BEACON EQUITY RESEARCH

Analyst: Lisa Springer, CFA

Initial Report
December 17th, 2007

XSNX daily 12/15/07

0.45

0.40

0.35

0.30
XsunX, Inc.

65 Enterprise 0.25
Aliso Viejo, CA 92656 volume
2
Tel.: 949-330-8060 1.5
Tel.: 888-797-4527

Millions
Fax: 949-330-8061 1

0.5
www.xsunx.com 0
Oct Nov Dec

Market Data

Market data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dec . 15th, 2007

Symbol / Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTC . . . . BB: XSNX
Coverage Initiated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dec . 15th, 2007
Current Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$0.30
Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Speculative
..... Buy
Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.50
Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157M .
Market Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48M
52-Week Range. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$0.26 - $0.655

Company Overview
XsunX, Inc. (OTC BB: XSNX) was created in 2003 to develop and commercialize
advanced, thin-film photovoltaic (TFPV) solar cell technologies and manufactur-
ing processes. Over the past year, the Company has shifted its focus from licens-
ing its technologies to using its technologies to design a cutting-edge manufactur-
ing system for producing and marketing thin-film amorphous solar modules.

The Company has begun work on a multi-megawatt solar module production fa-
cility in the US. XSNX has commissioned a baseline production system expected
to come on-line in early 2008, which will serve as the blueprint for a 25 mega-
watt (MW) production system expected to become operational by year-end 2008.
The Company anticipates expanding its annualized solar module manufacturing
capacity to 100 MW by early 2010. XSNX has secured a $21 million financing
commitment from Fusion Capital Fund II, LLC and is already contracting with
vendors to begin building the parts and sub-systems for a solar module produc-
 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

tion system. XSNX will initially produce solar cells and modules incorporating thin-film amorphous silicon on glass
substrates. In the future, the Company may expand its product offerings to include nano-crystalline and proprietary
multi-junction solar designs which will improve performance and further reduce per watt production costs. The
Company is traded over the counter as XSNX.

XSNX plans to market its solar cells and modules to large-scale solar energy device installers and operators, including
solar farms, government agencies, power purchase associations, utility companies and large commercial installations.
In anticipation of commercial production, the Company has begun loading its sales channels and building its brand,
to date, XSNX has established pre-sales agreements with solar integrators reserving more than 100 MW of its future
solar module production capacity.

Investment Highlights
Increasing demand for solar energy
Exploding worldwide energy demand, depleted fossil fuel resource and soaring oil and gas prices are fueling de-
mand for clean alternative energy sources such as wind and solar energy. The solar energy technology sector cur-
rently generates $10 billion in annualized revenues and has been growing 35-40% annually as a result of significant
investments in new production facilities and technologies in Europe, the US, China and Japan. Financial incentives
from governments around the world are encouraging the deployment of clean, renewable energy technologies. Some
experts believe the PV market will reach $25 billion by 2011.

Although the solar photovoltaic (PV) industry potentially addresses a trillion dollar worldwide market, solar energy
system deployment has been limited by the fact that, until recently, solar energy has not been economically viable in
the absence of government tax and other incentives. Adoption and deployment rates are expected to increase over
the next five to seven years as per watt costs of PV technology are reduced to a level competitive with conventional
electricity sources.
Government incentives encourage solar deployment
Germany has established relatively aggressive incentive programs for solar energy and other European nations have
followed suit. In the US, the California Solar Initiative provides for $2.9 billion in incentives over ten years. In Oregon,
where XSNX is locating its production facility, the Oregon State Senate has passed legislation requiring large utilities
to generate 25% of their energy from renewable sources by 2025. The area in Oregon where XSNX’s plant will be lo-
cated has been classified as an enterprise zone, qualifying the Company for additional savings through the reduction
of property and other operating taxes.
Increasing market share for thin film technologies
Thin film technologies, such as the amorphous technology deployed by XSNX, offer the lowest cost per watt at the
module level. As a result, thin film’s share of the overall solar photovoltaic market is expected to increase from around
5% currently to as much as 20% in five years and deployment of thin film technologies will grow much faster than
the overall PV market.

Competitive advantages of XSNX’s cutting-edge technology

XSNX has an advantage over other solar cell manufacturers because of its cutting-edge technology, which enables the

XsunX, Inc. (OTC BB: XSNX) 2

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

conversion of an inexpensive sheet of 100cm X 160cm glass into a complete solar module in less than three hours. The
Company’s thin film PV technology uses only a fraction of the semiconductor material that is required to produce
traditional crystalline silicon solar modules. Given the high cost and supply constraints on semiconductor materials,
using less silicon gives XSNX a huge cost advantage. In addition, the power conversion properties of the Company’s
amorphous solar cells exhibit near 100% conversion potential at temperatures of 650C while other thin film and con-
ventional silicon wafer technologies lose around 20% of conversion potential. Amorphous silicon solar cell technolo-
gies also outperform crystalline silicon solar modules on an average and total wattage basis over a complete 24-hour
cycle and provide superior performance in cloudy and indirect sunlight conditions.

XSNX has strong research and development capabilities

XSNX has a research and development facility in Colorado and a portfolio of proprietary intellectual properties and
processes relating to amorphous thin-film silicon design and manufacturing. Since its inception, XSNX has compiled
an impressive list of accomplishments, which include internally developing its key technologies, licensing its intellec-
tual properties and successfully completing proof of concept demonstrations. During its development phase, XSNX
focused on developing and refining thin-film solar cell technologies that can more efficiently convert sunlight to
electricity, are adaptable across a broad range of applications and temperature conditions, and can be manufactured
inexpensively in large scale quantities.

