☒ Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

☐ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Securities registered pursuant to Section ~~12(b)~~12(g) of the Act: Common Stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☐

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☒~~Yes ☒ No ☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock issued and outstanding as of ~~January 24,~~August 19, 2020 was 1,601,887,744

	December 31, 2019			September 30, 2019			June 30, 2020			September 30, 2019
	(Unaudited)						(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	209,933		$	7,964		$	154		$	7,964
Contract receivables		254,031			198,083
Contract receivables of discontinued operations								-			198,083
Prepaid expenses		4,673			6,575			868			6,575

Total Current Assets		468,637			212,622			1,022			212,622

PROPERTY & EQUIPMENT
Office & miscellaneous equipment		1,638			1,638
Machinery & equipment		2,045			2,045
		3,683			3,683
Less accumulated depreciation		(1,352	)		(1,113	)

Net Property & Equipment		2,331			2,570
NET PROPERTY & EQUIPMENT DISCONTINUED OPERATIONS								-			2,570

TOTAL ASSETS	$	470,968		$	215,192		$	1,022		$	215,192


LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	79,596		$	129,425		$	43,409		$	129,425
Credit card payable		66,494			67,155
Other payable								61,706			67,155
Accrued expenses and interest on notes payable		54,605			54,478			53,558			54,478
Contract liabilities		430,955			33,138
Contract liabilities of discontinued operations								-			33,138
Derivative liability		1,961,729			1,945,650			748,255			1,945,650
Due to related party								68,312			-
Promissory note, related party (Note 6)		-			7,200			-			7,200
Convertible promissory note, related party (Note 5)		12,000			12,000			12,000			12,000
Convertible promissory notes, current portion net of debt discount of $0 and $36,297, respectively (Note 4)		37,324			36,217			55,494			36,217

Total Current Liabilities		2,642,703			2,285,263			1,042,734			2,285,263

LONG TERM LIABILITIES
Convertible promissory notes, net of debt discount of $0 and $12, respectively		165,880			165,880			150,000			165,880

Total Long Term Liabilities		165,880			165,880			150,000			165,880

TOTAL LIABILITIES		2,808,583			2,451,143			1,192,734			2,451,143

SHAREHOLDERS' DEFICIT
Preferred stock 50,000,000 shares authorized, shares issued and outstanding designated as follows:
Preferred Stock Series A, $0.01 par value, 10,000 authorized 5,000 and 5,000 shares issued and outstanding, respectively		50			50			50			50
Common stock, no par value; 2,000,000,000 authorized common shares 1,601,887,744 and 1,601,887,744 shares issued and outstanding, respectively		33,369,424			33,369,424			33,369,424			33,369,424
Additional paid in capital		5,335,398			5,335,398			5,335,398			5,335,398
Paid in capital, common stock warrants		3,811,700			3,811,700			4,210,959			3,811,700
Accumulated deficit		(44,854,187	)		(44,752,523	)		(44,107,543	)		(44,752,523	)

TOTAL SHAREHOLDERS' DEFICIT		(2,337,615	)		(2,235,951	)		(1,191,712	)		(2,235,951	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	470,968		$	215,192		$	1,022		$	215,192

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

FOR THE THREE AND NINE MONTHS ENDED ~~DECEMBER 31,~~JUNE 30, 2020 AND 2019 ~~AND 2018~~

		Three Months Ended						Three Months Ended						Nine Months Ended
		December 31, 2019			December 31, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019

SALES		$	200,386		$	386,736		$	-		$	-		$	-		$	-
	��
COST OF GOODS SOLD			156,178			235,322			-			-			-			-

GROSS PROFIT			44,208			151,414			-			-			-			-


OPERATING EXPENSES
Selling, general and administrative expenses			121,606			173,736			489,873			119,882			750,682			405,464
Depreciation and amortization expense			239			92			-			-			-			-

TOTAL OPERATING EXPENSES			121,845			173,828			489,873			119,882			750,682			405,464

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)			(77,637	)		(22,414	)


OTHER INCOME/(EXPENSES)
Loss on conversion of debt			-			(13,151	)		-			-			-			(33,829	)
Gain (Loss) on change in derivative liability			(16,079	)		1,473,057			1,272,932			(434,387	)		1,197,395			1,433,500
Interest expense			(7,948	)		(31,406	)		(7,433	)		(8,067	)		(22,985	)		(64,094	)

TOTAL OTHER INCOME/(EXPENSES)			(24,027	)		1,428,500			1,265,499			(442,454	)		1,174,410			1,335,577

NET LOSS FROM CONTINUING OPERATIONS								$	775,626		$	(562,336	)	$	423,728		$	930,111
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS								$	(67,525	)	$	101,896		$	221,252		$	497,900



NET INCOME (LOSS)		$	(101,664	)	$	1,406,086		$	708,101		$	(460,440	)	$	644,980		$	1,428,011

BASIC INCOME (LOSS) PER SHARE		$	(0.00	)	$	0.00		$	0.00		$	(0.00	)	$	0.00		$	0.00

DILUTED INCOME (LOSS) PER SHARE		$	(0.00	)	$	0.00		$	0.00		$	(0.00	)	$	0.00		$	0.00

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC			1,601,887,744			1,493,447,518			1,601,887,744			1,601,887,744			1,601,887,744			1,545,192,198
DILUTED			1,601,887,744			5,541,683,620			6,078,865,776			1,601,887,744			6,078,865,776			1,545,192,198

