10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For The Quarterly Period Ended: December 31, 2016

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

For The Transition Period From ___________ to _______________

Commission File Number:000-29621

XSUNX, INC.

(Exact name of registrant as specified in its charter)

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

65 Enterprise, Aliso Viejo, CA 92656

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (949) 330-8060

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒

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 February 21, 2017 was 889,331,125.

TABLE OF CONTENTS

	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	11
Item 3. Qualitative and Quantitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	16
Item 1A. Risk Factors	16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3. Defaults upon Senior Securities	16
Item 4. Mine Safety Disclosure	16
Item 5. Other Information	16
Item 6. Exhibits	17
Signatures	18

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements. 

XSUNX, INC.

CONDENSED BALANCE SHEETS

	December 31, 2016			September 30, 2016
ASSETS
CURRENT ASSETS
Cash	$	112,179		$	22,172
Accounts receivable		-			30,800
Cost in excess of billing		13,725			10,126
Prepaid expenses		19,462			2,266
Total Current Assets		145,366			65,364
PROPERTY & EQUIPMENT
Office & miscellaneous equipment		29,842			29,842
Machinery & equipment		626			626
		30,468			30,468
Less accumulated depreciation		(29,961	)		(29,930	)
Net Property & Equipment		507			538
TOTAL ASSETS	$	145,873		$	65,902
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	108,087		$	46,515
Credit card payable		66,708			65,114
Accrued interest on notes payable		31,912			28,849
Billing in excess of cost		113,003			41,454
Derivative liability		421,886			430,532
Promissory note, related party		35,000			35,000
Convertible promissory note, related party		12,000			12,000
Convertible promissory notes, current portion net of $5,736 and $11,148 in discounts		170,309			131,886
Total Current Liabilities		958,905			791,350
LONG TERM LIABILITIES
Convertible promissory notes		35,000			115,000
Total Long Term Liabilities		35,000			115,000
TOTAL LIABILITIES		993,905			906,350
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 0 shares issued and outstanding, respectively		50			50
Common stock, no par value; 2,000,000,000 authorized common shares 889,331,125 and 783,080,479 shares issued and outstanding, respectively		32,668,767			32,640,840
Additional paid in capital		5,335,398			5,335,398
Paid in capital, common stock warrants		3,811,700			3,811,700
Accumulated deficit		(42,663,947	)		(42,628,436	)
TOTAL SHAREHOLDERS’ DEFICIT		(848,032	)		(840,448	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	145,873		$	65,902

The accompanying notes are an integral part of these financial statements

3

XSUNX, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	December 31, 2016			December 31, 2015
SALES	$	393,702		$	203,229
COST OF GOODS SOLD		299,054			158,721
GROSS PROFIT		94,648			44,508
OPERATING EXPENSES
Selling, general and administrative expenses		126,920			124,702
Depreciation and amortization expense		31			805
TOTAL OPERATING EXPENSES		126,951			125,507
INCOME (LOSS) FROM OPERATIONS BEFORE  OTHER INCOME/(EXPENSES)		(32,303	)		(80,999	)
OTHER INCOME/(EXPENSES)
Penalties		(200	)		-
Gain on sale of asset		-			1,000
Gain/(Loss) on conversion of debt and change in derivative liability		8,646			79,330
Interest expense		(11,654	)		(30,754	)
TOTAL OTHER INCOME/(EXPENSES)		(3,208	)		49,576
NET LOSS	$	(35,511	)	$	(31,423	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.00	)	$	(0.00	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING       BASIC AND DILUTED		843,519,778			704,918,657

The accompanying notes are an integral part of these financial statements

4

XSUNX, INC.

CONDENSED STATEMENT OF SHAREHOLDERS’ DEFICIT

(Unaudited)

									Additional		Stock Options/
	Preferred Stock				Common Stock				Paid-in		Warrants		Accumulated
	Shares		Amount		Shares		Amount		Capital		Paid-in-Capital		Deficit			Total
Balance at September 30, 2016		5,000	$	50		783,080,479	$	32,640,840	$	5,335,398	$	3,811,700	$	(42,628,436	)	$	(840,448	)
Common stock issued upon conversion of debt and accrued interest		-		-		106,250,646		27,927		-		-		-			27,927
Net loss for the three months ended December 31, 2016		-		-		-		-		-		-		(35,511	)		(35,511	)
Balance at December 31, 2016 (unaudited)		5,000	$	50		889,331,125	$	32,668,767	$	5,335,398	$	3,811,700	$	(42,663,947	)	$	(848,032	)

The accompanying notes are an integral part of these financial statements

5

XSUNX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	December 31, 2016			December 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(35,511	)	$	(31,423	)
Adjustment to reconcile net income (loss) to net cash       provided (used) in operating activities
Depreciation & amortization		31			804
Gain on sale of asset		-			(1,000	)
Gain on conversion of debt and change in derivative liability		(8,646	)		(79,330	)
Amortization of debt discount recorded as interest expense		5,412			21,557
Reduction in convertible note principal		(2,688	)		-
(Increase) Decrease in Change in Assets:
Accounts receivable		30,800			(973	)
Cost in excess of billing		(3,599	)		(2,143	)
Prepaid expenses		(17,196	)		(15,108	)
Increase (Decrease) in Change in Liabilities:
Accounts payable		63,165			27,988
Accrued expenses		6,690			9,988
Billing in excess of cost		71,549			38,227
Deferred revenue		-			(15,000	)
NET CASH PROVIDED BY (USED IN)  OPERATING ACTIVITIES		110,007			(46,413	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		-			1,000
NET CASH PROVIDED BY INVESTING ACTIVITIES		-			1,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible promissory notes		-			50,000
Payments on convertible promissory notes		(20,000	)		(20,000	)
Proceeds from related party promissory notes		-			10,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(20,000	)		40,000
NET INCREASE/(DECREASE) IN CASH		90,007			(5,413	)
CASH, BEGINNING OF YEAR		22,172			78,770
CASH, END OF YEAR	$	112,179		$	73,357
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	2,239		$	377
Taxes paid	$	-		$	-
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Issuance of common stock upon conversion of debt and accrued interest	$	27,927		$	-

The accompanying notes are an integral part of these financial statements 

6

XSUNX, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2016

1      Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the three months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the year ended September 30, 2017.  For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K, and Form 10-K/A for the year ended September 30, 2016.

Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception through the three months ended December 31, 2016. 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. 

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of XsunX, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.  Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.

Revenue Recognition

Revenue and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Revenue is recognized based on the percentage of cost incurred. Costs include all direct materials, subcontractor costs, direct labor and those indirect costs related to contract performance, such as indirect labor, supplies, project planning and preparation, tools and repairs. 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, which require the 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, estimated profitability, and final contract settlements may result in revisions to costs and income, and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billing” represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billing in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016, the cost in excess of billing was $13,725 and the billing in excess of costs was $113,003.

Contract Receivables

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.

7

XSUNX, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2016

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Project Warranties

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 months ended December 31, 2016 the Company did not experience costs related to warranty claims.

Stock-Based Compensation

Share-based Payment applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. This has not had a material impact on our results of operations.

Net Earnings (Loss) per Share Calculations 

Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock based awards (Note 4), plus the assumed conversion of convertible debt (Note 5).   

  

For the three months ended December 31, 2016, the Company calculated the dilutive impact of the outstanding stock options of 1,500,000, and the convertible debt of $223,045, which is convertible into shares of common stock. The stock options and the convertible debt were not included in the calculation of net loss per share, because their impact was antidilutive.  

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2016, 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:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at  December 31, 2016:

	Total		(Level 1)		(Level 2)		(Level 3)
Derivative Liability	$	421,886	$	-	$	-	$	421,886
Total Liabilities measured at fair value	$	421,886	$	-	$	-	$	421,886

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

Balance as of October 1, 2016	$	430,532
Net Gain on change in derivative liability		(8,646	)
Ending balance as of December 31, 2016	$	421,886

8

XSUNX, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2016

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

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.

In May, 2016, FASB issued accounting standards update ASU-2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the same time Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently evaluating the impact of the adoption of ASU 2016-12 on the Company’s financial statements.

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 is currently evaluating the impact of the adoption of ASU 2016-15 on the Company’s financial statements. 

3.     CAPITAL STOCK

At December 31, 2016, 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.

During the three months ended December 31, 2016, the Company issued 106,250,646 shares of common stock upon conversion of principal in the amount of $24,300, plus accrued interest of $3,627.

4.     STOCK OPTIONS

On May 20, 2014, the Company adopted the 2014 XSUNX, Inc. Stock Option and Award Plan (the “Plan”) to enable the Company to obtain and retain the services of the types of Employees, Consultants and Directors who will contribute to the Company’s long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company.  The 2007 Stock Option Plan is superseded by the newly adopted 2014 XSUNX, Inc. Stock Option and Award Plan. Options granted under the Plan may be either Incentive Options or Nonqualified Options and shall be administered by the Company’s Board of Directors (“Board”).  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified in the Option agreement.

A summary of the Company’s stock option activity and related information follows: 

	12/31/2016
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of the period		1,500,000		$	0.045
Granted		-			-
Exercised		-			-
Expired		-			-
Outstanding, end of the period		1,500,000		$	0.045
Exercisable at the end of the period		1,500,000		$	0.045
Weighted average fair value of   options granted during the period				$	-

The weighted average remaining contractual life of options outstanding issued under the plan as of December 31, 2016 was as follows:

							Weighted
							Average
			Stock		Stock		Remaining
Exercisable			Options		Options		Contractual
Prices			Outstanding		Exercisable		Life (years)
	$	0.045		1,500,000		1,500,000	0.28 years
				1,500,000		1,500,000

9

XSUNX, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS – UNAUDITED

DECEMBER 31, 2016

4.     STOCK OPTIONS (Continued)

We account for stock-based payment award forfeitures as they occur. The Company did not recognize stock-based compensation expense in the statement of operations during the three months ended December 31, 2016.

5.     CONVERTIBLE PROMISSORY NOTES

On September 30, 2014, the amended note dated September 30, 2013 expired. On October 1, 2014, the Company and the Holder of the note entered into an extension of the note on October 1, 2014. The remaining principal balance of $203,496, plus interest of $26,758 and a commitment fee of $22,081 was combined in the extended new note for a balance of $252,335 as of October 1, 2014. No additional cash consideration was provided or exchanged. The maturity date of the note was extended to September 30, 2015. On October 20, 2015, the Company entered into a third extension of the note with 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 remained substantially the same. During the period the Company paid $20,000 of the principal balance, leaving a remaining balance of $23,033.

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The Note matures eighteen months from each advance. The Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or fifty percent (50%) of the three lowest trade prices of three separate trading days recorded in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Note. The Company recorded debt discount of $201,066 related to the conversion feature of the notes, along with derivative liabilities at inception. On November 20, 2014, the lender advanced $50,000 to the Company under the Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the Note. During the period ended December 31, 2016, the Company issued 106,250,646 shares of common stock upon conversion of $24,300 in principal, plus accrued interest of $3,627. As of December 31, 2016, there remains an aggregate outstanding principal balance of $188,012. During the three months ended December 31, 2016, the Company recognized debt amortization as interest expense in the amount of $5,412.

Issuance of Convertible Promissory Notes for Services to Related Party

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.

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

Risk free interest rate	Between 0.51% and 1.20%
Stock volatility factor	Between 97.53% and 135.15%
Months to Maturity	3 months to 2 years
Expected dividend yield	None

At December 31, 2016, the fair value of the derivative liability was $421,886.