The Company is rapidly advancing towards commercial production

XSNX has commissioned a baseline production system which will serve as a blueprint for the 25 MW production
system it is also building. The 25 MW system is expected to commence commercial production in late 2008 with the
first of its modules available for sales in early 2009. The Company anticipates having a full 100 MW system in place
by February 2010. XSNX has already contracted with vendors to build key parts of the production line components
and sub-systems and has already announced agreements with installers for more than 100 MW of reserved produc-
tion capacity.

$21 million financing commitment supports production system plans

The Company recently secured a $21 million financing commitment from a Chicago-based institutional investor,
Fusion Capital Fund II, LLC. These funds will be utilized to purchase the major components and parts of the sub-
systems, beginning with components having the longest lead times. Having work on the sub-systems underway now
will enable the Company to quickly and efficiently bring its new production system on-line next year.

XSNX has a seasoned management team

The Company’s management team has decades of experience in developing and commercializing thin-film solar
energy technologies. President/CEO Tom Djokovich has over 30 years experience in the high-tech and building in-
dustries. He is a veteran manager of public companies and has successfully attracted millions of dollars of investment
capital to his companies. Joseph Grimes, COO, has more than eight years direct experience in thin-film technology
and manufacturing. Jeff Huitt, CFO, has 20 years financial management executive experience and has worked for
both large organizations and start-ups. Vice-President of Engineering Robert Wendt has over 20 years experience in
thin film solar technologies, most recently as VP of Sales and Operations for Global Solar Energy, Inc. a major pro-
ducer of thin film photovoltaics.

XsunX, Inc. (OTC BB: XSNX) 3

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Solar Energy Market Growth

Increasing energy demand worldwide
Global energy consumption is increasing as the result of population gains and economic growth, with demand in-
creasing most rapidly in emerging economies. Due to economic and social reforms, China and India are sustaining
annual GDP growth rates exceeding 10% and 8%, respectively. Robust GDP growth is creating seemingly insatiable
energy demand in both of these countries. In the last two years, China and India have accounted for about 70% of
global energy demand growth. In fact, per capita energy demand from these countries is forecast to double between
2005 and 2030 . According to a US Department of Energy report, overall worldwide demand for electricity is expected
to expand 2-3% annually over the next decade and reach 26.0 billion MWh by 2025.

Depleted fossil fuel reserves boosts demand for alternative energy sources
The rapid depletion of conventional energy sources such as crude oil, natural gas and coal will result in a shortage of
these fuels for electricity generation. The International Energy Agency (IEA) warns that rising global demand could
create a supply crunch as early as 2015. According to the US Department of Energy, current global oil production is
around 85 million barrels a day, whereas consumption hovers around 86 million barrels a day. The DOE predicts
output will grow to 118 million barrels by 2030, but even this level of production may not be enough to meet rising
demand.
Exhibit 1: Estimates of US crude oil shortages

140,000
130,000

120,000

120,000

105,000
110,000
100,000

90,000
Barrels/day

80,000

80,000

70,000

35,000

0
2007 2008 2009 2010 2015 2020 2025 2030

Source: US Energy Information Administration

Due to the supply/demand imbalance and escalating political tensions in some oil-producing regions, energy prices
have risen significantly this year, with crude oil prices approaching $100 per barrel in November 2007.

All these factors are supporting double-digit growth in demand for alternative energy sources such as solar, wind
and nuclear power.

XsunX, Inc. (OTC BB: XSNX) 4

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Exhibit 2: Prices of conventional sources of energy

120 14

100 12
Price ($)

80 10

60 8

40 6
Jan-06

Apr-06

Jan-07
Oct-06

Apr-07

Oct-07
Jul-06

Jul-07
Coal Crude Oil Natural Gas

Source: Bloomberg

Booming market for solar energy

The solar energy market has experienced strong growth in recent years. Solar energy demand has been growing con-
sistently at 35-40%annual rates in recent years1. The solar energy technology market is valued at around $10 billion
currently and continues to expand at high double-digit rates2. Solar device manufacturers in Europe, the US, China
and Japan are investing significant amounts of capital in new production facilities and new technologies.

The percentage of the sun’s rays that reach the earth’s surface could satisfy global energy consumption 10,000 times
over3. On average, each square meter of land exposed to sunlight receives 1,700 kWh of energy every year. Because of
Exhibit 3: Global cumulative PV capacity

7000 6634

5167
5250

3847
MWp

3500
2795
2201
1762
1750 1428
1150
795 948
580 669
502

0
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: EPIA

1 Solarbuzz - Solar Energy Industry Statistics

2 European Photovoltaic Industry Association (EPIA) – Solar generation IV-2007
3 European Photovoltaic Industry Association (EPIA) – Solar generation IV-2007

XsunX, Inc. (OTC BB: XSNX) 5

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

the abundance of this energy source, solar energy offers an attractive long-term solution to the world’s energy needs.
Cumulative installed capacity of solar photovoltaic (PV) systems around the world has increased from 1,200 MWp
in 2000 to 6,500 MWp in 2006. Worldwide installations of PV cells and modules have been expanding more than 35%
annually since 1998.

