesses.
  The Company undertakes
  no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date
  hereof. Readers should carefully review the factors described in other documents the Company files from time to time with the Securities
  and Exchange Commission, including the Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K filed by the Company and
  any Current Reports on Form 8-K filed by the Company.
  Management believes the
  summary data presented herein is a fair presentation of the Company's results of operations for the periods presented. Due to the
  Company's change in primary business focus and new business opportunities these historical results may not necessarily be indicative
  of results to be expected for any future period. As such, future results of the Company may differ significantly from previous
  periods.
  Business Overview
  XsunX, Inc. is developing
  and has begun to market a hybrid manufacturing solution to produce high performance Copper Indium Gallium (di) Selenide (CIGS)
  thin film solar cells. Our patent pending processing technology, which we call CIGSolar®, focuses on the mass production of
  thin-film CIGS solar cells utilizing a proprietary multi-area thermal deposition process to minimize processing defects to create
  highly uniform CIGS films. The system allows for the use of stainless steel
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  wafers or foils that, in their final size format,
  can match silicon solar cell dimensions and can be offered as a non-toxic, high-efficiency and lowest-cost alternative to the use
  of silicon solar cells. We intend to offer licenses for the use of the CIGSolar® process technology thereby generating revenue
  streams through licensing fees and manufacturing royalties for the use of the technology.
  Our efforts have been
  focused on the development and customization of a series of specialized processing tools that when combined provide a turn-key
  high-throughput manufacturing system to produce CIGS solar cells.
  Core attributes to our
  process method are the use of multi-area thermal co-evaporation techniques coupled with state-of-the-art sputter deposition technologies
  to improve manufacturing output, increase cell efficiency, production yields, and lower the costs for the production of high efficiency
  CIGS cells.
  There are five (5) core
  process tools that when combined will produce thin-film CIGS solar cells. We believe that it will be the ability of our system
  to minimize processing defects while maintaining exceptional per hour production rates that will provide superior commercial opportunities.
  CIGSolar® cells can be manufactured on stainless steel squares sized to match silicon solar cells currently used in more than
  75% of all solar modules manufactured today.
  This innovative
  approach bridges the gap between inexpensive thin-film and more costly high efficiency silicon wafer technologies to produce a
  new breed of solar cell combining what we believe are the best attributes of each technology. The mass production of individual,
  high performance CIGS solar cells – like solar building blocks – we believe will allow solar power to finally compete
  effectively against other sources of electrical energy.
  RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER
  31, 2012 COMPARED TO THE SAME PERIOD IN 2011
  Revenue:
  The Company generated
  no revenues for the periods ended December 31, 2012 and 2011 respectively. Additionally, there was no associated cost of sales.
  The Company to date has had minimal revenue and cost of sales, and is still in the development stage.
  General and Administrative Expenses:
  General and administrative
  expenses for the three month period ending December 31, 2012 were $129,006 as compared to $204,262 during the same period in 2011.
  The decrease of $(75,256) was related primarily to a general reduction to salaries, staffing, and operating expenses under the
  Company's re-focused plan of operations that began in January 2012 and focused on the development of its new CIGSolar®
  thin film solar manufacturing technology.
  We anticipate that expenditures associated with the
  commercial development and sales of our thin-film solar manufacturing technologies will increase SG&A expenditures in the future.
  However, we plan to offer our technology as a licensable process to existing solar product manufacturers which we anticipate will
  mitigate future expenditures that would normally be associated with our need to establish direct large scale manufacturing capabilities
  and the associated facility infrastructure.
  Research and Development
  :
  Research and development
  for the three month period ended December 31, 2012 were $15,000 as compared to $32,278 during the same period in 2011. The decrease
  of $(17,278) was primarily due to a reduction in research related efforts used in the period on the development of our new thin
  film solar manufacturing technology CIGSolar®. During the period research related efforts were minimized and the majority of
  resources were focused on our efforts to complete the assembly of a full sized multi-chamber CIGSolar® processing system for
  use in continued process improvement, marketing efforts, and future systems sales support. We anticipate that future R&D expense
  will again increase as we complete this process.