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

FOR THE ~~THREE~~NINE MONTHS ENDED ~~DECEMBER 31,~~JUNE 30, 2020 AND 2019 ~~AND 2018~~

	FISCAL THREE MONTH PERIOD ENDED DECEMBER 31, 2018																		FISCAL NINE MONTHS ENDED JUNE 30, 2019
									Additional Paid-in Capital		Stock Options/ Warrants Paid-in-Capital		Accumulated Deficit																Stock Options/
	Preferred Stock				Common Stock														Preferred Stock				Common Stock				Additional Paid-in		Warrants Paid-in-		Accumulated
	Shares		Amount		Shares		Amount									Total			Shares		Amount		Shares		Amount		Capital		Capital		Deficit			Total
Balance at September 30, 2018		5,000		50		1,468,106,819		33,311,674		5,335,398		3,811,700		(47,096,505	)		(4,637,683	)		5,000		50		1,468,106,819		33,311,674		5,335,398		3,811,700		(47,096,505	)		(4,637,683	)

Common stock issued upon conversion of debt and accrued interest		-		-		52,990,411		39,401		-		-		-			39,401			-		-		133,780,925		91,579		-		-		-			91,579

Net Loss		-		-		-		-		-		-		1,406,086			1,406,086
Balance at December 31, 2018 (unaudited)		5,000	$	50		1,521,097,230	$	33,351,075	$	5,335,398	$	3,811,700	$	(45,690,419	)	$	(3,192,196	)
Net Income																				-		-		-		-		-		-		1,428,011			1,428,011
Balance at June 30, 2019 (unaudited)																				5,000	$	50		1,601,887,744	$	33,403,253	$	5,335,398	$	3,811,700	$	(45,668,494	)	$	(3,118,093	)

	FISCAL THREE MONTH PERIOD ENDED DECEMBER 31, 2019																		FISCAL NINE MONTHS ENDED JUNE 30, 2020
									Additional Paid-in Capital		Stock Options/ Warrants Paid-in-Capital		Accumulated Deficit																Stock Options/
	Preferred Stock				Common Stock														Preferred Stock				Common Stock				Additional Paid-in		Warrants Paid-in-		Accumulated
	Shares		Amount		Shares		Amount									Total			Shares		Amount		Shares		Amount		Capital		Capital		Deficit			Total
Balance at September 30, 2019		5,000		50		1,601,887,744		33,369,424		5,335,398		3,811,700		(44,752,523	)		(2,235,951	)		5,000		50		1,601,887,744		33,369,424		5,335,398		3,811,700		(44,752,523	)		(2,235,951	)

Stock compensation cost, options																				-		-		-		-		-		399,259		-			399,259

Net Income		-		-		-		-		-		-		(101,664	)		(101,664	)		-		-		-		-		-		-		644,980			644,980
Balance at December 31, 2019 (unaudited)		5,000	$	50		1,601,887,744	$	33,369,424	$	5,335,398	$	3,811,700	$	(44,854,187	)	$	(2,337,615	)
Balance at June 30, 2020 (unaudited)																				5,000	$	50		1,601,887,744	$	33,369,424	$	5,335,398	$	4,210,959	$	(44,107,543	)	$	(1,191,712	)

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

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

The accompanying unaudited condensed 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~~nine months ended ~~December 31, 2019~~June 30, 2020 are not necessarily indicative of the results that may be expected for the year ended September 30, 2020. 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, 2019.

During the period ending June 30, 2020, the Company discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor “the Service Provider”. The Company’s intent is to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. The Company’s operations in future periods will be focused on generating a referral fee of 1% of any gross sales generated through these referrals. We anticipate that this change in operations, and delivery method, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended June 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.

The accompanying unaudited condensed 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 unaudited condensed 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 ~~year~~nine months ended ~~December 31, 2019.~~June 30, 2020. 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 business development ~~efforts in the solar PV industry.~~efforts.

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.

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, revenue recognition, the deferred tax valuation allowance, the fair value of stock options, and derivative liabilities. Actual results could differ from those estimates.

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.

Property and equipment are stated at cost, and are depreciated using straight line over its estimated useful lives:

The Company capitalizes property and equipment over $500. Property and equipment under $500 are expensed in the year purchased.

During the six months ended June 30, 2020, the Company sold certain assets at net book value for $2,092.

The depreciation expense for the ~~three~~nine months ended ~~December 31,~~June 30, 2020, and 2019, were $478 and ~~2018, were $239 and $92,~~$342, respectively.

~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~ Which are now included in on the discontinued operations.

We recognize revenue when services are performed, and at the time of shipment of products, ~~provided that~~if 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.

Revenues and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

Revisions in cost and profit estimates during ~~the course of~~ the contract are reflected in the accounting period in which the facts, ~~for~~which require the ~~revisions~~revision, become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income ~~which~~and are recognized in the period in which the revisions are determined.

Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as any retentions, which are collectible upon completion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrative expenses are charged to operations as incurred and are not allocated to contract costs.

The Company bills its customers in accordance with contractual agreements. The agreements generally require billing to be on a progressive basis as work is completed. Credit is extended based on evaluation of clients’ financial condition and collateral is not required. The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any customer is unable to make required payments. ~~As of December 31, 2019 and September 30, 2019, there was no allowance for doubtful accounts.~~

Management performs a quantitative and qualitative review of the receivables past due from customers ~~on a monthly basis.~~monthly. The Company records an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The contract receivable balance was ~~$254,031~~$0 and $198,083 at ~~December 31, 2019~~June 30, 2020 and September 30, 2019, respectively.

Customers in our target market of California who purchase solar energy systems are covered by a warranty of up to 10 years in duration for material defects and workmanship. In addition, we provide a pass-through of the major components such as module mounting, inverter and solar panel manufacturers’ warranties to our customers, which generally range from 10 to 25 years. The Company has a limited history of project installations and will access potential warranty costs, and other allowances, based on our experience in servicing warranty claims as they may arise in the future. During the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, the Company did not experience costs related to warranty claims.

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 Binomial lattice valuation model, at the date of a stock option grant. The Company has no2,000,000,000 shares of outstanding ~~warrants or~~ options as of ~~December 31, 2019.~~

Basic loss per share is calculated of basic earnings by dividing the net profit (loss) for the three months by the weighted average number of ordinary shares outstanding during the financial periods held by the Company.