 6.    NOTE PAYABLE-RELATED PARTY

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. During the three months ended December 31, 2016, the Company received advances in the aggregate of $35,000. 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 as of December 31, 2016 was $35,000, plus accrued interest of $4,978.

7.    SUBSEQUENT EVENTS

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

10

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

CAUTIONARY AND FORWARD LOOKING STATEMENTS

In addition to statements of historical fact, this Quarterly Report on Form 10-Q contains forward-looking statements. The presentation of future aspects of XsunX, Inc. (“XsunX”, the “Company” or “issuer”) found in these statements is subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, or “could” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A: Risk Factors” in the Company’s Annual Report on Form 10-K.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause XsunX’s actual results to be materially different from any future results expressed or implied by XsunX in those statements. Important facts that could prevent XsunX from achieving any stated goals include, but are not limited to, the following:

Some of these risks might include, but are not limited to, the following:

(a) volatility or decline of the Company’s stock price;

(b) potential fluctuation in quarterly results;

(c) failure of the Company to earn revenues or profits;

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

(e) failure to commercialize its technology or to make sales;

(f) rapid and significant changes in markets;

(g) litigation with or legal claims and allegations by outside parties;

(h) insufficient revenues to cover operating costs.

There is no assurance that the Company will be profitable, the Company may not be able to successfully develop, manage or market its products and services. The Company may not be able to attract or retain qualified executives and technology personnel, the Company’s products and services may become obsolete, government regulation may hinder the Company’s business, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of warrants and stock options, and other risks inherent in the Company’s businesses.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K and 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.

11

Organization

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.

Business Overview/Summary

XsunX specializes in the sale, design, and installation of solar photovoltaic power generation (PV), and energy saving technologies to provide our clients long term savings, predictability, and control of their energy costs. Making solar energy a good investment for our clients is our mission.

We service the commercial and residential PV markets in California providing project assessment and installation services to our customers including technology selection, system engineering, procurement, permitting, construction, grid connection, warranty, 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.

12

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2016 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2015.

 Revenue and Cost of Sales:

The Company generated revenues in the three months ended December 31, 2016 and 2015 of $393,702 and $203,229 respectively. The increase in revenue during the three months ended December 31, 2016 was the result of our marketing efforts for the sale of our solar carport and canopy offerings, and establishing a cross marketing sales program to provide companies entering the program an opportunity to market our commercial and residential solar system offerings to their customer base. We believe that the development of these programs during prior periods improved our ability to market our products and services, and to generate revenues, in future periods. The costs of goods sold for the three months ended December 31, 2016 and 2015 was $299,054 and $158,721, respectively. The Company to date has had minimal revenue and cost of sales. Management expects to continue to generate revenues, and is working to increase sales as it matures the scope of the Company’s capabilities and brand awareness.

Operating Expenses:

Operating  expenses increased by $1,444 during the three months ended December 31, 2016 to $126,951 as compared to $125,507 for the three months ended December 31, 2015. The increase in SG&A expenses was related primarily due to the Company experiencing an increase to sales and the administrative costs consistent with the increase to revenues in the period. Management expects SG&A expenses to increase in future periods as the Company continues to expand its marketing, sales, and service efforts.

Other Income/(Expenses):

Other income and (expenses) decreased by $(52,784) to $(3,208) for the three months ended December 31, 2016, compared to $49,576 for the three months ended December 31, 2015. The decrease was the result of a decrease in interest expense of $19,100, which included a decrease in non-cash amortization of debt discount in the amount of $16,145, a decrease in non-cash gain on conversion of debt and change of fair value of the derivative instruments of $70,684, a decrease in gain on sale of asset of $1,000, with an increase in penalties of $200.

Net Income (Loss):

For the three months ended December 31, 2016, our net loss was $(35,511) as compared to a net loss of $(31,423) for the three months ended December 31, 2015. This increase in net income primarily stems from the increase in other income (expenses) associated with the derivative instruments, and an overall decrease in operating expenses, with an increase in gross profit due to an increase in revenue. 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.

Liquidity and Capital Resources

We had a working capital deficit at December 31, 2016 of $813,539, as compared to a working capital deficit of $725,986 as of September 30, 2016. The increase in working capital deficit of $87,553 was the result of an increase in cash, cost in excess of billing, prepaid expenses, accounts payable and other payable, accrued expenses, customer retainer, an increase in convertible notes, with a decrease in accounts receivable, billing in excess of cost, billing in excess of cost, and derivative liability, with.

Cash flow provided by operating activities was $110,007 for the three months ended December 31, 2016, as compared to cash flow used by operating activities of $(46,413) for the three months ended December 31, 2015. The increase in cash flow provided by operating activities was due to an increase in liabilities, with a decrease in current assets.

Cash flow provided by investing activities for the three months ended December 31, 2016 and 2015 were $0 and $1,000, respectively. The net change in investing activities was primarily due to proceeds received of $1,000 from the sale of certain assets in the prior period.

Cash used by financing activities for the three months ended December 31, 2016 was $20,000, as compared to $40,000 provided for the three months ended December 31, 2015. 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) Systems for commercial and industrial real-estate in in the period.

13

Our financial statements as of December 31, 2016 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 14, 2016, 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, 2016, the Company’s capital needs have been met from the use of working capital provided by the proceeds of (i) the Company’s working capital and (ii) revenues in the amount of $393,702.

Short Term

On a short-term basis, while our revenues have begun to develop under our new plan of operations we do not generate revenues sufficient to cover operations at this time.  Based on prior history, we may continue to have insufficient revenue to satisfy current and recurring expenses and liabilities.  For short term needs we may continue to be dependent on receipt, if any, of offering proceeds and the growth of our revenue.

Capital Resources

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.