  Net Loss
  :
  The net loss for the three
  months ended December 31, 2012 was $(534,632) as compared to a net loss of $(448,453) for the same period 2011. The increase in
  net loss of $(86,179) primarily includes the reduction to operating expenses of $(86,969) and an increase in other expenses of
  $(173,148), which consisted primarily of a reduction in loss on loan and conversion of debt for $87,965, an increase in amortization
  of debt discount and interest expense of $(122,067), and the loss on change in derivative of $(130,102), and commitment fees of
  $(8,966). The Company anticipates the trend of losses to continue in future periods until the Company can recognize sales of significance
  of which there is no assurance.
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  LIQUIDITY AND CAPITAL RESOURCES
  As of December 31, 2012,
  we had a working capital deficit of $(851,926) as compared to $(544,939) at September 30, 2012. This increase in working capital
  deficit of $(306,987) was due primarily to a increase in accounts payable and convertible promissory notes.
  During the three months
  ended December 31, 2012, the Company used $(94,545) of cash for operating activities, as compared to cash used of $(136,609) for
  the same period 2011. The decrease in cash used of $(42,064) for operating activities was primarily due to an decrease in prepaid
  expenses, accounts payable, and a general reduction to salaries, staffing, and operating expenses under the Company's re-focused
  plan of operations that began in January 2012 and focused on the development of its new CIGSolar® thin film solar manufacturing
  technology.
  Cash used by investing
  activities for the three months ended December 31, 2012 was $(29,615), as compared to cash used of $0 for the same period 2011.
  The net increase of cash used in investing activities was primarily due to an increase in the cost to produce machinery.
  Cash provided by financing
  activities for the three months ended December 31, 2012 was $117,500, as compared to $95,500 for the same period 2011. Our capital
  needs have primarily been met from the proceeds of private placements and the sale of convertible debt, as we are currently in
  the development stage and had no revenues.
  Our financial statements
  as of December 31, 2012 have been prepared under the assumption that we will continue as a going concern from inception (February
  25, 1997) through December 31, 2012. Our independent registered public accounting firm has issued their report dated February 13,
  2013, that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without
  additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate
  a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies
  and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from
  the outcome of this uncertainty.
  For the three months ended
  December 31, 2012, the Company's capital needs have been met from the use of working capital provided by the proceeds of (i) the
  Company's working capital and (ii) the sale of convertible debt proceeds totaling $117,500.
  DEVELOPMENT STAGE COMPANY
  The Company is currently
  engaged in efforts to develop a cross-industry thin film solar manufacturing concept that we believe provides an opportunity for
  XsunX to establish a competitive advantage within the solar industry, and as of the period ended December 31, 2012, did not have
  any significant revenues. The transition to revenue recognition may exceed cash generated from operations in the current and future
  periods. We have in the past experienced substantial losses and negative cash flow from operations and have required financing,
  including equity and debt financing, in order to pursue the commercialization of products based on our technologies. We expect
  that we will continue to need significant financing to operate our business. If additional financing is not available or not available
  on terms acceptable to us, our ability to fund our operations, maintain our research and development efforts necessary to complete
  the development of marketable products or otherwise respond to competitive pressures may be significantly impaired. We could also
  be forced to curtail our business operations, reduce our investments, decrease or eliminate capital expenditures and delay the
  execution of our business plan which would have a material adverse effect on our business.
  While we have been able
  to raise capital in a series of equity and debt offerings in the past there can be no assurances that we will be able to obtain
  such additional financing, on terms acceptable to us and at the times required, or at all.
  Irrespective of whether
  the Company's cash assets prove to be inadequate to meet the Company's operational needs, the Company might seek to compensate
  providers of services by issuances of stock in lieu of cash.
  OFF-BALANCE SHEET ARRANGEMENTS
  We do not have any off
  balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues,
  results of operations, liquidity or capital expenditures.
  16
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  Item 3. Quantitative and Qualitative Disclosures About Market
  Risk.
  We do not have any market
  risk sensitive instruments. Since all operations are in U.S. dollar denominated accounts, we do not have foreign currency risk.
  Our operating costs are reported in U.S. dollars.
  The Company does not invest
  in term financial products or instruments or derivatives involving risk other than money market accounts, which fluctuate with
  interest rates at market.
  Item 4. Controls and Procedures.
