<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTER ENDED: MARCH 31, 1997; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD _________ TO __________
COMMISSION FILE NUMBER: 2-95626-D
SIONIX CORPORATION
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 87-0428526
----------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5405 Morehouse Drive, Suite 200, San Diego, California 92121
- ------------------------------------------------------ ------------
(Address of principal executive offices) (Zip Code)
(619) 622-0200
------------------------------------------------------
(Registrant's telephone number, including area code)
5405 Morehouse Drive, Suite 250, San Diego, California 92121
------------------------------------------------------------
(Former name or former address, if changed since last report)
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 during the preceding 12 months (or for such shorter period that a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
On March 31, 1997 there were 23,996,576 shares of the registrant's
Common Stock, $.001 par value, outstanding and subscribed.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements included herein have been prepared by the
Company, without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of December 31, 1996 and the results of its operations and
changes in its financial position from inception through December 31, 1996 have
been made. The results of operations for such interim period is not necessarily
indicative of the results to be expected for the entire year.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Balance Sheets 3
Statement of Operations 5
Statement of Stockholders' Equity 6
Statement of Cash Flows 9
Notes to Financial Statements for Period 11
Independent Auditor's Report 17
</TABLE>
All other schedules are not submitted because they are not applicable
or not required or because the information is included in the financial
statements or notes thereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1997 1996
---------- ----------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash in banks $ 22,279 $ 36,041
Accounts Receivable 35,000 --
Inventory (Note 2) 52,602 40,333
Prepaid expenses 2,981 2,981
---------- ----------
Total Current Assets 112,862 79,355
---------- ----------
PROPERTY AND EQUIPMENT - NET (Notes 2 and 3) 98,374 107,367
---------- ----------
OTHER ASSETS
Intangibles - net (Notes 2 and 4) 1,236,376 1,210,622
Deposits 6,996 6,996
---------- ----------
Total Other Assets 1,243,372 1,217,618
---------- ----------
TOTAL ASSETS $1,454,608 $1,404,340
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE> 4
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1997 1996
---- ----
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Loan payable (Note 5) $ 50,000 $ 50,000
Lease payable, current portion (Note 6) 7,847 7,847
Accrued expenses 155,372 112,272
----------- -----------
Total Current Liabilities 213,219 170,119
----------- -----------
LONG-TERM DEBTS
Lease payable (Note 6) 11,538 16,021
Related party payables (Note 7) 201,852 72,200
Convertible debenture (Note 8) 30,000 10,000
----------- -----------
Total Long-Term Debts 243,390 98,221
----------- -----------
Total Liabilities 456,609 268,340
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 11) -- --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock $.001 par value,
100,000,000 shares authorized,
23,996,576 shares
issued and outstanding 23,997 23,600
Additional paid-in capital 4,924,700 5,282,717
Deficit accumulated during the developmental stage (2,293,898) (1,838,517)
Subscription receivable (Note 10) (1,656,800) (2,331,800)
----------- -----------
Total Stockholders' Equity 997,999 1,136,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,454,608 $ 1,404,340
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 5
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months For the Three Months From
Ended Ended Inception on
March 31, March 31, October 3,
------------------------------------------------------- 1994 Through
March 31,
1997 1996 1997 1996 1997
------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE $ 50,000 $ -- $ 50,000 $ -- $ 50,000
COST OF SALES 14,863 -- 14,863 -- 14,863
GROSS PROFIT 35,137 -- 35,137 -- 35,137
EXPENSES
Research and Development -- 394,639 -- 200,701 843,652
Depreciation and
Amortization 55,200 45,443 27,600 19,495 215,155
Administrative and