Declining PV generation costs accelerate solar energy deployment

The actual cost of electricity varies around the world based on differences in consumption patterns and delivery costs.
According to the EPIA, the cost of solar electricity will be reduced by half over the next 10-15 years. As the cost of Pho-
tovoltaics (solar power technologies that employ semiconductor materials to convert solar radiation into electricity) is
reduced and the cost of conventional energy continues to rise, PV will become even more price-competitive and gain
a greater share of the overall energy market. Generating costs of PV-powered electricity have declined steadily and
continue to fall, as shown in the table below.
Exhibit 4: Development of utility prices and PV generation costs

€/kWh
Photovoltaics
1.0 Utility peak power
Utility bulk power

0.8 900 h/a:

0.60 €/kWh

0.6 1800 h/a:

0.30 €/kWh

0.4

0.2

1990 2000 2010 2020 2030 2040

Note: The blue band indicates that market support programmes will be necessary until about 2020 in some markets.
Source: EPIA (h/a – Hours per annum)

Deutsche Bank analysts predict the solar PV industry will achieve price parity with grid electricity within five to
seven years, enabling PV to compete effectively as a complementary source of electricity for point-of—use generation
and consumption. Calyon Securities analysts also anticipate grid parity for PV technologies within five years, and
look for a five-fold increase in global solar equipment sales to approximately $90 billion by 2010.

Thin film technology gaining solar energy market share

PV cells are generally made from either crystalline silicon sliced from ingots, castings or grown ribbons, or thin film,
deposited in thin layers on a low-cost backing. Up until 2006, crystalline silicon was used to produce around 93% of
cells whereas only about 7% was produced from thin film. Thin film technology is expected to gain a much larger
share of the PV market in the future because of its advantages over crystalline silicon modules, which include lower
material consumption, lower weight and a smoother appearance. EPIA expects thin film market share to represent
about 20% of PV module production by 2010.

XsunX, Inc. (OTC BB: XSNX) 6

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Exhibit 5: Cell technology shares in 2006

4.7% 0.2%
2.7% 2.6%

46.5% 43.4%

Mono Crystalline Silicon

Multi Crystalline Silicon
Cadmium Telluride

Source: Photon International, March 2007

According to a NanoMarkets LLC report, the global thin film photovoltaic (TFPV) market will expand to $7.2 billion
in 2015 from just over $1.0 billion today. It will continue to grow faster than the crystalline silicon PV market and also
outperform other solar energy technologies.

Solar energy eliminates greenhouse emissions

Solar energy is one of the most attractive options for replacing fossil fu-
els since it causes no pollution. An off-grid solar system that replaces a
typical diesel unit can save about 1 kg CO2 per kilowatt hour of output.
The pollutants from fossil fuels are a major source of global warming.
Many countries have signed the Kyoto Protocol, agreeing to substan-
tially reduce emissions of carbon dioxide and other gases. In addition,
there are national and regional pollution control boards which are man-
dating stricter emission standards.

Political support and tax incentives for solar energy

Governments have created financial incentives to promote solar instal-
lations in a number of countries, most notably Germany, Spain, and the
US. The US Congress is contemplating extending the Solar Tax Cred-
it which provides a tax incentive for companies investing in PV sys-
tems. Legislation to extend the solar tax credit for 10 years is advancing
through both houses of the US Congress, and a new bill called the Solar
Opportunity and Local Access Rights Act has been introduced. Also,
President Bush has proposed a large funding increase for solar energy
research. His program targets the US deployment of 5-10 GW of solar
power capacity by 2015 which could rise to 70-100 GW by 2030.

XsunX, Inc. (OTC BB: XSNX) 7

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

XsunX Business Strategy

Strong research and development capabilities
XSNX was founded in 2003 to develop and commercialize advanced thin film solar cell designs and processes. The
Company acquired three existing patents that same year relating to methods for integrating semi-transparent PV
devices into windows. The Company successfully created small area (12 cm X 12 cm) and large area (40 cm X 40 cm)
prototypes of semi-transparent PV coatings in 2004. Also in 2004, XSNX acquired the exclusive rights to a portfolio of
chemical and plasma deposition technologies and contracted with a third-party research facility to further refine its
technologies. In 2005, the Company successfully proved its processes for manufacturing semi-transparent solar cells
on plastic substrate, expanded its intellectual property portfolio and developed manufacturing processes enabling the
use of inexpensive plastics for solar cell substrates. As a result of these breakthroughs, XSNX was awarded the 2005
World Technology Award in the Energy Division for its development of a semi-transparent solar cell.

Last year the Company shifted its focus from licensing its technologies to producing and commercializing thin-film
amorphous solar energy modules. XSNX developed a commercially viable production process and began building
a prototype solar cell device incorporating amorphous silicon. This device allows dissimilar materials and operat-
ing currents to be used to deliver high energy conversion gains. XSNX has established a research and development
facility in Golden, Colorado which provides the infrastructure and tools necessary for advancing its technologies to
commercialization. In 2007, the Company focused on preparing a well-defined plan for building and financing its
solar module manufacturing facilities. A phased build-out has begun of its prototype production line and a 25 MW
thin film solar cell manufacturing plant.

XSNX has recruited a scientific advisory board consisting of recognized leaders in solar technology development rep-
resenting over 30 years experience in commercial applications for advanced thin film processes. XSNX’s scientists and
engineers work with a variety of research and development partners, including highly skilled scientific consultants,
industry partners, government research agencies and academic institutions.