  Evaluation of Disclosure Controls and Procedures
  We maintain disclosure
  controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange
  Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC's
  rules and forms, and that such information is accumulated and communicated to our management, including our principal executive
  officer, principal financial officer, and principal operating officer, as appropriate, to allow timely decisions regarding required
  disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures,
  no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
  As required by SEC Rule
  15d-15(e), our management carried out an evaluation, under the supervision and with the participation of our principal executive
  officer, principal financial officer, and principal operating officer, of the effectiveness of our disclosure controls and procedures
  as of the end of the period covered by this report. Based on that evaluation, our principal executive officer, principal financial
  officer, and principal accounting officer concluded that our disclosure controls and procedures were effective at a reasonable
  assurance level as of the end of the period covered by this report.
  Changes in Internal Control over Financial Reporting
  There have not been any
  changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
  Act) during the three months ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect,
  our internal control over financial reporting.
  17
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  PART II - OTHER INFORMATION
  Item 1. Legal Proceedings.
  In the ordinary conduct
  of our business, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to
  time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have,
  individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
  Item 1A. Risk Factors
  There are no material
  changes from the risk factors previously disclosed in the Registrant's Form 10-K filed on January 11, 2013.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  During the three month
  period ended December 31, 2012, a holder of Securities Purchase Agreements (the "Purchase Agreements") each providing
  for the sale by the Company of 8% unsecured Convertible Notes ("the Notes") in the principal amounts of $37,500 of
  which $22,500 remained, $37,500, and $32,500 converted the total remaining principal of $92,500 of principal and $4,300 in accrued
  interest retiring the notes. Upon conversion, the Company issued an aggregate of 9,265,139 shares respectively of common voting
  stock to the holder.
  In exchange for a promissory
  note (the "Note") of $350,000 plus accrued interest of $35,863 that had become due at September 30, 2012, the Company
  issued a new unsecured promissory exchange note (the "Exchange Note") in the amount of $385,863 in November 2012. The
  Holder and the Company exchanged the Note solely for (i) a 12% promissory Exchange Note, (ii) and 500,000 shares of common stock.
  In accordance with the
  Stipulation for Settlement of Claims ("Stipulation"), dated June 27, 2012, by and between Ironridge Global IV, Ltd
  and the Company as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares ("Shares")
  of the Company's common stock, no par value ("Common Stock") to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the ("Adjustment Shares"). In
  accordance with the stipulation on November 26, 2012, subject to a request by Ironridge, the Company issued 6,271,791 Adjustment
  Shares to Ironridge Global IV, Ltd.
  On November 7, 2012,
  the Company consummated a securities purchase agreement providing for the sales of an 8% convertible promissory note (the
  "Note")
  in the amount of $37,500, which, after one hundred and eighty days, can be converted into shares of common stock at a conversion
  price of 60% of the average lowest three (3) closing bid prices for the common stock, during the ten (10) trading day period ending
  on the latest complete trading day prior to the conversion date. The Note matures on August 7, 2013. The Company has the right
  to redeem a portion or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note
  under a variable redemption rate premium.
  On November 7, 2012, the
  Company issued a 10% unsecured convertible promissory note (the "Promissory Note") for the principal sum of up to $78,000
  plus accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advanced the
  sum of $25,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times as
  the Lender may choose in its sole discretion. The Promissory Note matures one year from its issuance and may be converted by the
  Lender into shares of common stock of the Company at the lesser of $.0125 per share at fifty percent of the lowest trade price
  in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the
  Promissory Note.
  On December 13, 2012,
  the Company issued a 10% unsecured convertible promissory note (the "Promissory Note") for the principal sum of up
  to $250,000 and accrued interest on any advanced principal funds. Upon issuance of the Promissory Note the lender immediately advance
  the sum of $50,000 to the Company, and may elect to pay additional consideration to the Company in such amounts and at such times
  as the Lender may choose in its sole discretion. The principal sum due the Lender shall be prorated based on the actual total consideration
  paid to the Company by the Lender such that the Company will only be required to repay the amount funded by the lender, nor shall
  any interest or other rights extend to any unfunded portion of the Promissory Note. If the Company repays the Promissory Note on
  or before 90 days from the issuance date, the interest rate shall be zero percent (0%). If the Company does not repay the Promissory
  Note on or before 90 days from the issuance date, a one-time Interest charge of 10% shall be applied to any advanced principal.