Marketing 428,852 339,743 210,717 131,508 1,235,616
----------- ----------- ----------- ----------- -----------
Total Expenses 484,052 779,825 238,317 351,704 2,294, 423
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (448,915) (779,825) (203,180) (351,704) (2,259,286)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest (6,466) (13,607) (3,341) (1,074) (34,612)
----------- ----------- ----------- ----------- -----------
Total other Income
(Expense) (6,466) (13,607) (3,341) (1,074) (34,612)
----------- ----------- ----------- ----------- -----------
NET LOSS $ (455,381) $ (793,432) $ (206,521) $ (352,778) $(2,293,898)
=========== =========== =========== =========== ===========
LOSS PER SHARE $ (0.02) $ (0.12) $ (0.01) $ (0.02)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE> 6
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM INCEPTION ON OCTOBER 3, 1994 THROUGH MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated Subscription
Shares Amount Capital Deficit Receivable
----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance
October 3, 1994 -- $ -- $ -- $ -- $ --
Shares issued to initial
stockholders in October
1994 at $0.01 per share 10,000 10 90 -- --
Net loss from October 3,
1994 through
December 31, 1994 -- -- -- (1,521) --
----------- ----------- ----------- ----------- ----------------
Balance
December 31, 1994 10,000 10 90 (1,521) --
Issuance of Common stock
for assignment of rights
recorded at predecessor cost at
$0.00 per share 1,990,000 1,990 (1,990) -- --
Issuance of Common
stock for services
at $0.25 per share 572,473 572 135,046 -- --
Issuance of Common stock for
debt at $0.25 per share
188,561 188 47,347 -- --
Issuance of Common
stock for debt at
$0.50 per share 595,860 596 297,334 -- --
Issuance of Common
stock for debt
at $2.00 per share 98,194 98 196,290 -- --
Issuance of Common stock for
debt at $4.00 per share 156,025 156 623,944 -- --
----------- ----------- ----------- ----------- ----------------
Balance Forward 3,611,113 $ 3,610 $ 1,298,061 $ (1,521) $ --
----------- ----------- ----------- ----------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 7
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FROM INCEPTION ON OCTOBER 3, 1994 THROUGH MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated Subscription
Shares Amount Capital Deficit Receivable
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Forward 3,611,113 $ 3,610 $ 1,298,061 $ (1,521) $ --
Issuance of Common stock for cash
at $4.00 per share 138,040 138 552,022 -- --
Issuance of Common stock for
subscription note receivable at
$4.00 per share 414,200 414 1,652,658 -- (1,656,800)
Issuance of Common stock for
future production
costs at $6.00 per share 112,500 113 674,887 -- (675,000)
Issuance of Common stock for cash
at $6.00 per share 94,517 95 567,005 -- --
Net loss for the year
ended December 31, 1995 -- -- -- (914,279) --
----------- ----------- ----------- ----------- -----------
Balance
December 31, 1995 4,370,370 4,370 4,744,633 (915,800) (2,331,800)
Issuance of Common
stock in reorganization 18,632,612 18,633 (58,033) -- --
Issuance of Common
stock for cash at $1.00
per share 572,407 573 571,834 -- --
Issuance of Common
stock for service at $1.00 per
share 24,307 24 24,283 -- --
Net loss for the nine
months ended
September 30, 1996 -- -- -- (922,717) --
Balance
September 30, 1996 23,599,696 $ 23,600 $ 5,282,717 $(1,838,517) $(2,331,800)
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE> 8
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FROM INCEPTION ON OCTOBER 3, 1994 THROUGH MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Accumulated Subscription
Shares Amount Capital Deficit Receivable
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance
September 30,1996 23,599,696 $ 23,600 $ 5,282,717 $(1,838,517) $(2,331,800)
Issuance of common stock
for cash at $1.00
per share 125,380 125 125,255 -- --
Issuance of common stock
for cash at $0.50
per share 384,000 384 191,616 -- --
Cancellation of agreement
For future production
Costs (112,500) (112) (647,888) -- 675,000
Net loss for six months
ended March 31, 1997 -- -- -- (455,382) --
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 23,996,576 $ 23,997 $ 4,924,700 $(2,293,898) $(1,656,800)
----------- ----------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE> 9
SIONIX CORPORATION
(FORMERLY AUTOMATIC CONTROL CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
From
Inception on