XsunX, Inc. (OTC BB: XSNX) 8

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Thin-Film Amorphous Solar Energy Modules

XSNX’s thin film solar modules are designed with two stacked layers of amorphous silicon, a proven, reliable thin
film material that provides the exceptional performance needed for commercial and industrial applications and in-
stallations in warmer climates.
Exhibit 6: Tandem Junction, Amorphous Silicon Solar Cell for XASI-120 Modules

MAGNIFIED VIEW Reflector and

Back Contact
PIN
Tunnel Junction

PIN

Quadlam Encapsulate
Incident Sunlight EV A
SnO2 Textured TCO Extruded
Glass Superstrate Aluminum Bus Bar
Frame
P
PIN Device (a-SiC) I Multiple Layers
N of Coatings
PIN Device (a-Si) Tunnel Incident Sunlight
P Glass
I Superstrate
N
ZnO Back Surface
Al Back Contact
Bus Bar
EVA
QuadlamEncapsulat

Source: Company Reports

The Company’s XASI - 120 Solar Modules are designed to outperform in environments where other solar panels ex-
perience significant conversion loss. Based on experimental and limited commercial use of its thin film formulas the
Company anticipates that its amorphous silicon and thin film material used in XSNX’s modules will achieve a stabi-
lized efficiency of 7.9% at the module level. These modules are mounted on a low-cost aluminum frame and standard
UL approved J-box.

Advantages of amorphous silicon thin film

XSNX’s design offers numerous performance advantages over traditional crystalline silicon solar cells. First, amor-
phous silicon outperforms other technologies in cloudy and overcast weather conditions. While crystalline silicon
devices may produce higher peak energy potential, XSNX’s solar modules generate superior average and total watts
over a complete 24-hour cycle. Amorphous silicon also consistently outperforms other solar cell designs in warm
weather conditions and in cloudy and/or overcast conditions.

Another advantage of amorphous silicon is that the materials are readily available and pose no environmental risk.
This is in sharp contrast to other solar cell technologies which incorporate hazardous heavy metals in their design.
Finally, amorphous silicon manufacturing is a proven technology with a track record of 30 years of commercial vol-
ume production.

XsunX, Inc. (OTC BB: XSNX) 9

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Characteristics of XSNX’s ASI – 120 solar cell module

• Rated Power (P Max) 120 Watts @ STC
• Nominal Voltage 50V/100V
• Limited Warranty 20 years
• High Power Module: (120 Watt@ STC) using thin amorphous silcon
• Environment friendly: No heavy metals such as cadmium or lead
• UL, TÜC & IEC Certifi¬able
• High Voltage: 50V, ideal for use with high power inverters for On-Grid applications
• No expensive solar tracking devices needed and no moving parts

Target Markets
XSNX’s target market includes large-scale solar energy installers and operators such as solar farms, government agen-
cies, utility companies and large commercial installations having power needs of one megawatt or higher. These more
sophisticated users will likely prefer amorphous silicon because of its superior performance on an average and total
basis and suitability for large-scale applications.

The keen interest these customers are expressing in XSNX’s technology is evidenced by the fact that the Company has
already pre-loaded its sales pipeline with more than 100 MW of reserved capacity.

Target Customer
• Solar farms - License Holders in Germany, Spain & Canada
• Government Agencies - Bureau of Land Management, Department of Defense
• Power Purchase Agreements - Renewable Ventures
• Utility Companies - Meeting Green Mandates
• Large Commercial Installations

Manufacturing Capacity
XSNX’s goal is to put 100 MW of base produc-
tion capacity in place as quickly as possible.
The Company is currently in the process of
building a baseline production system which
will enable it to perfect key variables such as
materials, processes and chemistry and serve as
the blueprint for its 25 MW production system.
XSNX expects to have the baseline system in
place by mid-year 2008 and the 25 MW produc-
tion system up and running by year-end 2008.
The Company will be utilizing the $21 million
funding commitment from its financing partner to purchase key components and sub-systems for the production
line such as cleaning systems, laser systems, specialized disposition systems and material transport systems. XSNX
anticipates having a full 100 MW of base production capacity in place by February 2010.

XsunX, Inc. (OTC BB: XSNX) 10

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Competitive Analysis
The following companies are among XSNX’s competitors in the PV solar module market:

First Solar, Inc. and its subsidiaries engage in the design, manufacture, and sale of solar electric power modules.
The solar module is a polycrystalline thin film structure that employs cadmium telluride semiconductor material to
convert sunlight into electricity. The company sells its products to solar project developers and system integrators
primarily in Germany. The company was founded as First Solar Holdings, LLC in 1999 and changed its name to First
Solar Holdings, Inc. Further, it changed its name to First Solar, Inc. in 2006. The company is headquartered in Phoenix,
Arizona.

SunPower Corporation designs, develops, manufactures, and markets solar electric power products primarily in
the United States, Germany, and Asia. It offers solar cells, solar panels, and inverters, which convert sunlight to elec-
tricity compatible with the utility network for residential and commercial applications. The company also provides
imaging detectors based on solar power technology primarily for medical imaging applications, as well as infrared
detectors based on high performance all back contact technology primarily for use in computing and mobile phone
applications. In addition, its subsidiary, PowerLight Corporation, offers PowerGuard Roof System, a roof-mounted
solar panel mounting system; PowerTilt solar power system; SunTile?roof integrated system for residential market;
Ground Mounted PowerTracker systems; Fixed Tilt and PowerTracker systems for parking structures; and metal roof
system and day lighting with translucent solar panels. SunPower Corporation sells its products to system integrators
and original equipment manufacturers. The company was incorporated in 1985 and is headquartered in San Jose,
California. SunPower Corporation is a subsidiary of Cypress Semiconductor Corporation.