	For the Three Months Ended					For the Three Months Ended						For the Nine Months Ended
	December 31,					6/30/2020			6/30/2019			6/30/2020		6/30/2019
	2019			2018
Profit (Loss) from continuing operations to common shareholders (Numerator)						$	775,626		$	(562,336	)	$	423,728	$	930,111

Profit (Loss) from discontinued operations to common shareholders (Numerator)						$	(67,525	)	$	101,896		$	221,252	$	497,900

Profit (Loss) to common shareholders (Numerator)	$	(101,664	)	$	1,406,086	$	708, 101		$	(460,440	)	$	644,980	$	1,428,011

Weighted average number of common shares outstanding (Denominator)		1,601,887,744			1,493,447,518		1,601,887,744			1,601,887,744			1,601,887,744		1,545,192,198

Effect of convertible notes		-			-		-			-			-		-

Weighted average number of ordinary shares in issue		1,601,887,744			1,493,447,518		1,601,887,744			1,601,887,744			1,601,887,744		1,545,192,198

Basic earnings (loss) per share	$	(0.00	)	$	0.00	$	0.00		$	(0.00	)	$	0.00	$	0.00

For the purpose of calculating diluted earnings per share, the profit attributable to equity holders and the weighted average number of ordinary shares outstanding during the financial period have been adjusted for the dilutive effects of all potential ordinary shares and shares issuable upon conversion of convertible notes. The dilutive earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of shares that would have been issued upon full conversion of the remaining convertible debt (Note 5), adjusted by the number of such shares that would have been issued at fair value as follows:

~~The Company has excluded shares issuable from convertible debt of $214,097 for the period ended December 31, 2019, because their impact on the loss per share is anti-dilutive.~~

~~The Company has included shares issuable from convertible debt of $220,913 for the period ended December 31, 2018, because their impact on the earnings per share is dilutive.~~

The Company has included shares issuable from convertible debt of $205,494 for the nine months ended June 30, 2020, because their impact on the loss per share is dilutive.

The Company has excluded shares issuable from convertible debt of $201,024 for the nine months ended June 30, 2019, because their impact on the loss per share is anti-dilutive.

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, 2019,~~June 30, 2020, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses approximate the fair value because of their short maturities.

We adopted ASC Topic 820 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:

We measure certain financial instruments at fair value on a recurring basis. ~~The Company had no assets that are required to be valued on a recurring basis as of December 31, 2019~~Assets and ~~2018. The Company had~~ liabilities ~~that are required to be~~ measured at fair value on a recurring basis are as follows at ~~December 31, 2019 and 2018:~~June 30, 2020:

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:

In August 2016, FASB issued accounting standards update ASU-2016-15, “Statement of Cash Flows” (Topic 230) – Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2018, and interim periods with fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact of the adoption of ASU 2016-15 ~~which had no effect~~ on the Company’s financial statements, and there was no material impact on the financial statements.

In August 2017, FASB issued accounting standards update ASU-2017-12, “D” (Topic 815) – “Targeted Improvements to Accounting for Hedging Activities”, to require an entity to present the earnings effect of the hedging instrument in the same statement line item in which the earnings effect of the hedged item is reported. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods with the fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim period after issuance of the update. The Company ~~is currently evaluating~~has evaluated the impact of the adoption of ASU 2017-12 on the Company’s financial statements, and there was no material impact on the financial statements.

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718):Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, ~~2017,~~2018, with early adoption permitted. The Company ~~does not expect~~has evaluated the impact of the adoption of ~~this~~ ASU 2018-07 ~~to have a~~on the Company’s financial statements, and there was no material impact on its financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify certain disclosure requirements of fair value measurements and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company ~~is currently unable to determine~~has evaluated the impact ~~on its financial statements~~ of the adoption of ~~this new accounting pronouncement.~~ASU 2018-13 on the Company’s financial statements, and there was no material impact on the financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.

At December 31, 2019, the Company’s authorized stock consisted of 2,000,000,000 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 of which 10,000 shares have been designated as Series A Preferred Stock. The rights, preferences and privileges of the holders of the preferred stock are determined by the Board of Directors prior to issuance of such shares.

As of ~~December 31, 2019 and 2018,~~June 30, 2020, the Company had 5,000 shares of issued and outstanding Series A Preferred Stock issued to the Company’s Chief Executive Officer and Director, Tom M. Djokovich. The shares were issued in consideration for the contribution of services by Mr. Djokovich to the Company valued at fifty dollars, which the Board deemed full and fair consideration. ~~As a result~~Because of such issuance, Mr. Djokovich has the ability to influence and determine stockholder votes. On March 18, 2020, XsunX, Inc. (the “Company”), Tom Djokovich, the President and Chief Executive Officer of the Company, and TN3, LLC, a Wyoming limited liability company owned by Daniel G. Martin (“TN3”) entered into a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, Mr. Djokovich agreed to sell his 5,000 shares of Series A Preferred Stock (“Stock”) of the Company to TN3 in a private sale for cash. The holder of the Series A Preferred Stock may cast votes equal to not less than 60% of the total outstanding voting power of the Company on all matters voted on by the shareholders of the Company. Completion of the sale of the Series A Preferred Stock is conditioned upon a number of events, including the filing by the Company of a Schedule 14F to disclose changes in the management of the Company that will occur in connection with the sale.

On May 13, 2020, the Company filed an information statement pursuant to Section 14(f) of the Securities exchange Act of 1934 and Rule 14f-1 thereunder providing further information related to the below proposed transaction, which the Company originally disclosed within its March 24, 2020 filing on Form 8K.

During the ~~period~~nine months ended ~~December 31, 2019,~~June 30, 2020, the Company had no issuance of shares of common stock.