For the Six Months For the Three Months October 3,
Ended Ended 1994 Through
March 31, March 31, March 31,
-----------------------------------------------------------------------
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net Loss $ (455,381) $ (793,432) $ (206,521) $ (352,778) $(2,293,898)
Adjustments to Reconcile Net Loss
to Net Cash Used
By Operating Activities:
Depreciation and
amortization 55,200 45,443 27,600 19,495 215,155
Common stock issued
For services -- 135,618 -- -- 159,925
Change in Assets and
Liabilities
(Increase) decrease in
accounts receivable (35,000) -- (35,000) -- (35,000)
(Increase) decrease in
inventory (12,169) -- 9,283 -- (52,602)
(increase) decrease in
other current assets -- (4,596) -- 66,395 (2,981)
Increase (decrease)
in accrued expenses 43,100 42,620 (18,084) 28,129 115,973
----------- ----------- ----------- ----------- -----------
Net Cash Used by
Operating Activities (404,350) (574,347) (222,722) (238,759) (1,893,428)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of deposits -- -- (6,996)
Purchase of Intangibles (69,954) (9,154) (3,747) -- (144,371)
Purchase of fixed assets (2,007) (19,048) (365) (9,992) (77,089)
----------- ----------- ----------- ----------- -----------
Net Cash Used By
Investing activities (71,961) (28,202) (4,112) (9,992) (228,456)
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE> 10
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
From
Inception on
For the Six Months For the Three Months October 3,
Ended Ended 1994 Through
March 31, March 31, March 31,
-------------------------- -----------------------------------------
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of notes payable and
contracts payable (4,483) (6,500) (1,995) (6,500) (12,647)
Proceeds from sale of
Common stock 317,380 579,445 192,000 126,500 1,868,458
Proceeds from notes payable and
convertible debenture 149,652 -- 33,483 -- 288,352
----------- ----------- ----------- ----------- -----------
Net Cash Provided by
Financing Activities $ 462,549 $ 572,945 $ 223,487 $ 120,000 $ 2,144,163
=========== =========== =========== =========== ===========
INCREASE (DECREASE)
IN CASH $ (13,762) $ (29,604) $ (3,347) $ (128,751) $ 22,279
CASH AT BEGINNING
OF PERIOD 36,041 130,260 25,626 229,407 --
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 22,279 $ 100,656 $ 22,279 $ 100,656 $ 22,279
=========== =========== =========== =========== ===========
CASH PAID FOR:
Interest $ 6,466 $ 1,074 $ 3,341 $ 1,074 $ 12,600
Income taxes $ -- $ -- $ -- $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Increase in subscription notes
receivable and future production
costs receivable $ -- $ -- $ -- $ -- $(2,331,800)
Addition to debt for acquisition
of intangibles $ -- $ -- $ -- $ -- $ 1,302,914
Common stock issued for services $ -- $ -- $ -- $ 135,618 $ 159,925
Equipment acquired under lease
payable $ -- $ -- $ -- $ -- $ 25,533
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE> 11
SIONIX CORPORATION
(FORMERLY AUTOMATIC CONTROL CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997 AND SEPTEMBER 30, 1996
NOTE 1 - COMPANY ORGANIZATION AND BUSINESS ACTIVITY
Sionix Corporation (formerly Automatic Control Corporation) (the
"Company") was incorporated in Nevada on October 3, 1994. The Company
was formed to design, develop, and market an automatic water filtration
system primarily for small water districts.
The Company is in the development stage and its efforts through March
31, 1997 have been principally devoted to research and March 31, 1997,
the Company has had limited revenues. The ultimate recovery of
investments and costs is dependent on future profitable operations,
which presently cannot be determined.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected to change its year end to
September 30, subject to IRS approval.
b. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
c. Property and Equipment
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are expensed
as incurred. Depreciation of property and equipment is determined using
the straight-line method over the expected useful lives of the assets
as follows:
<TABLE>
<CAPTION>
Description Useful Lives
-------------------- ------------
<S> <C>
Computers and test equipment 5 years
Furniture and fixtures 5 years
</TABLE>
d. Intangible Assets
Intangible assets are recorded at cost. Amortization of the costs are
determined using the straight-line method over the expected useful life
of 15 years.