Suntech Power Holdings Co., Ltd., through its subsidiaries, engages in the design, development, manufacture, and
marketing of photovoltaic (PV) cells and modules. It also provides PV system integration services in China. The
company’s products are used in various residential, commercial, industrial, and public utility applications for on-grid
electricity generation, as well as for off-grid use, such as stand-alone lighting for street lamps, garden lamps, telecom-
munications relay stations, and mobile phone networks. It sells its products to solar distributors, engineering and
design firms, and other energy product distributors, as well as installers, system integrators, property developers, and
value-added resellers. The company was founded in 2001 and is headquartered in Wuxi, China.

JA Solar Holdings Co., Ltd., through its subsidiaries, designs, manufactures, and sells solar cells primarily in the
People’s Republic of China. The company offers monocrystalline solar cells. It sells its products primarily through a
team of sales and marketing personnel to solar module manufacturers, who assemble and integrate its solar cells into
modules and systems that convert sunlight into electricity. JA Solar Holdings Co. also sells its products to customers
in Germany, Sweden, Spain, South Korea, and the United States. The company was founded in 2005 and is based in
Ningjin, the People’s Republic of China.

Canadian Solar, Inc., together with its subsidiaries, designs, develops, manufactures, and markets solar module
products that convert sunlight into electricity for various uses. Its products include a range of standard solar modules
to general specifications for use in various residential, commercial, and industrial solar power generation systems.
The company also designs and produces specialty solar modules and products based on customers’ requirements.
Its specialty solar modules and products consist of customized modules that its customers incorporate into their own
products, such as solar-powered bus stop lighting, and complete specialty products, such as solar-powered car bat-
tery chargers. In addition, the company implements solar power development projects, primarily in conjunction with
government organizations to provide solar power generation in rural areas of the People’s Republic of China. It sells
standard solar modules to distributors and system integrators, and specialty solar modules and products directly to

XsunX, Inc. (OTC BB: XSNX) 11

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

various manufacturers, who integrate these solar modules into their own products or sell and market them as part
of their product portfolio. Canadian Solar offers its products to customers located worldwide, including Germany,
Spain, Canada, China, Japan, and the United States. The company was founded in 2001 and is headquartered in
Markham, Canada.

Energy Conversion Devices, Inc. commercializes materials, products, and production processes for the alternative
energy generation, energy storage, and information technology markets. The company operates in two segments:
United Solar Ovonic and Ovonic Materials. The United Solar Ovonic segment designs, develops, manufactures, and
sells proprietary thin-film solar (photovoltaic or PV) modules, which are lightweight, thin, flexible, and durable prod-
ucts for converting sunlight into electricity. It sells these PV modules to commercial roofing materials manufacturers,
builders and building contractors, and solar power installers/integrators, who incorporate these PV modules into
their products and services for commercial sale. The company also sells PV modules for ground-mounted and resi-
dential applications and, for some applications, manufactures and sells framed PV products. The Ovonic Materials
segment invents, designs, and develops materials and products based on its materials science technology, principally
amorphous and disordered materials. The company is commercializing NiMH materials and consumer battery tech-
nology through this segment internally and through third-party relationships, such as licenses and joint ventures.
The company also engages in pre-commercialization activities for various emerging technologies, such as Ovonic
solid hydrogen storage technologies, Ovonic metal hydride fuel cell technologies, and Ovonic biofuel reformation
technologies. The company operates in the United States, Germany, China, Japan, Italy, and internationally. Energy
Conversion Devices was founded in 1960 and is headquartered in Rochester Hills, Michigan.

XsunX, Inc. (OTC BB: XSNX) 12

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Financial Analysis
Financial Record
XSNX is still in an early development stage and has yet to generate mean-
ingful revenues from product sales. Up until recently, the Company’s ef-
forts were focused on building its portfolio of intellectual properties and
refining its technology. In 2007, the Company’s focus has shifted from
licensing its technology to the commercial production of solar cells and
solar modules. Production on a limited basis may begin in late 2008 but
we don’t anticipate the Company will be generating meaningful product
sales until FY 2009.

Operating expenses declined in the nine months ended June 30, 2007 to
$1.7 million from $2.2 million in the comparable FY 2006 period because
of greatly reduced expenses for warrants, which represented 43.6% of
overall expenses last year. XSNX’s major expense areas in the first nine
months of FY 2007 were salaries, R&D expenses and legal and accounting
expenses, which represented 34%, 19% and 12%, respectively, of overall
expenses. Salaries and wages were higher this year because of additional
hires in the areas of marketing, finance and engineering. Research and
development spending declined from 31% of expenses last year to 19%
of expenses this year due to the winding down of outsourced R&D ini-
tiatives. Legal and accounting expenses were 116% higher this year as a
result of asset acquisition agreements.

The Company generated net interest income this year because of conversions of debentures into common stock and
the investment of XSNX’s cash balance in interest-bearing accounts and the Sencera note4. The Company’s net loss
declined 44% year-over-year to $1.5 million or $0.01 per share in the nine months ended June 2007 from $2.7 million
or $0.02 per share in the prior year nine-month period.

Exhibit 7: Selected income statement data

Nine months ended Nine months ended

June 2007 June2006
Revenue $6,880 $8,000
Total Operating Expenses $1,689,334 $2,179,421
Operating Profit/ (Loss) ($1,682,454) ($2,171,421)
Net Interest Income/(Expense) $155,574 ($539,024)
Net Loss ($1,526,880) ($2,710,445)
Loss / Share (Diluted) ($0.01) ($0.02)

Source: Company Reports

4 Sencera Note : is a seven- year ,10% installment credit note providing up to $1.5 million for developing technologies for licens-
ing

XsunX, Inc. (OTC BB: XSNX) 13

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Liquidity & Capital Requirements

At June 30, 2007, the Company had cash of $1.4 million, down from $4.3 million at fiscal year-end 2006. Intangible as-
sets, which include patents and marketable prototypes, were valued at $1.8 million. Investments increased to approxi-
mately $1.3 million in the June FY 2007 quarter due to notes receivable and interest accrued receivable. The Company
has minimal current liabilities, no long-term debt and stockholders’ equity of $4.7 million. Since its inception, XSNX
has accumulated losses of approximately $10.7 million.