  The Promissory Note matures one year from its issuance and may be converted by the Lender into shares of common stock of the Company
  at the lesser of $.025 per share of at a sixty percent (60%) of the lowest trade price in the twenty five trading days prior to
  the conversion of any outstanding funded principal or accrued interest under the Promissory Note.
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  Use of Proceeds from the Sale of Securities
  The proceeds from the
  above sales of securities were and are being used primarily to fund efforts by the Company to develop marketable technologies for
  the manufacture of thin film solar technologies, and in the day-to-day operations of the Company and to pay the accrued liabilities
  associated with these operations.
  Item 3. Defaults Upon Senior Securities
  None.
  Item 4. (Removed and Reserved)
  Item 5. Other information
  Effective January 9, 2013,
  as part of a continued effort that began in January 2012 to maximize the use of capital resources necessary to complete the assembly
  and marketing of the Company's CIGSolar technology through reductions to operating costs and functions that are redundant,
  the Company elected to consolidate its executive management operations which has eliminated the need to have multiple officers
  performing similar functions. In furtherance of these efforts the Company's Board of Directors accepted the resignation of
  Joseph Grimes as the Company's President and Chief Operating Officer, effective immediately, and approved by unanimous consent
  the reorganization and appointment of executive  management as follows:
  In connection with the
  resignation of Mr. Grimes, the Board appointed Mr. Tom Djokovich to the position of President. Mr. Djokovich will continue to also
  serve as the Company's Chief Executive Officer (CEO), a Director, and Secretary duties which he has performed since October
  2003. Mr. Djokovich will focus on the strategic oversight of the day-to-day operations and securities compliance. Mr. Djokovich
  did not enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption
  of duties as the Company's President. Mr. Djokovich is 55 years old.
  Mr. Grimes will continue
  to serve as a member of the Board of Directors and will assume the position of Executive Sales Manager. As Executive Sales Manager,
  Mr. Grimes will manage the marketing efforts associated with the Company's commercialization efforts of its CIGSolar thin
  film manufacturing technology. Mr. Grimes previously held the position of President and Chief Operating Officer. Mr. Grimes did
  not enter into, or receive, any grant or award under any material plan, contract or arrangement in connection with his assumption
  of duties as the Company's executive sales manager. Mr. Grimes is 55 years old.
  On
  January 14, 2013 , the Company consummated a securities
  purchase agreement providing for the sales of an 8% convertible promissory note (the "Note") in the amount of $37,500,
  which, after one hundred and eighty days, can be converted into shares of common stock at a conversion price of 60% of the average
  lowest five (5) closing bid prices for the common stock, during the ten (10) trading day period ending on the latest complete
  trading day prior to the conversion date. The Note matures on October 17, 2013. The Company has the right to redeem a portion
  or all amounts outstanding under the Note prior to one hundred and eighty one days from issuance of the Note under a variable
  redemption rate premium.
  In accordance with the
  Stipulation for Settlement of Claims ("Stipulation"), dated June 27, 2012, by and between Ironridge Global IV, Ltd
  and the Company as documented in Los Angeles County Superior Court Case No. BC484549, the Company delivered 27,500,000 shares ("Shares")
  of the Company's common stock, no par value ("Common Stock") to Ironridge. The Stipulation provided for the subsequent
  issuance by the Company to Ironridge of additional Shares of Common Stock thereunder, the ("Adjustment Shares"). In
  accordance with the stipulation, on January 17, 2013, subject to a request by Ironridge, the Company issued 32,000,000 Adjustment
  Shares to Ironridge Global IV, Ltd.
  In January 2013, a holder
  of Securities Purchase Agreement (the "Purchase Agreement") providing for the sale by the Company of an 8% unsecured
  Convertible Note ("the Note") in the principal amounts of $37,500 converted the total principal of $37,500 of principal
  and $1,500 in accrued interest retiring the note. Upon conversion, the Company issued an aggregate of 5,739,370 shares, respectively,
  of common voting stock to the holder.
  In January 2013, a holder
  of an Exchange Note (the "Exchange Note") issued by the Company in November 2013 in the principal amount of $385,863
  converted $25,000 of principal and $1,064.38 in accrued interest. Upon conversion, the Company issued an aggregate of 3,066,398
  shares of common voting stock to the holder.