11
<PAGE> 12
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(CONTINUED)
MARCH 31, 1997 AND SEPTEMBER 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Inventory
Work-in-process and finished goods are stated at the lower of average
cost or market. Inventories at September 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
March 31 September 30,
1997 1996
------------------- -----------------
<S> <C> <C>
Work-in-progress $ - $ 33,083
Finished goods 52,602 7,250
------------------ -----------------
Total $ 52,602 $ 40,333
================== =================
</TABLE>
f. Research and Development
Research and development costs are expensed as incurred.
g. Net Loss Per Share
The computation of net loss per share of common stock is based on the
weighted average number of shares outstanding at the date of the
financial statements.
h. Provision for Income Taxes
No provision for income taxes have been recorded due to net operating
losses. The Company accounts for income taxes pursuant to FASB
Statement No. 109. The Internal Revenue Code contains provisions which
may limit the loss carryforwards available should certain events occur,
including significant changes in stockholder ownership interests,
accordingly the tax benefit of the loss carryovers is offset by a
valuation allowance of the same amount. The loss carryovers of
approximately $2,290,000 will expire by the year 2012.
i. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
12
<PAGE> 13
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997 AND SEPTEMBER 30, 1996
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1997 and September 30, 1996
consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1996
--------- ---------
<S> <C> <C>
Computers and test equipment $ 127,610 $ 125,603
Furniture and fixtures 3,832 3,832
--------- ---------
Total 131,442 129,435
Less accumulated depreciation (33,068) (22,068)
--------- ---------
Property and Equipment - Net $ 98,374 $ 107,367
========= =========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets at March 31, 1997 and September 30, 1996 consisted of
the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1996
----------- -----------
<S> <C> <C>
Patents issued and pending $ 106,524 $ 102,531
Intellectual property 745,793 745,667
Marketing and development costs 566,147 500,312
Less accumulated amortization (182,088) (137,888)
----------- -----------
Intangible Assets - Net $ 1,236,376 $ 1,210,622
=========== ===========
</TABLE>
NOTE 5 - LOAN PAYABLE
Pursuant to the acquisition agreement as explained in Note 9, the
Company assumed various promissory notes originally signed in 1992 and
1993 totaling $50,000. The notes bear interest at 8% and were
originally due in 1994. Management of the Company currently cannot
locate the holder of the notes and consequently has not been able to
settle the liability. The amount is being included as a current
liability in the accompanying financial statements until management can
locate the note holder and settle the debt.
13
<PAGE> 14
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997 AND SEPTEMBER 30, 1996
NOTE 6 - LEASE COMMITMENTS
The Company has entered into an operating lease for its office space.
Under the terms of the lease, the Company is obligated to pay the
following for the fiscal years ended September 30,
<TABLE>
<S> <C> <C>
1997 $ 83,460
1998 83,460
1999 $ 20,865
--------
Total $187,785
========
</TABLE>
The Company leases equipment with a lease term through July of 1999.
Obligations under this capital lease have been recorded in the
accompanying financial statements at the present value of future
minimum lease payments. The capitalized cost of $25,533 less
accumulated depreciation of $2,553 is included in property and
equipment in the accompanying financial statements
Obligations under this capital lease consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Total $19,385
Less: current portion (7,847)
-------
Long-term portion $11,538
=======
</TABLE>
The future minimum lease payments under this capital lease and the net
present value of the future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
------------- -------
<S> <C> <C>
1997 $ 4,735
1998 9,470
1999 7,892
2000 -
2001 and thereafter -
-------
Total future minimum lease payments 22,097
Less, amount representing interest (2,712)
-------
Present value of future minimum
lease payments $19,385
=======
</TABLE>
14
<PAGE> 15
SIONIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997 AND SEPTEMBER 30, 1996
NOTE 7 - RELATED PARTY PAYABLES
The Company has received advances in the form of promissory notes from
various shareholders and other related parties in order to pay minimal
ongoing operating expenses. As of March 31, 1997, $201,852 was due by
the Company as a result of these promissory notes. The notes bear
interest at 10% and 13% and mature during November and December, 1996.
The related parties and shareholders currently intend to extend the
promissory notes at least another year and thus the corresponding
liability has been classified as long-term in the accompanying
financial statements.