Exhibit 8: Selected balance sheet data

June 30, 2007 September 30, 2006

Cash & cash equivalents $1,363,815 $4,305,105
Net working capital ( excluding cash) ($220,014) ($239,581)
Net Fixed Assets $482,484 $397,626
Net other assets ( intangibles & investments) $3,104,308 $1,807,615
Total current liabilities $536,269 $588,699
Total Long term liabilities Nil Nil
Total Stockholder’s Equity/ (deficit) $4,730,593 $6,270,765
Source: Company Reports

In November 2007, the Company announced a $21 million financing commitment from Fusion Capital Fund II, LLC,
a Chicago-based institutional investor. XSNX has already received $1 million in funding, which it is using to purchase
components and sub-systems for its 25 MW production system. After the SEC has declared effective a registration
statement related to the transaction, the Company has the right, over a 25-month period, to sell its shares of common
stock to Fusion Capital, from time to time, in amounts up to $1 million per sale, depending on certain conditions set
forth in the stock purchase agreement, up to the full aggregate commitment of $21 million.

XsunX, Inc. (OTC BB: XSNX) 14

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Outlook and Valuation

As mentioned earlier, XSNX plans to commence commercial production of thin film solar modules in late 2008. We
expect production to rise sharply from an initial range of approximately 0.5 megawatts of solar modules in FY 2008,
rising to approach 25 megawatts in FY 2009 and 100 megawatts in FY 2010.

Assuming revenues per watt of approximately $2.80, we anticipate the Company may produce FY 2008 revenues of
$1.4 million. We are forecasting FY 2009 revenues at approximately $60 million and FY 2010 revenues at $275 million,
assuming production increases partially offset by declining revenues per watt. Revenues per watt will likely stabilize
when price of solar electricity reaches parity with grid electricity. Most experts believe solar energy will achieve grid
parity within the next five to seven years.
Exhibit 9: Projected Renevues $ in millions

We further expect XSNX to become profitable in FY 2009 and to generate operating margins approaching a 40% range
in FY 2010, as economies of scale are realized on increasing production volume.

Valuation
As shown in the table below, XSNX currently represents the least expensive investment in solar energy market growth
based on manufacturing capacity divided by current share price. In addition to representing the lowest investment
cost per megawatt, XSNX offers investors the additional advantages of low technology risk (since amorphous silicon
is a proven technology with high volume production for some 30 years), a seasoned management team who under-
stand the solar energy market and how to guide start-ups to profitable operation, and a compelling valuation relative
to PV industry peers.

Other companies in the PV industry peer group (consisting of Energy Conversion Devices, First Solar, Sunpower,
Suntech Power, JA Solar and Canadian Solar) trade at Price/Sales multiples ranging from a low of three times sales
for Canadian Solar to a high of 52 times sales for First Solar. The average Price/Sales multiple for the six company
peer group is 17 times sales. The average forward Price/Earnings multiple for the PV industry peer group is 38 times
earnings.

At the Company’s current $48 million market capitalization, XSNX trades at less than one time our FY 2009 revenue
estimate. We think these shares are substantially undervalued at current prices, and are thus initiating coverage of
XSNX with a Speculative Buy rating and a $1.50 price target, based on a four times forward Price/Sales multiple of our
$60 million FY 2009 revenue estimate.

XsunX, Inc. (OTC BB: XSNX) 15

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Exhibit 10: Most Attractive Valuation per Megawatt of Targeted Capacity (1)(2)(3)

$14 $13.36 $13.93

$12
Valuation $ / Megawatt

$10
$8 $6.48
$6
$4 $3.07 $3.19
$1.48 $1.78
$2
$0

(1) Valuation includes current Market Cap., Debt, and announced capital raises for future expansion
(2) Canadian Solar, First Solor, Energy Conversion Devices and Suntech Power Market Cap assumes no futher financing
(3) Stock Prices as of 8/27/2007

While we believe these shares present an attractive value at current prices, investors should keep in mind that XSNX
has yet to commence commercial production of solar modules and is at least a year away from generating meaningful
revenues. We further advise investors to consider the risk factors discussed below before investing.

Risk Analysis
Unproven technology
The Company’s solar modules have a limited operating history. While XSNX’s technology has been successfully test-
ed in proof of concept demonstrations, its solar modules have not yet been deployed in commercial applications. If
the modules degrade faster than anticipated or has a shorter useful life, XSNX may incur high warranty expense and/
or lose customers.

Reliance on government incentives can pose risk

Solar power is not yet cost-competitive with conventional energy sources or other renewable energy source. Govern-
ment incentives are required to sustain demand and create incentives to further reduce solar energy production costs.
These subsidies and incentives are subject to policy changes and fiscal budgets.

Reliance on key vendors

The Company relies on outside vendors to provide components and sub-systems for its production system. If it is un-
able to locate vendors to build its components or sub-systems or if these vendors are unable to meet XSNX’s timetable,
the Company may encounter delays in bringing production on-line.

Patent infringement risk

The Company has patents on its technology portfolio relating to photovoltaic technology design, manufacturing
processes, and the development of technology. However, XSNX cannot be certain of the level of protection, if any, that
will be provided by our patents in the US and abroad. In addition, its patents may not be broad enough to prohibit a
competitor from deploying a similar technology.