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  On
  February 12, 2013, the Company issued a securities purchase agreement providing
  for the sales of an 8% convertible promissory note (the "Note")in the amount of $53,000, which amount was not immediately
  advanced at the time of sale and receipt of funding was pending at the time of this filing. After one hundred and eighty days
  from the date of funding, the Note can be converted into shares of common stock at a conversion price of 60% of the average lowest
  five (5) closing bid prices for the common stock, during the ten (10) trading day period ending on the latest complete trading
  day prior to the conversion date. The Note matures on October 17, 2013. The Company has the right to redeem a portion or all amounts
  outstanding under the Note prior to one hundred and eighty one days from issuance of the Note under a variable redemption rate
  premium.
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  Item 6. Exhibits
  Exhibit
  Description
  3.1
  Articles of Incorporation
  (1)
  3.2
  Bylaws
  (2)
  10.1
  XsunX Plan of Reorganization and Asset Purchase Agreement, dated September 23, 2003.
  (3)
  10.2
  XsunX 2007 Stock Option Plan, dated January 5, 2007.
  (4)
  10.3
  Form of $350,000 Exchange Agreement and Exchange Note used in connection with the exchange, partial repayment, and extension to a promissory note that had become due September 1, 2011.
  (5)
  10.4
  Form of Securities Purchase Agreements and Convertible Promissory Notes ("Notes") used in connection with the conversion by the holder of three Notes totaling $92,500 in principal and $4,800 in accrued interest causing the issuance of 9,265,139 shares of common stock by the Company.
  (5)
  10.5
  Form of Securities Purchase Agreement and Convertible Promissory
      Note used in connection with the sale in November 7, 2012, and January 14, 2013, of convertible promissory notes each in the
      amount of $37,500 and on February 12, 2013 in the amount of $53,000.
  (5)
  10.6
  June 27, 2012 Order for Approval of Stipulation for settlement of claims between the Company and Ironridge used to settle approximately $494,561 in claims, the issuance of 27,500,000 initial shares, 6,271,791 adjustment shares in November 2012, and 32,000,000 adjustment shares in January 2013.
  (6)
  10.7
  Form of Exchange Agreement and Exchange Note used in connection with the exchange and 12 month extension to a promissory note that had become due September 1, 2012, the issuance of 500,000 shares as an extension fee thereunder, and the conversion by the holder of $26,064 dollars of principal and interest causing the issuance of 3,066,398 shares.
  (6)
  10.8
  Form of Convertible Promissory Note used in connection with the sale on November 7, 2012 of a convertible promissory note in the amount of up to $78,000.
  (6)
  10.9
  Form of Convertible Promissory Note used in connection with the sale of a convertible promissory note on December 13, 2012 in the amount of up to $250,000.
  (6)
  31.1
  Sarbanes-Oxley Certification
  (7)
  31.2
  Sarbanes-Oxley Certification
  (7)
  (1)
  Incorporated by reference to Registration Statement Form 10SB12G #000-29621 dated February 18, 2000 and by reference to exhibits included with the Company's prior Report on Form 8-K/A filed with the Securities and Exchange Commission dated October 29, 2003.
  (2)
  Incorporated by reference to Registration Statement Form 10SB12G #000-29621 filed with the Securities and Exchange Commission dated February 18, 2000.
  (3)
  Incorporated by reference to exhibits included with the Company's Report on Form 8-K/A filed with the Securities and Exchange Commission dated October 29, 2003.
  (4)
  Incorporated by reference to exhibits included with the Company's Report on Form 8-K filed with the Securities and Exchange Commission dated January 5, 2007.
  (5)
  Incorporated by reference to exhibits included with the Company's Report on Form 10-K filed with the Securities and Exchange Commission dated December 29, 2011.
  (6)
  Incorporated by reference to exhibits included with the Company's
          Report on Form 10-K filed with the Securities and Exchange Commission dated January 11, 2013.
  (7)
  Provided Herewith
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  SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
  Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
  duly authorized.
  XSUNX, INC.
  Dated: February 14, 2013
  By:
  /s/ Tom M. Djokovich
  Tom M. Djokovich,
  Principal Executive and Financial Officer
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