During the ~~period~~nine months ended ~~December 31, 2018,~~June 30, 2019, the Company issued ~~52,990,411~~133,780,925 shares of common stock upon conversion of principal in the amount of ~~$25,000,~~$55,000, plus accrued interest of ~~$1,250,~~$2,750, with an aggregate fair value loss on settlement of debt of ~~$13,151.~~$33,829.

As of ~~December 31, 2019,~~June 30, 2020, the outstanding convertible promissory notes are summarized as follows:

Convertible Promissory Notes	$	203,204	$	205,494
Less current portion		37,324		55,494
Total long-term liabilities	$	165,880	$	150,000

At ~~December 31, 2019,~~June 30, 2020, the ~~Company had $203,204~~$205,494 in convertible promissory notes.

On October 20, 2015, the Company entered into a third extension of the Note originally issued September 30, 2013. The extension terms included mandatory payments of $10,000 per month beginning November 1, 2015 until the note in the amount of $143,033 is paid in full. The Note bears interest at 12% annum, and a conversion price of 60% of the lowest volume weighted average price (“VWAP”) occurring during the twenty trading days preceding any conversion date by Holder. The balance of the provisions of the Note remained substantially the same. As of December 31, 2019, the remaining balance of the Note ~~is $37,324,~~was $36,217. As of June 30, 2020, the balance of the Note was $39,614, which includes capitalized interest for the period of ~~$24,291.~~$3,397. As of ~~December 31, 2019,~~June 30, 2020, the Note has matured, and the Company and the Holder ~~have~~has entered into discussions for the repayment of the Note.

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “November Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The November Note matures eighteen months from each advance. The Note was extended for each tranche with maturity dates of June 30, 2021 and August 18, 2021. The November Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or (b) fifty percent (50%) of the lowest trade prices following issuance of the November Note or (c) the lowest effective price per share granted to any person or entity. On November 20, 2014, the lender advanced $50,000 to the Company under the November Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the November Note. As of ~~December 31, 2019,~~June 30, 2020, there remains an aggregate outstanding principal balance of $50,880.

On May 10, 2017, the Company issued a 10% unsecured convertible promissory note (the “May Note”) for the principal sum of up to $150,000 plus accrued interest on any advanced principal funds. The Lender may pay additional consideration at the Lenders discretion. The Company received a tranche in the amount of $25,000 upon execution of the May Note. On various dates, the Company received additional tranches in the aggregate sum of $90,000. The May Note matured twelve months from each tranche. Within thirty (30) days prior to the maturity date, the Lender may extend the maturity date to sixty (60) months. The May Note may be converted by the lender into shares of common stock of the Company at the lesser of $.01 per share or (b) fifty percent (50%) of the lowest trade price of common stock recorded on any trade day after the effective date, or (c) the lowest effective price per share granted to any person or entity. As of ~~December 31, 2019,~~June 30, 2020, the balance remaining on the May Note was $115,000.

We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations based upon the Binomial lattice model calculation.

The convertible notes issued and described in Note 4 above, do not have fixed settlement provisions because their conversion prices are not fixed. The conversion feature has been characterized as a derivative liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

We record the full value of the derivative as a liability at issuance with an offset to valuation discount, which will be amortized over the life of the Notes.

At ~~December 31, 2019,~~June 30, 2020, the fair value of the derivative liability was ~~$1,961,729.~~$748,255.

For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Binomial lattice valuation model. The significant assumptions used in the ~~Black Scholes~~Binomial lattice valuation of the derivatives are as follows:

As of March 31, 2016, the remaining unsecured Convertible Promissory Notes (the “Notes”) in the amount of $12,000 to a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $0.0045 per share. The Note matured on October 1, 2015 and bore a one-time interest charge of $1,200 which was applied to the principal on October 1, 2014. So long as any shares issuable under a conversion are subject to transfer and sale restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the Securities Act of 1933, the Company shall, upon written request by Holder, file Form S-8, if applicable, with the U.S. Securities and Exchange commission to register the issued. The convertible note has a fixed settlement provision and does not qualify as a derivative.

On August 5, 2014 the Company issued a 10% unsecured promissory note (the “Note”) to a related party in the aggregate principal amount of up to $80,000, plus accrued interest on any advanced principal funds. The principal use of the proceeds from any advance under the Note are intended to assist in the purchase of materials, and services for the solar PV systems that we sell and install. Consideration advanced under the Note matures twenty-four (24) months from each advance. ~~The balance of the Note as of September 30, 2019 was $7,200.~~ During the ~~period~~nine months ended ~~December 31, 2019,~~June 30, 2020, the Company paid off the principal ~~balance of $7,200 in full. There remains the accrued interest~~ in the amount of $5,000, plus accrued interest of $7,903. The balance as of June 30, 2020 was $0.

Revenues and related costs on construction contracts ~~are~~were recognized as the performance of obligations ~~for work are~~were satisfied over time in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). The cost of uninstalled materials or equipment will generally be excluded from our recognition of profit, unless specifically produced or manufactured for a project, because such costs are not considered to be a measure of progress. As of June 2, 2020, the Company discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor.

The following table represents a disaggregation of revenue by customer type ~~of good or service~~ from contracts with customers for the ~~period~~nine months ended ~~December 31, 2019~~June 30, 2020 and ~~2018.~~ 2019:

	Three Months Ended
	December 31,				Nine Months Ended June 30,
	2019		2018		2020		2019
Commercial	$	181,816	$	357,936	$	998,373	$	1,091,691
Residential		18,570		21,800		45,960		50,525
Management fees		-		7,000		-		17,250
	$	200,386	$	386,736	$	1,044,333	$	1,159,466

Contract assets represents revenues recognized in excess of amounts billed on contracts in progress. Contract liabilities represents billings in excess of revenues recognized on contracts in progress. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, as they will be liquidated in the normal course of the contract completion. The contract asset for the ~~period~~nine months ending ~~December 31, 2019~~June 30, 2020 and the year ended September 30, 2019 was $0 and $0, respectively. The contract liability for the ~~periods ending December 31, 2019~~nine months ended June 30, 2020 and the year ended September 30, 2019 was ~~$430,955~~$0 and $33,138, respectively.