XsunX, Inc. (OTC BB: XSNX) 16

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Management
Tom M. Djokovich, Mr. Djokovich has over 30 years of executive management and entrepreneurial expe-
President and Chief Ex- rience, managing growth and innovation in both the high-tech and building indus-
ecutive Officer tries. He has held senior executive positions with publicly-traded corporations and
raised millions of dollars in capital investments for business development. He has
also been directly responsible for managing investor relations and compliance with
Security Exchange Commission regulations.

Joseph Grimes, Mr. Grimes has more than eight years experience in thin film technology and manu-
Chief Operating Officer facturing with Applied Magnetics Corporation. He served as Vice President (Defense
Solutions) of Envisage Technology Company, where he directed and managed the de-
fense group business development process, acquisition strategies and vision for next
generation applications. He was also the Co-Founder, President and CEO of ISERA
Group. Mr. Grimes holds a Bachelor’s degree in business economics and environmen-
tal studies, and a Master’s in computer modeling and operation research applications,
both from the University of California.

Jeff Huitt, Mr. Huitt has 20 years’ experience financial management experience with both larger
Chief Financial Officer organizations and start-ups. Most recently, he served as COO/CFO of a start-up de-
fense contractor and guided the company through high growth rates and recapitaliza-
tions. He has also worked with venture capital firms, technology and non technology
start-ups, and served as Controller of Qwest Wireless. His current responsibilities at
XsunX include operations management and coordination of resources. He is a CPA
and holds a Bachelor of Science degree in Accounting and a Master’s in Business Ad-
ministration from the University of Denver.

Thomas Anderson, Mr. Anderson has been a director of the Company since August 2001. He has been
Director working as an environmental scientist in the environmental consulting field for the
last 17 years. He was a Senior Environmental Scientist with Concurrent Technologies
Corp. from November 2000 to December, 2004. Between March and November 2000,
he was employed as a Senior Hydrogeologist at Stone & Webster Engineering, Inc.
From July 1998 to March 2000, he worked with Advanced Integrated Management
Services as an Environmental Scientist/Engineer. He has worked as a research assis-
tant in the Environmental Science and Engineering Program at the Colorado School
of Mines. He completed an M.S. in Environmental Science and Engineering at the
Colorado School of Mines in 1998. Since 1998, he has been providing consulting ser-
vices to the Department of Energy and Department of Defense for addressing complex
characterization and remediation activities at radioactive and hazardous waste sites.
He is currently employed as a Senior Environmental Scientist at Apogen Technologies
in Los Alamos, New Mexico.

XsunX, Inc. (OTC BB: XSNX) 17

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Mr. Oz Mr. Fundingsland has over 40 years experience in sales, marketing, executive business
Fundingsland, management, finance and corporate governance. Up until 1994, he worked for Applied
Director Magnetics, a disk drive and data storage company, where he played a key role in the
company’s growth from $50 million to over $550 million in sales. For ten years, he
served on the board of directors of the International Disk Drive Equipment Manufac-
turers Association (IDEMA) where he continues to serve as an advisor to the board.
He also continues to provide consulting services to a variety of companies in the disk
drive, optical, software, and LED industries.

Dr. Michael Dr. Russak is also a member of the Company’s Scientific Advisory Board. Dr. Russak
A. Russak, has over thirty five years of industrial experience progressing from a research scien-
Director tist to senior executive officer of two public companies. He has expertise in thin film
materials and devices for magnetic recording, photovoltaic, solar thermal applications,
semiconductor devices as well as glass, glass-ceramic and ceramic materials. He also
has over twelve years experience at the executive management level of public compa-
nies with significant off-shore development and manufacturing functions. He received
his B.S. in Ceramic Engineering in 1968 and Ph.D. in Materials Science in 1971, both
from Rutgers University in New Brunswick, NJ. During his career, he has been a con-
tributing scientist and program manager at the Grumman Aerospace Corporation, a
Research Staff Member and technical manager in the areas of thin film materials and
processes at the Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film disks
for magnetic storage, as Vice President of Research and Development. His responsibil-
ities included new product design and introduction. Dr. Russak became Chief Techni-
cal Officer of HMT and held that position until 2000 when HMT merged with Komag
Inc. Dr. Russak was appointed President and Chief Technical Officer of the combined
company. He continued to set technical, operational and business direction for Komag
until his retirement at the end of 2006. Dr. Russak is currently Executive Director of
IDEMA-US, the trade association for the Hard Disk Drive Industry. He has published
over 90 technical papers, and holds 23 U.S. patents.

Dr. John Moore, Dr. Moore is a Materials Scientist who holds the position of Trustees’ Professor and
Chairman - Scientific Head of Department of Metallurgical and Materials Engineering at the Colorado School
Advisory Board of Mines. Dr. Moore is also Director of the interdisciplinary graduate program in Mate-
rials Science and Director of the Advanced Coatings and Surface Engineering Labora-
tory, ACSEL, at the Colorado School of Mines in Golden, CO. Dr. Moore established
the Advanced Coatings and Surface Engineering Laboratory (ACSEL) at the Colorado
School of Mines in 1994. The main objective of ACSEL is to perform fundamental re-
search in advanced PVD and CVD systems that will aid the US thin films, coatings and
surface engineering industry. ACSEL is a national and international leader in research
on advanced coatings, surface engineering and thin film processing. Dr. Moore was
awarded a B.Sc. in Materials Science and Engineering from the University of Surrey,

XsunX, Inc. (OTC BB: XSNX) 18

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

UK, in 1966, a Ph.D. in Industrial Metallurgy from the University of Birmingham, UK,
in 1969, and a D.Eng. from the School of Materials of the University of Birmingham,
UK, in 1996.