Need for Additional Financing

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.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We do not have any market risk sensitive instruments. Since all operations are in U.S. dollar denominated accounts, we do not have foreign currency risk. Our operating costs are reported in U.S. dollars.

The Company does not invest in term financial products or instruments or derivatives involving risk other than money market accounts, which fluctuate with interest rates at market.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal operating officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, the Company’s CEO/CFO concluded that the Company’s disclosure controls and procedures were effective. See also “Internal Control Over Financial Reporting” below in Item 4 of this report.

14

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control structure and procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act. The SEC rule making for the Sarbanes-Oxley Act of 2002 Section 404 requires that a company’s internal controls over financial reporting be based upon a recognized internal control framework. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) that has been modified to more appropriately reflect the current limited operational scope of the Company as a Development Stage company. The Company used the COSO guide - The Internal Control over Financial Reporting - Guidance for Smaller Public Companies to implement the Company’s internal control framework. Additionally, the limited scope of operations of the Company means that traditional separation of duties controls are not used by the Company as a result of the limited staffing within the Company. The Company relies on alternative procedures that include the addition of an outside professional accounting services firm to expand the separation of duties and oversight, and to assist in the monthly closing process and reconciliation of accounts to overcome this non-material control weakness.

During the Company’s three months ended December 31, 2016, management continued to assess the Company’s internal and controls procedure documents basing any need for revision upon additional guidance for implementing the model framework created by COSO as is appropriate to our operations and operations of smaller public entities. This framework is entitled Internal Control-Integrated Framework. The COSO Framework, which is the common shortened title, was published in 2013, and we believe will satisfy the SEC requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Based on that evaluation, our Chief Executive Officer/Principal Accounting Officer concluded that our internal control over financial reporting as of December 31, 2016 was effective.  Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

Changes in Internal Control over Financial Reporting

Except as noted above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended December 31, 2016.

15

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

None

Item 1A.  Risk Factors

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 14, 2016, and Form 10-K/A dated February 17, 2017.  

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

During the three months ended December 31, 2016, the Company issued 106,250,646 shares of common stock upon partial conversion of a convertible notes in principal in the amount of $24,300, plus the accrued interest of $3,627.

The Company relied on an exemption pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, in connection with the foregoing issuance.

Use of Proceeds from the Sale of Securities

The proceeds from the above sales of securities were and are being used primarily to fund efforts by the Company to expand operations to include the sale, design, and installation of solar electric PV systems, and in the day-to-day operations of the Company, and to pay the accrued liabilities associated with these operations.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mining and Safety Disclosures

None.

Item 5.  Other information

None.

16

Item 6.  Exhibits

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.

Exhibit		Description
10.1		Form of Third Extension Agreement to 12% Note used in connection with the exchange and 18 month extension to a promissory note that had become due September 30, 2015. (1)
10.2		Form of Promissory Note issued on August 5, 2014, used in connection with establishing access to interim financing requirements for solar system installations in the amount of up to $80,000. (2)
10.3		Form of Convertible 10% Promissory Note issued on November 20, 2014, used in connection with the sale of a convertible promissory note in an amount up to $400,000. (3)
10.4		Form 8-K related to the engagement of Liggett & Webb P.A. as the independent registered public accounting firm for XsunX, Inc. (4)
31.1		Certification of Chief Financial Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (5)
32.1		Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act (5)
101.INS		XBRL Instance Document (5)
101.SCH		XBRL Taxonomy Extension Schema Document(5)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (5)
101.DEF		XBRL Taxonomy Extension Label Linkbase Document (5)
101.LAB		XBRL Taxonomy Extension Presentation Linkbase Document (5)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (5)
(1)	Incorporated by reference to exhibits included with the Company’s Report on Form 10-K filed with the Securities and Exchange Commission dated January 8, 2016.
(2)	Incorporated by reference to exhibits included with the Company’s Report on Form 10-Q filed with the Securities and Exchange Commission dated August 18, 2014.
(3)	Incorporated by reference to exhibits included with the Company’s Report on Form 8-K filed with the Securities and Exchange Commission dated November 26, 2014.
(4)	Incorporated by reference to exhibits included with the Company’s Report on Form 8-K filed with the Securities and Exchange Commission dated January 30, 2017.
(5)	Filed Herewith

17

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	XSUNX, INC.
Dated: February 21, 2017	By:	/s/ Tom M. Djokovich
		Tom M. Djokovich, Principal Executive and Accounting Officer

18

EX-31.1

EXHIBIT 31.1

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Tom M. Djokovich, certify that:

1.     I have reviewed this Form 10-Q for the period ended December 31, 2016 of XsunX, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 21, 2017

/s/  Tom M. Djokovich

Name: Tom M. Djokovich

Titles: Chief Executive Officer, Principal Financial and

Accounting Officer, and Director 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of XsunX, Inc. (the “Company”) on Form 10-Q for the three months ended December 31, 2016 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date:     February 21, 2017

/s/  Tom M. Djokovich

Name: Tom M. Djokovich

Title: Chief Executive Officer, Principal Financial and

Accounting Officer, and Director 

A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Dec. 31, 2016	Feb. 21, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	XSUNX INC
Document Type	10-Q
Current Fiscal Year End Date	--09-30
Entity Common Stock, Shares Outstanding		889,331,125
Amendment Flag	false
Entity Central Index Key	0001039466
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