NOTE 8 - CONVERTIBLE DEBENTURE
In September 1996 to December 1996, the Company raised $30,000 in 10%
redeemable, convertible debentures. Interest accrues at a rate of 10%
and is payable on a quarterly basis. The principle and unpaid interest
are due during September 1998. The principal amount is convertible at
the option of the holder at any time prior to maturity into shares of
the Company's common stock at a rate of $1.00 per common share.
NOTE 9 - ACQUISITION AGREEMENT AND PLAN OF REVERSE MERGER
On December 1, 1995, Automatic Control Corporation (ACC) entered into
an Acquisition Agreement and Plan of Reverse Merger with Coronado
Capital Corporation (Coronado). The shareholders of ACC and Coronado
approved the merger on December 21, 1995 and December 28, 1995,
respectively. The merger was effective on January 5, 1996. Under the
terms of the merger agreement between the two companies, the stock of
Coronado was reverse-split on a 1-for-4 basis effective as of January
16, 1996, and each pre-merger shareholder of ACC received 4.819 new
shares of the surviving corporation.
As a result of the merger, the pre-merger shareholders of ACC made up
approximately 95% of the total issued and outstanding shares of
Coronado, following the effective date of the merger.
Under the terms of the merger agreement, the name of Coronado was
changed to Automatic Control Corporation. On January 23, 1996, the
shareholders approved the change of the Company's name to Sionix
Corporation.
NOTE 10 - STOCKHOLDERS' EQUITY
During the year ended March 31, 1995, 414,200 shares of common stock
were issued in return for notes receivable in the amount of $1,656,800.
These notes are secured by the shares issued and are non-recourse. They
have a stated interest rate of 6% and have maturity dates ranging from
March 1, 1998 to September 7, 1998.
In March 1997, the Company revoked an agreement for future production
costs due to the heavy backlog of the contracting company. Under the
original agreement, the Company issued 122,500 shares at $6.00 for
productions costs valued at $675,000. Under the revocation agreement,
the shares originally issued have been cancelled and the accompanying
financial statements reflect the cancellation.
15
<PAGE> 16
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit in San Diego County Superior
Court filed by an ex-employee. The ex-employee alleges that the Company
breached his employment contract and personally defamed him. The
Company has filed its cross claims and intends to vigorously defend the
lawsuit. The ultimate outcome of the case is uncertain but management
believes an unfavorable outcome is unlikely. Therefore, no accrual has
been recorded in the accompanying financial statements.
NOTE 12 - COMMON STOCK PURCHASE WARRANTS
The Company's Board of Directors has authorized and approved 638,445
common stock purchase warrants as of September 30, 1996 as follows:
<TABLE>
<CAPTION>
Number Exercise Price Expiration
of Warrants Per Share Date(s)
----------- -------------- ------------------------------
<S> <C> <C>
570,100 $ 1.00 May 15, 1998 - Sept. 30, 1998
104,445 $ 10.00 January 4, 1998
783 $ 550.00 May 15, 1998
768,000 $ 0.50 January 2, 1997-March 31, 1999
</TABLE>
NOTE 13 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company does not have
significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern. It is the intent of the
Company to generate revenue through the sales of its software and
hardware products. Sales of the software product began in October, 1996
and hardware sales are scheduled to begin in January, 1997.
Additionally, the Company is in the process of filing a registration
statement for a public offering with the Securities and Exchange
Commission. In the opinion of management, sales of the Company's
products, together with the proceeds of an offering, will be sufficient
to fund the Company's operating expenses and capital requirements for
at least the next twelve months. However, the outcome of these events
is currently uncertain.
16
<PAGE> 17
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sionix Corporation
(Formerly Automatic Control Corporation)
(A Development Stage Company)
San Diego, California
The accompanying balance sheet of Sionix Corporation (formerly Automatic Control
Corporation) (a development stage company) as of March 31, 1997 and the related
statements of operations, stockholders' equity and cash flows for the three
months then ended March 31, 1997 and 1996 and for the six months ended March 31,
1997 and 1996 and from inception on October 3, 1994 through March 31, 1997, were
not audited by us and, accordingly, we do not express an opinion on them. The
accompanying balance sheet of Sionix Corporation as of September 30, 1996 was
audited by us and we expressed an unqualified opinion on it in our report dated
October 17, 1996.