Accounts payable and accrued liabilities consisted of the following at ~~December 31, 2019~~June 30, 2020 and September 30, 2019:

	12/31/2019		9/30/2019		6/30/2020		9/30/2019
Trade accounts payable	$	79,596	$	129,425	$	93,409	$	129,425
Credit cards payable		66,494		67,155		61,706		67,155
Accrued liabilities		54,605		54,478		53,558		54,478
		200,695		251,058	$	208,673	$	251,058

9. On June 2, 2020, the Company issued 2,000,000,000 options to purchase common stock. These options will be exercisable on a cashless basis for a period of ten years from the effective date of the Stock Split at an exercise price of $0.00001 per share on a pre-Stock Split basis. The purpose of the options are to compensate our directors for serving on the Board without compensation in fiscal 2019. It is difficult to assess the value of the options given the highly limited trading in our Common Stock, the fact that the options shares have not been and are not expected to be registered for resale and will be restricted, and the speculative nature of the Company’s future business plans. However, we estimated the value of the services provided by each of our directors during 2019,and believe that the value of the options to be issued to each of our resigning directors approximates that amount.

A summary of the Company’s options activity and related information follows for the nine months ended June 30, 2020:

At June 30, 2020, the weighted average remaining contractual life of options outstanding:

For purpose of determining the fair market value of the options, the Company used the Black Scholes valuation model. The significant assumptions used in the Black Scholes valuation model for the warrants are as follows:

The stock-based compensation expense recognized in the statement of operations during the nine months ended June 30, 2020 related to the granting of these warrants was $399,259.

During the period ended June 30, 2020, the Innovest Global, Inc. advanced funds to the Company for operating expenses in the amount of $68,312. As of June 30, 2020, the amount has not been reimbursed to Innovest Global, Inc.

On June 2, 2020, the Seller (Mr. Tom Djokovich) entered into a transition service agreement, with the Buyer (Mr. Daniel G. Martin), sole owner, president and chairman of the board of TN3. Mr. Martin is also the chief executive officer of Innovest Global, Inc., a diversified industrial company. The Buyer is in the process of ceasing the XsunX business to transition to the StemVax business. XsunX will discontinued it’s direct delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor “the Service Provider”. The Company’s intent is to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. The Company’s operations in future periods will be focused on generating a referral fee of 1% of any gross sales generated through these referrals. We anticipate that this change in operations, and delivery method, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended June 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the biotechnology, medical, and health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.

At the completion of the acquisition of the StemVax Business, Seller will withdraw his position as the qualifying individual for the XsunX contractor license for the XsunX Business, and upon completion of the withdrawal, XsunX and the Seller will terminate the Transition Services Agreement. Thereafter, the Seller may accept contracts initially marketed by XsunX with the Seller as the qualifying individual for the XsunX license, without obligation to XsunX for any cash flows therefrom. The timing and procedures for the transition of the XsunX Business is governed by the Transition Services Agreement. In the event of any contradiction or discrepancy between this Agreement and the Transition Services Agreement, the terms and provisions of the Transition Services Agreement will govern.

In connection with preparing for the transition, the Company paid Solar Energy Builders, Inc, a related party, $185,300 to serve as the outside contractor for the assumption of the jobs that were started, and completed. The Company recognized the expense in cost of sales for the period, and also deducted the net book value of certain assets (computer and small equipment) in the amount of $2,092, leaving a net amount paid of $183,208. As of June 30, 2020, the transition has not been completed.

Also, purchase options were issued to the board of directors as mentioned in Note 9 for payment of services.

In connection with closing the Transaction and transition into a new business plan, the Company will enter into a transition services agreement (the “Services Agreement”) with Tom Djokovich, our current President and Chief Executive Officer, and Solar Energy Builders, Inc., a company controlled by Mr. Djokovich (“Solar Energy”). Pursuant to the Services Agreement, we will engage Solar Energy to service our solar business customers or refer those customers to Solar Energy on an exclusive basis. For referrals, Solar Energy will pay us a referral fee of 1% of the gross amount paid by the referred customer to Solar Energy. We intend to continue to market our solar services while preparing to transition into the new business plan. As of June 30, 2020, no referral fees have been paid to Solar Energy.

On June 2, 2020, the Company entered into a transition agreement, and will change their focus to a new line of business. As a result the Company will discontinue XsunX, Inc., and all related operations. Pursuant to the reporting requirements of ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company has determined that the business qualifies for presentation as a discontinued operation. Therefore, the Company has reclassified the business assets and liabilities as discontinued operations in the accompanying Balance Sheet and presented the operating results as discontinued operations in the accompanying statements of Operations and Statements of Cash Flows.

Financial information for XsunX Inc, for the three month and nine months ended June 30, 2020, are presented in the following table:

Management has evaluated subsequent events as of the financial statement date according to the requirements of ASC TOPIC 855 and ~~had~~has no ~~subsequent~~ events to report.

Item 2.2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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:

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

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 and Form 10-K/A 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.

XsunX, Inc. (“XsunX,” the “Company” or the “issuer”) is a Colorado corporation formerly known as Sun River Mining Inc. “Sun River”). The Company was originally incorporated in Colorado on February 25, 1997. Effective September 24, 2003, the Company completed a plan of reorganization and name change to XsunX, Inc.