CONDENSED BALANCE SHEETS - USD ($)	Dec. 31, 2016	Sep. 30, 2016
CURRENT ASSETS
Cash	$ 112,179	$ 22,172
Accounts receivable	0	30,800
Cost in excess of billing	13,725	10,126
Prepaid expenses	19,462	2,266
Total Current Assets	145,366	65,364
PROPERTY & EQUIPMENT
Office & miscellaneous equipment	29,842	29,842
Machinery & equipment	626	626
	30,468	30,468
Less accumulated depreciation	(29,961)	(29,930)
Net Property & Equipment	507	538
TOTAL ASSETS	145,873	65,902
CURRENT LIABILITIES
Accounts payable	108,087	46,515
Credit card payable	66,708	65,114
Accrued interest on notes payable	31,912	28,849
Billing in excess of cost	113,003	41,454
Derivative liability	421,886	430,532
Promissory note, related party	35,000	35,000
Convertible promissory note, related party	12,000	12,000
Convertible promissory notes, current portion net of $5,736 and $11,148 in discounts	170,309	131,886
Total Current Liabilities	958,905	791,350
LONG TERM LIABILITIES
Convertible promissory notes	35,000	115,000
Total Long Term Liabilities	35,000	115,000
TOTAL LIABILITIES	993,905	906,350
SHAREHOLDERS’ DEFICIT
Preferred stock
Common stock, no par value; 2,000,000,000 authorized common shares 889,331,125 and 783,080,479 shares issued and outstanding, respectively	32,668,767	32,640,840
Additional paid in capital	5,335,398	5,335,398
Paid in capital, common stock warrants	3,811,700	3,811,700
Accumulated deficit	(42,663,947)	(42,628,436)
TOTAL SHAREHOLDERS’ DEFICIT	(848,032)	(840,448)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	145,873	65,902
Series A Preferred Stock [Member]
SHAREHOLDERS’ DEFICIT
Preferred stock	$ 50	$ 50

XML

CONDENSED BALANCE SHEETS (Parentheticals) - USD ($)	Dec. 31, 2016	Sep. 30, 2016
Convertible promissory notes, discounts (in Dollars)	$ 5,736	$ 11,148
Preferred stock, shares authorized	50,000,000	50,000,000
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	889,331,125	783,080,479
Common stock, shares outstanding	889,331,125	783,080,479
Common stock, no par value (in Dollars per share)	$ 0	$ 0
Series A Preferred Stock [Member]
Preferred stock, shares authorized	10,000	10,000
Preferred stock shares, authorized (in Dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares issued	5,000	5,000
Preferred stock shares, authorized	5,000	5,000

XML

CONDENSED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
SALES	$ 393,702	$ 203,229
COST OF GOODS SOLD	299,054	158,721
GROSS PROFIT	94,648	44,508
OPERATING EXPENSES
Selling, general and administrative expenses	126,920	124,702
Depreciation and amortization expense	31	805
TOTAL OPERATING EXPENSES	126,951	125,507
INCOME (LOSS) FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)	(32,303)	(80,999)
OTHER INCOME/(EXPENSES)
Penalties	(200)	0
Gain on sale of asset	0	1,000
Gain/(Loss) on conversion of debt and change in derivative liability	8,646	79,330
Interest expense	(11,654)	(30,754)
TOTAL OTHER INCOME/(EXPENSES)	(3,208)	49,576
NET LOSS	$ (35,511)	$ (31,423)
BASIC AND DILUTED LOSS PER SHARE (in Dollars per share)	$ 0.00	$ 0.00
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED (in Shares)	843,519,778	704,918,657

XML

CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) - 3 months ended Dec. 31, 2016 - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Additional Paid in Capital Stock Options / Warrants [Member]	Retained Earnings [Member]	Total
Balance at Sep. 30, 2016	$ 50	$ 32,640,840	$ 5,335,398	$ 3,811,700	$ (42,628,436)	$ (840,448)
Balance (in Shares) at Sep. 30, 2016	5,000	783,080,479
Common stock issued upon conversion of debt and accrued interest		$ 27,927				27,927
Common stock issued upon conversion of debt and accrued interest (in Shares)		106,250,646
Net loss for the three months ended December 31, 2016					(35,511)	(35,511)
Balance at Dec. 31, 2016	$ 50	$ 32,668,767	$ 5,335,398	$ 3,811,700	$ (42,663,947)	$ (848,032)
Balance (in Shares) at Dec. 31, 2016	5,000	889,331,125

XML

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (35,511)	$ (31,423)
Adjustment to reconcile net income (loss) to net cash provided (used) in operating activities
Depreciation & amortization	31	805
Gain on sale of asset	0	(1,000)
Gain on conversion of debt and change in derivative liability	(8,646)	(79,330)
Amortization of debt discount recorded as interest expense	5,412	21,557
Reduction in convertible note principal	(2,688)	0
(Increase) Decrease in Change in Assets:
Accounts receivable	30,800	(973)
Cost in excess of billing	(3,599)	(2,143)
Prepaid expenses	(17,196)	(15,108)
Accounts payable	63,165	27,988
Accrued expenses	6,690	9,988
Billing in excess of cost	71,549	38,227
Deferred revenue	0	(15,000)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	110,007	(46,413)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets	0	1,000
NET CASH PROVIDED BY INVESTING ACTIVITIES	0	1,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible promissory notes	0	50,000
Payments on convertible promissory notes	(20,000)	(20,000)
Proceeds from related party promissory notes	0	10,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(20,000)	40,000
NET INCREASE/(DECREASE) IN CASH	90,007	(5,413)
CASH, BEGINNING OF YEAR	22,172	78,770
CASH, END OF YEAR	112,179	73,357
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	2,239	377
Taxes paid	0	0
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
Issuance of common stock upon conversion of debt and accrued interest	$ 27,927	$ 0

XML

1. Basis of Presentation

3 Months Ended

Dec. 31, 2016

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1      Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the three months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the year ended September 30, 2017.  For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K, and Form 10-K/A for the year ended September 30, 2016.

Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception through the three months ended December 31, 2016. 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. 

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of XsunX, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.  Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.