/s/ JONES, JENSEN & COMPANY
- ---------------------------
JONES, JENSEN & COMPANY
MAY 7, 1997
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter the Company initiated the sales of its automation
software and reduced the research and development labor force to focus on it's
hardware products. Sales of the software were in line with a new product
introduction, however the amounts were below management's expectations. Current
sales levels of the software product are not enough to meet the Company's
obligations, so additional investment by officers and shareholders were required
to allow the Company to continue operations. Management has decided to deferred
seeking an underwriter for a secondary offering for the short term. Management
is, however, continuing discussions with a number of individuals and groups who
are considering an investment in the Company.
RESULTS OF OPERATIONS
For the quarter the Company is reporting a loss of $206,500 or $0.01
per share on $50,000 in revenues. This represents a 17% reduction in the loss
over the previous quarter and a 41.5% reduction in the loss over the same
quarter of the previous year. During the quarter the company shipped an
additional 500 preview copies of its automation software to members of the water
treatment industry nationwide.
In converting it's focus to it's water treatment components and
filtration, the Company is negotiating OEM agreements with several international
companies. The purpose of these agreements is to combine Sionix components with
other filtration products into package filtration plants. The first of these
agreements, with the filtration products division of a Fortune 500 company,
allows Sionix to package and market it's portable DAF system with their liquid
filter cartridge system, as well as sell the DAF system through their dealers
nationwide. These particular liquid filter cartridges have been approved by many
states as an effective barrier to cryptosporidium and other harmful bacteria.
The Company has also met with many potential foreign customers that are
looking for immediate solutions to their water problems. Representatives from
Brazil, Chile and Argentina in South America and Saudi Arabia in the middle east
are reviewing Sionix filtration technology for use in their countries.
In 1995, the Company had negotiated an agreement with a tooling firm to
complete the production molds for plastic parts in exchange for common stock.
The tooling firm has notified the Company that due to its heavy backlog, it will
take too long to complete the tooling to supply waiting customers. The Company
decided to cancel that agreement and use foundry cast stainless steel parts. The
Company will divide the production tooling agreement with a number of different
tooling companies who will be able to delivers production dies in much less
time, and at competitive prices. The Company maintains an Internet home page at
http://www.sionix.com.
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CAUTIONARY STATEMENT:
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive and volatile conditions
that currently exist in the water filtration marketplace are expected to
continue, placing further pressure on pricing which could adversely impact sales
and erode profit margins; (ii) many of the Company's major competitors in each
of its channels of distribution have significantly greater financial resources
than the Company; and (iii) the inability to carry out marketing and sales plans
would have a materially adverse impact on the Company's projections. The
foregoing list should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
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PART II - OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in a lawsuit in San Diego County Superior
Court filed by an ex-employee. The ex-employee alleges that the Company breached
his employment contract and personally defamed him. The Company has filed its
cross claims and intends to vigorously defend the lawsuit. The ultimate outcome
of the case is uncertain but management believes an unfavorable outcome is
unlikely. Therefore, no accrual has been recorded in the accompanying financial
statements.
With the exception of the above referenced matter, there are no legal
proceedings against the Company and the Company is unaware of any unasserted
claim or assessment which will have a material effect on the financial position
or future operations of the Company.
ITEM 2. CHANGES IN SECURITIES.
Not required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Required
ITEM 5. OTHER INFORMATION.
Not required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) There are no exhibits filed with this Form 10-Q.
(b) There were no other reports on Form 8-K filed during the
quarter of the period covered.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
SIONIX CORPORATION
A UTAH CORPORATION
Dated: May 13, 1997 /s/ JACK F. MOOREHEAD
------------------------
By: Jack F. Moorehead
Its: President
Dated: May 13, 1997 /s/ MICHAEL A. TAYLOR
---------------------
By: Michael A. Taylor
Its: Chief Executive Officer
21
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<FISCAL-YEAR-END> SEP-30-1997
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