On June 2, 2020, TN3, LLC, a limited liability company owned by Daniel G. Martin, purchased all of the outstanding shares of preferred stock of XsunX ~~specializes~~from Tom Djokovich, our former president and chief executive officer, for $50,000. In addition, TN3 agreed to pay for certain expenses of the transaction incurred by Mr. Djokovich and XsunX totaling more than $50,000. Upon acquiring the preferred shares, Mr. Martin became the sole director and chief executive officer of the company. For more information about Mr. Martin’s acquisition of the preferred stock and his appointment to our board, please see our Schedule 14F-1/A filed with the Securities and Exchange Commission (SEC) on May 13, 2020 and Form 8-K filed with the SEC on June 8, 2020.

During the period ending June 30, 2020 the Company changed the delivery method for its solar contracting operations by outsourcing the completion of sold projects under a Transition Services Agreement with a licensed California contractor “the Service Provider”. The Company’s intent is to transition from providing contracting services directly to its customers to marketing solar services to potential customers and referring those customers to the Service Provider or engaging the Service Provider to provide the services to customers on behalf of the Company. The Company’s operations in future periods will be focused on generating a referral fee of 1% of any gross sales generated through these referrals. We anticipate that this change in operations, and delivery method, will have a negative impact on our gross sales and resulting revenues, if any. However, during the period ended June 30, 2020 the Company began efforts to expand its operations to include the commercialization of developmental healthcare solutions in the ~~sale, design,~~biotechnology, medical, and ~~installation~~health and wellness markets which efforts are ongoing. There can be no assurance that the Company’s change to its contracting operations to focus on referral fee revenues, and its efforts to expand operations into healthcare solutions in the biotechnology, medical, and health and wellness markets will be successful, or that the Company will continue to generate revenues of significance similar to prior periods.”

On June 2, 2020, we entered into a membership interest purchase agreement with Innovest to acquire StemVax for 7.5 million shares of our unregistered common stock (after giving effect to the 1-for-1,000 reverse stock split described in this information statement). We expect to complete the acquisition in the third calendar quarter of 2020 but cannot guarantee that the transaction will be completed when expected, or at all.

We believe that investing in the biotechnology industry will significantly increase value for our shareholders. However, we cannot guaranty that we will be successful in this endeavor or that we can locate, acquire and finance the acquisition of biotechnology companies. Currently, we continue to engage in the marketing of solar photovoltaic power generation ~~(PV), energy~~and storage in the form of managed battery systems (ESS), and energy use management technologies to provide our clients long term savings, predictability, and control of their energy costs. Making solar and managed energy solutions a sound investment for our clients is our mission.

We service the commercial self-generation energy market in California, and to a lesser extent the residential solar PV market marketplace. We provide project assessment and installation services to our customers including technology selection, system engineering, procurement, permitting, construction, grid connection, warranty service, system monitoring and maintenance. We offer a wide variety of energy production and management technologies, design our systems in-house to ensure that the performance of the systems we deliver match the financial projections, and our full-time project management and licensed assembly crews ensure a seamless process, from start to finish.

The Company operates as licensed contractor in California, and our executive management provides over 30 years of extensive experience in all aspects of construction and project assembly to ensure the accuracy and quality of systems, the continued integrity of the improved building or site, and compliance with all construction codes.

~~We guide our performance by striving to deliver consistently on the following core objectives:~~

~~● Commitment –to keeping the customer’s best interests at the forefront at all times; and,~~

~~● Value –through a focuson performance and follow through that meets or exceeds customer expectations.~~solutions.

The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

We recognize 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.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s ~~goodwill, impairments and~~ estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, ~~inventory~~ valuation ~~valuations~~ of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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, 2019,~~June 30, 2020, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED ~~DECEMBER 31, 2019~~JUNE 30, 2020 COMPARED TO THREE MONTHS ENDED ~~DECEMBER 31~~JUNE 30, ~~2018.~~2019.

The Company generated revenues in the three months ended December 31, 2019 and 2018 of $200,386 and $386,736 respectively. The decrease in revenue of $186,350 during the three months ended December 31, 2019 was attributable to delays in procuring permits for the installation of sold commercial projects in the period. We anticipate that through our marketing efforts that purchase interest, and sales, for our solar carport and energy storage systems will continue to improve and provide us with increased project flow that may result in more consistent period to period revenue growth results.

The costs of goods sold for the three months ended December 31, 2019 and 2018 was $156,178 and $235,322, respectively. The Company to date has had minimal revenue and cost of sales and anticipates continuing to generate revenues while working to increase sales volumes as it matures the scope of the Company’s capabilities and brand awareness.

Selling, General and Administrative (SG&A) expenses ~~decreased~~increased by ~~$52,130~~$369,991 during the three months ended ~~December 31, 2019~~June 30, 2020 to ~~$121,606~~$489,873 as compared to ~~$173,736~~$119,882 for the prior three months ended ~~December 31, 2018.~~June 30, 2019. The ~~decrease~~increase in SG&A expenses was ~~related~~ primarily due to ~~the Company experiencing a decrease~~an increase in labor wages, and other administrative ~~costs.~~expenses, which include non-cash stock compensation expense of $399,259. Management expects SG&A expenses tomay increase in future periods as the Company continues to expand its marketing, sales, and service efforts.

~~Depreciation expense~~The change in derivative liability for the three months ended ~~December 31,~~June 30, 2020 and 2019, was ~~$239,~~a gain of $1,272,932, compared to ~~$92~~a loss of $434,387 in the prior period, as a result of an increase in the fair value of the derivative liability.

Interest expense during the three months ended June 30, 2020 was $7,432 compared to $8,067 for the prior three months ended June 30, 2019. The decrease was the result of less convertible notes and no debt discount.

Net Income (Loss) from continuing operations was $775,626 and $(562,336) for the three months ended ~~December 31, 2018.~~June 30, 2020 and 2019, respectively, as result of gains discussed above.

~~Other~~Income (Loss) on discontinued operations was a loss of ($67,525) and income ~~and (expenses) decreased by $1,452,527 to $(24,027)~~of $101,896 for the three months ended ~~December 31,~~June 30, 2020 and 2019, ~~compared to $1,428,500~~respectively, as a result of reclassifying XsunX, Inc. business as discontinued operations.