Revenue Recognition

Revenue and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Revenue is recognized based on the percentage of cost incurred. Costs include all direct materials, subcontractor costs, direct labor and those indirect costs related to contract performance, such as indirect labor, supplies, project planning and preparation, tools and repairs. 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, which require the 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, estimated profitability, and final contract settlements may result in revisions to costs and income, and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billing” represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billing in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016, the cost in excess of billing was $13,725 and the billing in excess of costs was $113,003.

Contract Receivables

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.

Project Warranties

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 months ended December 31, 2016 the Company did not experience costs related to warranty claims.

Stock-Based Compensation

Share-based Payment applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. This has not had a material impact on our results of operations.

Net Earnings (Loss) per Share Calculations 

Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock based awards (Note 4), plus the assumed conversion of convertible debt (Note 5).   

For the three months ended December 31, 2016, the Company calculated the dilutive impact of the outstanding stock options of 1,500,000, and the convertible debt of $223,045, which is convertible into shares of common stock. The stock options and the convertible debt were not included in the calculation of net loss per share, because their impact was antidilutive.  

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2016, 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:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at  December 31, 2016:

	Total		(Level 1)		(Level 2)		(Level 3)
Derivative Liability	$	421,886	$	-	$	-	$	421,886
Total Liabilities measured at fair value	$	421,886	$	-	$	-	$	421,886

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

Balance as of October 1, 2016	$	430,532
Net Gain on change in derivative liability		(8,646	)
Ending balance as of December 31, 2016	$	421,886

Recent Accounting Pronouncements

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.

In May, 2016, FASB issued accounting standards update ASU-2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the same time Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently evaluating the impact of the adoption of ASU 2016-12 on the Company’s financial statements.

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 is currently evaluating the impact of the adoption of ASU 2016-15 on the Company’s financial statements. 

XML

3. CAPITAL STOCK

3 Months Ended

Dec. 31, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

3.     CAPITAL STOCK

At December 31, 2016, 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.

During the three months ended December 31, 2016, the Company issued 106,250,646 shares of common stock upon conversion of principal in the amount of $24,300, plus accrued interest of $3,627.

XML

4. STOCK OPTIONS

3 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4.     STOCK OPTIONS

On May 20, 2014, the Company adopted the 2014 XSUNX, Inc. Stock Option and Award Plan (the “Plan”) to enable the Company to obtain and retain the services of the types of Employees, Consultants and Directors who will contribute to the Company’s long range success and to provide incentives which are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company.  The 2007 Stock Option Plan is superseded by the newly adopted 2014 XSUNX, Inc. Stock Option and Award Plan. Options granted under the Plan may be either Incentive Options or Nonqualified Options and shall be administered by the Company’s Board of Directors (“Board”).  Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified in the Option agreement.

A summary of the Company’s stock option activity and related information follows: 

	12/31/2016
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of the period		1,500,000		$	0.045
Granted		-			-
Exercised		-			-
Expired		-			-
Outstanding, end of the period		1,500,000		$	0.045
Exercisable at the end of the period		1,500,000		$	0.045
Weighted average fair value of   options granted during the period				$	-

The weighted average remaining contractual life of options outstanding issued under the plan as of December 31, 2016 was as follows:

							Weighted
							Average
			Stock		Stock		Remaining
Exercisable			Options		Options		Contractual
Prices			Outstanding		Exercisable		Life (years)
	$	0.045		1,500,000		1,500,000	0.28 years
				1,500,000		1,500,000

We account for stock-based payment award forfeitures as they occur. The Company did not recognize stock-based compensation expense in the statement of operations during the three months ended December 31, 2016.

XML

5. CONVERTIBLE PROMISSORY NOTES

3 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

5.     CONVERTIBLE PROMISSORY NOTES

On September 30, 2014, the amended note dated September 30, 2013 expired. On October 1, 2014, the Company and the Holder of the note entered into an extension of the note on October 1, 2014. The remaining principal balance of $203,496, plus interest of $26,758 and a commitment fee of $22,081 was combined in the extended new note for a balance of $252,335 as of October 1, 2014. No additional cash consideration was provided or exchanged. The maturity date of the note was extended to September 30, 2015. On October 20, 2015, the Company entered into a third extension of the note with 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 remained substantially the same. During the period the Company paid $20,000 of the principal balance, leaving a remaining balance of $23,033.

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The Note matures eighteen months from each advance. The Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or fifty percent (50%) of the three lowest trade prices of three separate trading days recorded in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Note. The Company recorded debt discount of $201,066 related to the conversion feature of the notes, along with derivative liabilities at inception. On November 20, 2014, the lender advanced $50,000 to the Company under the Note at inception. On various dates from February 18, 2015 through September 30, 2016, the lender advanced an additional $350,000 under the Note. During the period ended December 31, 2016, the Company issued 106,250,646 shares of common stock upon conversion of $24,300 in principal, plus accrued interest of $3,627. As of December 31, 2016, there remains an aggregate outstanding principal balance of $188,012. During the three months ended December 31, 2016, the Company recognized debt amortization as interest expense in the amount of $5,412.

Issuance of Convertible Promissory Notes for Services to Related Party

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.

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

Risk free interest rate	Between 0.51% and 1.20%
Stock volatility factor	Between 97.53% and 135.15%
Months to Maturity	3 months to 2 years
Expected dividend yield	None

At December 31, 2016, the fair value of the derivative liability was $421,886.

XML

6. NOTE PAYABLE-RELATED PARTY

3 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

 6.    NOTE PAYABLE-RELATED PARTY

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. During the three months ended December 31, 2016, the Company received advances in the aggregate of $35,000. 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 as of December 31, 2016 was $35,000, plus accrued interest of $4,978.