Dr. Richard Dr. Ahrenkiel is a Research Professor of Metallurgical and Materials Engineering at
K. Ahrenkiel, the Colorado School of Mines in Golden, CO. He is also a Consultant and Research
Member - Scientific Fellow Emeritus at the National Renewable Energy Laboratory, (formerly the Solar
Advisory Board
Energy Research Institute) in Golden, CO, where he has worked from 1981 to 2005.
He became a Research Fellow at NREL in 2000. His area of specialization is the mea-
surement and characterization of photovoltaic cells and materials. He is one of the
world’s experts in the area of carrier recombination and carrier lifetime. He also works
in photovoltaic device design and modeling. He received a B.S. degree in Engineering
Physics and the M.S. and Ph.D degrees in Physics at the University of Illinois, Urbana.
He joined the staff of the Research Laboratories of the Eastman Kodak Company.
From 1972-76, he worked on the newly founded electronic photography project us-
ing silicon charge coupled devices as sensing elements. He joined Laser Division of
the Los Alamos National Laboratory in 1976 (then LASL), and in 1978, he became
a Group Leader in the Electronics Division of LANL. He is a Fellow of the Ameri-
can Physical Society, the Institute of Electrical and Electronic Engineers (IEEE), the
American Vacuum Society, and the Optical Society of America.

Dr. Edward T. Yu, Dr. Yu received his A.B. (summa cum laude) and A.M. degrees in Physics from Har-
Member - Scientific vard University in 1986, and his Ph.D. degree in Applied Physics from the California
Advisory Board Institute of Technology in 1991. In September 1992, following a one-year postdoctoral
appointment at the IBM Thomas J. Watson Research Center in Yorktown Heights, NY,
he joined the faculty of the University of California, San Diego as Assistant Profes-
sor of Electrical and Computer Engineering. He was promoted to Associate Professor
in 1996 and Professor in 1998. Professor Yu has been the recipient of an NSF CA-
REER Award (1995), an ONR Young Investigator Award (1995), an Alfred P. Sloan
Research Fellowship (1995), and the UCSD ECE Graduate Teaching Award (1997).
He has served on numerous conference organizing committees and currently serves as
General Chair/Past Program Chair of the TMS Electronic Materials Committee and
Electronic Materials Conference, and Fellow of the DARPA Defense Sciences Re-
search Council (DSRC). At UCSD Professor Yu directs a research laboratory con-
cerned generally with the characterization, understanding, and application of physical
phenomena and of material and device properties at nanometer to atomic length scales.
Current research interests in his group include III-V nitride heterostructure materials
and device physics; scanning probe characterization of advanced electronic materials
and devices; solid-state nanoscience and nanotechnology; and photovoltaics and other
technologies for energy generation. The results of his research have been reported in
over 140 refereed journal and conference publications and over 150 conference and
seminar presentations.

XsunX, Inc. (OTC BB: XSNX) 19

 Analyst: Lisa Springer, CFA
Initial Report
December 17th, 2007

Disclaimer
Beacon Equity Research (otherwise known as BER) is an independent research firm specializing in small and micro capitalization compa-
nies. BER has no investment banking or consultation conflicts thereby minimizing the inherent conflicts of interest between the research
analysts and the companies they cover. BER is not a registered investment advisor or broker dealer. No information in this report should
be construed as an endorsement to either buy or sell any securities mentioned in this report. The analyst(s) who prepared this report rely
on publicly avail¬able information which neither the analyst, nor BER, can guarantee to be error-free or factually accurate. All conclu-
sions in this report are deemed reasonable and appropriate by the author. The Private Securities Litigation Reform Act of 1995 provides
investors a “safe harbor” in regard to forward-looking statements. To fully comply with the requirements of this law, BER cautions all
investors that such forward-looking statements in this report are not guarantees of future performance. Unknown risk, uncertainties, as
well as other uncontrollable or unknown factors may cause actual results to materially differ from the results, performance or expecta-
tions expressed or implied by such forward-look¬ing statements. Investors should exercise good judgment and perform adequate due-
diligence prior to making any investment. BER and its affiliates have been compensated a total of fifteen thousand dollars directly from
the company for enrollment of XSNX in its research program and other services. Ratings and price targets in this report should not be
construed as recommendations or stock price predictors. Readers of this report are urged to use due-diligence in any purchase of security
listed herein. Readers should consult the Company’s SEC filings as well as our initial report on the firm to better understand the inherent
risks associated with this security. There may be many uncontrollable or unknown factors which may cause actual results to materially
differ from the results, performance or expectations expressed or implied by such forward-looking statements. Investors should exercise
good judgment and perform adequate due-diligence prior to making any investment.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Lisa Springer, CFA, the author of this report, certify that the material and views presented herein represent my personal opinion regard-
ing the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensa-
tion been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and
shares or securities in any of the companies featured in this report.

Lisa Springer, MBA, CFA - Research Analyst

Lisa serves Beacon Research Partners as a research analyst. She brings to the company over 15 years experience in equity research and
investment marketing. Prior to joining Beacon, Lisa worked as an equity analyst for an independent research provider. She has also held
positions as investor relations officer for a NYSE-listed company and director of financial analysis for a large consulting firm. Lisa earned
an MBA from the University of Chicago and is a Chartered Financial Analyst (CFA).

XsunX, Inc. (OTC BB: XSNX) 20