Net Income for the three months ended ~~December 31, 2018.~~June 30, 2020, was $708,101, compared to a Net Loss of $(460,440) for the prior period ended June 30, 2019. The increase in Net Income was caused by the change in income and expense discussed above.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2020 COMPARED TO NINE MONTHS ENDED JUNE 30, 2019.

Selling, General and Administrative (SG&A) expenses $750,682 as compared to $405,464 for the nine months ended June 30, 2019. The increase in SG&A expenses was related primarily due to a increase in non-cash stock compensation expense of $399,259 and other administrative expenses.

The change in derivative liability for the nine months ended June 30, 2020 and 2019, was a gain on change in derivative of $1,197,395 compared to a gain of $1,433,500, and a gain on conversion of debt of $33,829 in the prior period. The decrease in the current period was the result of a decrease in ~~non-cash gain on change of~~the fair value of the derivative ~~instruments of $1,489,136, a decrease in loss~~liability and gain on conversion of ~~debt in the amount of $13,151, and a decrease in interest expense of $23,458, which included a decrease in non-cash amortization of debt discount in the amount of $21,947.~~debt.

~~For~~Interest expense during the ~~three~~nine months ended ~~December 31, 2019, our net loss~~June 30, 2020 was ~~$(101,664) as~~$22,985 compared to ~~net~~$64,094 for the prior nine months ended June 30, 2019. The decrease was the result of less convertible notes and no debt discount.

Net Income from continuing operations was $423,728 and $930,113 for the nine months ended June 30, 2020 and 2019, respectively, as result of gains discussed above.

Income (Loss) on discontinued operations was income of ~~$1,406,086~~$221,252 and income of $497,900 for the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2020 and 2019, respectively, as a result of reclassifying XsunX, Inc. business as discontinued operations.

Net Income for the nine months ended June 30, 2020, was $644,980, compared to a Net Loss of $1,428,013 for the prior period ended June 30, 2019. The ~~majority of the decrease in net income of was due primarily to an~~ increase in ~~other (expenses) associated with~~Net Income was caused by the ~~net~~ change in derivative instruments estimated each period. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price, volatility, variable conversion prices based on market prices defined in the respective agreementsincome and probabilities of certain outcomes based on managements’ estimates. These inputs are subject to significant changes from period to period, therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material. While management is working to increase sales and revenues as it matures the scope of the Company’s capabilities and brand awareness for its commercial and residential solar PV systems, the Company anticipates there is no assurance that any continued trend in sales growth will continue.expense discussed above.

We had a working capital deficit at ~~December 31, 2019~~June 30, 2020 of ~~$2,174,066,~~$1,041,712, as compared to a working capital deficit of $2,072,641 as of September 30, 2019. The decrease in working capital deficit was primarily the result of an ~~increase in cash, contract receivables, accrued expenses, contract liabilities, convertible notes payable with a~~ decrease in ~~prepaid expenses, accounts payable,~~ derivative liability.

Cash flows used in operating activities – continuing operations was ~~$209,169~~$236,437 for the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, as compared to cash flows provided by operating activities of ~~$45,095~~$114,535 for the ~~three~~prior nine months ended ~~December 31, 2018.~~June 30, 2019. The increase in cash flow ~~provided by~~used in operating activities was due primarily to ~~an increase in contract liabilities.~~a decrease of cash flow from accounts receivable.

Cash ~~flow~~flows provided by investing activities – continuing operations for the nine months ended June 30, 2020 was $0, as compared to cash flows used in investing activities of $0 for the ~~three~~prior nine months ended ~~December 31, 2019 and 2018 were $0 and $647, respectively.~~June 30, 2019. The ~~decrease was due to purchase of fixed~~Company purchased certain assets in the prior period.

Cash flows provided by financing activities for the nine months ended June 30, 2020 was $61,112, compared to cash flows used in financing activities ~~for the three months ended December 31, 2019 and 2018, was $7,200 and $0, respectively.~~of $24,300. Our capital needs have primarily been met from the proceeds of private placements, convertible notes, and initial revenues resulting from our change in business operations focused on the sale, design, and installation of Solar Photovoltaic (PV), and managed Energy Storage Systems (ESS) for commercial and industrial real-estate in in the period.

Our financial statements as of ~~December 31, 2019~~June 30, 2020 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated December 20, 2019, 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, 2019, the Company’s capital needs have been met from the use of working capital provided by the proceeds from revenues in the amount of $200,386.~~

We have only common and preferred stock as our capital resources. We have no material commitments for capital expenditures within the next year, however as we work to market and make sales of our commercial solar PV system services, substantial capital may be needed to expand and pay for these activities.

We do not have capital sufficient to meet our cash needs. We will have to seek loans or equity placements to cover such cash needs. No commitments to provide additional funds have been made by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred.

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, result of operations, liquidity or capital expenditures.

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.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There was no change to our internal control over financial reporting that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed with the Securities and Exchange Commission dated December 20, 2019.

The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

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.