XML

7. SUBSEQUENT EVENTS

3 Months Ended

Dec. 31, 2016

Subsequent Events [Abstract]

Subsequent Events [Text Block]

7.    SUBSEQUENT EVENTS

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

XML

Accounting Policies, by Policy (Policies)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.  Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options. Actual results could differ from those estimates.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash in banks and money markets with an original maturity of three months or less.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenue and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Revenue is recognized based on the percentage of cost incurred. Costs include all direct materials, subcontractor costs, direct labor and those indirect costs related to contract performance, such as indirect labor, supplies, project planning and preparation, tools and repairs. 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, which require the 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, estimated profitability, and final contract settlements may result in revisions to costs and income, and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billing” represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billing in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016, the cost in excess of billing was $13,725 and the billing in excess of costs was $113,003.

Receivables, Policy [Policy Text Block]

Contract Receivables

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.

Guarantees, Indemnifications and Warranties Policies [Policy Text Block]

Project Warranties

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 months ended December 31, 2016 the Company did not experience costs related to warranty claims.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

Share-based Payment applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. This has not had a material impact on our results of operations.

Earnings Per Share, Policy [Policy Text Block]

Net Earnings (Loss) per Share Calculations 

Net earnings (Loss) per share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing by the weighted average number of common shares outstanding during the year. Diluted net earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the effect of stock options and stock based awards (Note 4), plus the assumed conversion of convertible debt (Note 5).   

For the three months ended December 31, 2016, the Company calculated the dilutive impact of the outstanding stock options of 1,500,000, and the convertible debt of $223,045, which is convertible into shares of common stock. The stock options and the convertible debt were not included in the calculation of net loss per share, because their impact was antidilutive. 

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2016, 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:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at  December 31, 2016:

	Total		(Level 1)		(Level 2)		(Level 3)
Derivative Liability	$	421,886	$	-	$	-	$	421,886
Total Liabilities measured at fair value	$	421,886	$	-	$	-	$	421,886

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

Balance as of October 1, 2016	$	430,532
Net Gain on change in derivative liability		(8,646	)
Ending balance as of December 31, 2016	$	421,886

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

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.

In May, 2016, FASB issued accounting standards update ASU-2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core revenue recognition principle in Topic 606. The amendments provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the same time Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). The Company is currently evaluating the impact of the adoption of ASU 2016-12 on the Company’s financial statements.

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 is currently evaluating the impact of the adoption of ASU 2016-15 on the Company’s financial statements.

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2016:

	Total		(Level 1)		(Level 2)		(Level 3)
Derivative Liability	$	421,886	$	-	$	-	$	421,886
Total Liabilities measured at fair value	$	421,886	$	-	$	-	$	421,886

Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

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

Balance as of October 1, 2016	$	430,532
Net Gain on change in derivative liability		(8,646	)
Ending balance as of December 31, 2016	$	421,886

XML

4. STOCK OPTIONS (Tables)

3 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of the Company’s stock option activity and related information follows:

	12/31/2016
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of the period		1,500,000		$	0.045
Granted		-			-
Exercised		-			-
Expired		-			-
Outstanding, end of the period		1,500,000		$	0.045
Exercisable at the end of the period		1,500,000		$	0.045
Weighted average fair value of   options granted during the period				$	-

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

The weighted average remaining contractual life of options outstanding issued under the plan as of December 31, 2016 was as follows:

							Weighted
							Average
			Stock		Stock		Remaining
Exercisable			Options		Options		Contractual
Prices			Outstanding		Exercisable		Life (years)
	$	0.045		1,500,000		1,500,000	0.28 years
				1,500,000		1,500,000

XML

5. CONVERTIBLE PROMISSORY NOTES (Tables)

3 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

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

Risk free interest rate	Between 0.51% and 1.20%
Stock volatility factor	Between 97.53% and 135.15%
Months to Maturity	3 months to 2 years
Expected dividend yield	None

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	3 Months Ended
	Dec. 31, 2016	Sep. 30, 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Costs in Excess of Billings	$ 13,725
Billings in Excess of Cost	$ 113,003	$ 41,454
Incremental Common Shares Attributable to Dilutive Effect of Call Options and Warrants	1,500,000
Incremental Common Shares Attributable to Dilutive Effect of Conversion of Debt Securities	223,045
Minimum [Member]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Product Warranty, Term	10 years
Maximum [Member]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Product Warranty, Term	25 years

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis	Dec. 31, 2016 USD ($)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Derivative Liability	$ 421,886
Total Liabilities measured at fair value	421,886
Fair Value, Inputs, Level 1 [Member]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Derivative Liability	0
Total Liabilities measured at fair value	0
Fair Value, Inputs, Level 2 [Member]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Derivative Liability	0
Total Liabilities measured at fair value	0
Fair Value, Inputs, Level 3 [Member]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Derivative Liability	421,886
Total Liabilities measured at fair value	$ 421,886

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation	3 Months Ended
	Dec. 31, 2016 USD ($)
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Abstract]
Balance as of October 1, 2016	$ 430,532
Net Gain on change in derivative liability	(8,646)
Ending balance as of December 31, 2016	$ 421,886

XML

3. CAPITAL STOCK (Details) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Sep. 30, 2016
3. CAPITAL STOCK (Details) [Line Items]
Common Stock, Shares Authorized	2,000,000,000		2,000,000,000
Preferred Stock, Shares Authorized	50,000,000		50,000,000
Debt Conversion, Original Debt, Amount (in Dollars)	$ 27,927	$ 0
Series A Preferred Stock [Member]
3. CAPITAL STOCK (Details) [Line Items]
Preferred Stock, Shares Authorized	10,000		10,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)	$ 0.01		$ 0.01
Conversion of Convertible Notes [Member]
3. CAPITAL STOCK (Details) [Line Items]
Debt Conversion, Converted Instrument, Shares Issued	106,250,646
Principal [Member] | Conversion of Convertible Notes [Member]
3. CAPITAL STOCK (Details) [Line Items]
Debt Conversion, Original Debt, Amount (in Dollars)	$ 24,300
Interest [Member] | Conversion of Convertible Notes [Member]
3. CAPITAL STOCK (Details) [Line Items]
Debt Conversion, Original Debt, Amount (in Dollars)	$ 3,627

XML

4. STOCK OPTIONS (Details) - Schedule of Share-based Compensation, Stock Options, Activity	3 Months Ended
	Dec. 31, 2016 $ / shares shares
Schedule of Share-based Compensation, Stock Options, Activity [Abstract]
Outstanding, beginning of the period (in Shares) | shares	1,500,000
Outstanding, beginning of the period	$ 0.045
Granted (in Shares) | shares	0
Granted	$ 0
Exercised (in Shares) | shares	0
Exercised	$ 0
Expired (in Shares) | shares	0
Expired	$ 0
Outstanding, end of the period (in Shares) | shares	1,500,000
Outstanding, end of the period	$ 0.045
Exercisable at the end of the period (in Shares) | shares	1,500,000
Exercisable at the end of the period	$ 0.045
Weighted average fair value of options granted during the period	$ 0

XML

4. STOCK OPTIONS (Details) - Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable - $ / shares	3 Months Ended
	Dec. 31, 2016	Sep. 30, 2016
4. STOCK OPTIONS (Details) - Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Line Items]
Stock Options Outstanding	1,500,000	1,500,000
Stock Options Exercisable	1,500,000
Options Exercisable at $0.045 [Member]
4. STOCK OPTIONS (Details) - Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Line Items]
Stock Options Exercise Price (in Dollars per share)	$ 0.045
Stock Options Outstanding	1,500,000
Stock Options Exercisable	1,500,000
Weighted Average Remaining Contractual Life	102 days

XML

5. CONVERTIBLE PROMISSORY NOTES (Details) - USD ($)			3 Months Ended		16 Months Ended
	Nov. 20, 2014	Oct. 01, 2014	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016	Sep. 30, 2016	Oct. 20, 2015
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Convertible Notes Payable, Current			$ 12,000			$ 12,000
Interest Payable, Current			31,912			28,849
Repayments of Convertible Debt			20,000	$ 20,000
Debt Instrument, Unamortized Discount			5,736			11,148
Proceeds from Convertible Debt			0	50,000
Debt Conversion, Original Debt, Amount			27,927	0
Amortization of Debt Discount (Premium)			5,412	$ 21,557
Derivative Liability, Current			421,886			$ 430,532
Convertible Debt [Member] | Director [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Convertible Notes Payable, Current			$ 12,000
Debt Instrument, Maturity Date			Oct. 01, 2015
Debt Instrument, Convertible, Conversion Price (in Dollars per share)			$ 0.0045
Interest Payable			$ 1,200
Convertible Note Payable One [Member] | Convertible Debt [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Convertible Notes Payable, Current		$ 203,496	23,033				$ 143,033
Interest Payable, Current		26,758
Debt Instrument, Fee Amount		22,081
Debt Instrument, Face Amount		$ 252,335
Debt Instrument, Maturity Date		Sep. 30, 2015
Debt Instrument, Periodic Payment		$ 10,000
Debt Instrument, Frequency of Periodic Payment		per month
Debt Instrument, Payment Terms		beginning November 1, 2015 until the note in the amount of $143,033 is paid in full
Debt Instrument, Interest Rate, Stated Percentage		12.00%
Debt Instrument, Convertible, Terms of Conversion Feature		conversion price of 60% of the lowest volume weighted average price (“VWAP”) occurring during the twenty trading days preceding any conversion date by Holder
Repayments of Convertible Debt			$ 20,000
Convertible Note Payable Two [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Debt Conversion, Converted Instrument, Shares Issued (in Shares)			106,250,646
Convertible Note Payable Two [Member] | Principal [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Debt Conversion, Original Debt, Amount			$ 24,300
Convertible Note Payable Two [Member] | Interest [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Debt Conversion, Original Debt, Amount			3,627
Convertible Note Payable Two [Member] | Convertible Debt [Member]
5. CONVERTIBLE PROMISSORY NOTES (Details) [Line Items]
Convertible Notes Payable, Current			188,012
Debt Instrument, Face Amount	$ 400,000
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Debt Instrument, Convertible, Terms of Conversion Feature	The Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or fifty percent (50%) of the three lowest trade prices of three separate trading days recorded in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Note.
Debt Instrument, Term	18 months
Debt Instrument, Unamortized Discount	$ 201,066
Proceeds from Convertible Debt	$ 50,000				$ 350,000
Amortization of Debt Discount (Premium)			$ 5,412

XML

5. CONVERTIBLE PROMISSORY NOTES (Details) - Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques	3 Months Ended
	Dec. 31, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Expected dividend yield	0.00%
Minimum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk free interest rate	0.51%
Stock volatility factor	97.53%
Months to Maturity	3 years
Maximum [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk free interest rate	1.20%
Stock volatility factor	135.15%
Months to Maturity	2 years

XML

6. NOTE PAYABLE-RELATED PARTY (Details) - USD ($)		3 Months Ended
	Aug. 05, 2014	Dec. 31, 2016	Dec. 31, 2015	Sep. 30, 2016
6. NOTE PAYABLE-RELATED PARTY (Details) [Line Items]
Proceeds from Related Party Debt		$ 0	$ 10,000
Notes Payable, Related Parties, Current		35,000		$ 35,000
Interest Payable, Current		31,912		$ 28,849
Loans Payable [Member]
6. NOTE PAYABLE-RELATED PARTY (Details) [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Debt Instrument, Face Amount	$ 80,000
Proceeds from Related Party Debt		35,000
Debt Instrument, Term	24 months
Notes Payable, Related Parties, Current		35,000
Interest Payable, Current		$ 4,978