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value per share	XSNX	OTC Markets

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒
Emerging growth company ☐

		PAGE
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)		3

Condensed Balance Sheets		3

Condensed Statements of Operations		4

Condensed Statements of Shareholders Deficit		5

Condensed Statements of Cash Flows		6

Notes to Condensed Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1518

Item 3. Qualitative and Quantitative Disclosures About Market Risk		1923

Item 4. Controls and Procedures		1923

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		2024

Item 1A. Risk Factors		2024

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2024

Item 3. Defaults upon Senior Securities		2024

Item 4. Mine Safety Disclosure		2024

Item 5. Other Information		2024

Item 6. Exhibits		2125

Signatures		2226

	For the Nine Months Ended
	June 30, 2020			June 30, 2019
OPERATING ACTIVITIES:
Net Income	$	644,980		$	1,428,011
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities

Gain on change in derivative liability		(1,197,395	)		(1,433,500	)
Amortization of debt discount recorded as interest expense		-			36,309
Loss on conversion of debt		-			33,829
Stock compensation expense		399,259			-

Changes in Assets and Liabilities:

Prepaid expenses		5,707			4,536
Accounts payable		(86,016	)		17,001
Other payable		(5,449	)		1,721
Accrued expenses		2,477			26,628

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES –CONTINUED OPERATIONS		(236,437	)		114,535

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES –DISCONTINUED OPERATIONS		167,515			(68,723	)

NET CASH (USED IN) PROVIDED BY OPERATIONS		(68,922	)		45,812

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed asset – discontinued operations		-			(2,284	)

NET CASH USED IN INVESTING ACTIVITIES – DISCONTINUED OPERATIONS		-			(2,284	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related party		68,312			-
Payments on related party promissory notes		(7,200	)		(24,300	)

NET PROVIDED BY (CASH USED) IN FINANCING ACTIVITIES		61,112			(24,300	)

NET INCREASE (DECREASED) IN CASH		(7,810	)		19,228

CASH, BEGINNING OF PERIOD		7,964			41,090

CASH, END OF PERIOD	$	154		$	60,318

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	6,955		$	7,911
Taxes paid	$	-		$	-

SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Issuance of common stock upon conversion of debt and accrued interest	$	-		$	91,579
Accrued interest capitalized into convertible note	$	3,397		$	4,846

	For the Three Months Ended
	December 31, 2019			December 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(101,664	)	$	1,406,086
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation & amortization		239			92
(Gain)/Loss on change in derivative liability		16,079			(1,473,057	)
Amortization of debt discount recorded as interest expense		-			21,947
Loss on conversion of debt		-			13,151
(Increase) Decrease in Change in Assets:
Contract receivables		(55,948	)		(36,950	)
Contract assets		-			735
Prepaid expenses		1,902			6,919
Increase (Decrease) in Change in Liabilities:
Accounts payable		(50,490	)		8,535
Accrued expenses		1,234			12,091
Contract liabilities		397,817			85,546

NET CASH PROVIDED BY OPERATING ACTIVITIES		209,169			45,095


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed asset		-			(647	)

NET CASH USED IN INVESTING ACTIVITIES		-			(647	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on related party promissory notes		(7,200	)		-

NET CASH USED IN FINANCING ACTIVITIES		(7,200	)		-

NET INCREASE IN CASH		201,969			44,448

CASH, BEGINNING OF PERIOD		7,964			41,090

CASH, END OF PERIOD	$	209,933		$	85,538

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	2,479		$	2,495
Taxes paid	$	-		$	-

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Issuance of common stock upon conversion of debt and accrued interest	$	-		$	39,401
Accrued interest capitalized into convertible note	$	1,107		$	-

Leasehold improvements	Length of the lease
Computer software and equipment	3 Years
Furniture & fixtures	5 Years
Machinery & equipment	5 Years

	Total		(Level 1)		(Level 2)		(Level 3)

Assets:	$	-	$	-	$	-	$	-

Liabilities:

Derivative Liability at fair value as of December 31, 2019	$	1,961,729	$	-	$	-	$	1,961,729

Derivative Liability at fair value as of September 30, 2019	$	1,945,650	$	-	$	-	$	1,945,650

	Total		(Level 1)		(Level 2)		(Level 3)
Liabilities

Derivative Liability	$	748,255	$	-	$	-	$	748,255
Total Liabilities measured at fair value	$	748,255	$	-	$	-	$	748,255

Balance as of September 30, 2019	$	1,945,650
Net Loss on change in derivative liability		16,079
Ending balance as of December 31, 2019	$	1,961,729

Balance as of September 30, 2019	$	1,945,650
Net Gain on change in derivative liability		(1,197,395	)
Ending balance as of June 30, 2020	$	748,255

Period Ending
December 31,
2020	$	37,324
2021		50,880
2022		115,000
	$	203,204

Period Ended
June 30,
2022	$	55,494
2023		60,000
2024		90,000
	$	205,494

Risk free interest rate		Between ~~1.48%~~0.13% and ~~1.62%~~0.29%
Stock volatility factor		Between ~~117.0%~~119.0% and ~~143.0%~~207.0%
Months to Maturity		0 - 5 years
Expected dividend yield		None

	June 30, 2020
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding - beginning of period		-	$	-
Granted		2,000,000,000	$	.00001
Exercised		-	$	-
Forfeited		-	$	-
Outstanding - end of period		2,000,000,000	$	.00001

Risk Free Interest Rate		0.32	%
Stock Volatility Factor		146.0	%
Weighted Average Expected Option Life	5 Years
Expected Dividend Yield	None

	Nine months ended June 30,
	2020			2019
Net cash (used in) provided by operating activities - continuing operations	$	(236,437	)	$	114,535
Net cash provided by investing activities - continuing operations	$	-		$	-
Net cash provided by (used in) financing activities	$	61,112		$	(24,300	)

Exhibit		Description

10.1		Form 14F/A disclosing proposed change in management and business model (2)
10.2		Form 14C shareholder information statement related to biotechnology (3)
31.1		Certification of Chief Financial Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (1)
32.1		Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act (1)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Label Linkbase Document
101.LAB		XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	(1)	Filed Herewith
	(2)	Incorporated by reference to Form 14F/A filed with the securities exchange commission on May 13, 2020
	(3)	Incorporated by reference to Form 14C filed with the securities exchange commission on June 29, 2020

	XSUNX, INC.

Dated: ~~January 24,~~August 21, 2020	By:	/s/ ~~Tom M. Djokovich~~Daniel G. Martin
		~~Tom M. Djokovich,~~Daniel G. Martin, Principal Executive and Accounting Officer