<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File No. 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.)
9272 Jeronimo Road, Suite 108, Irvine, California 92618
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(949) 454-9283
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common equity, as of the
latest practicable date:
Title of each Class of Common Stock Outstanding at June 30, 1999
- ----------------------------------- ----------------------------
Common Stock, without par value 32,746,875
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements included herein have been prepared by the
Company, without audit. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, 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 only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of June 30, 1999, have been made.
SIONIX CORPORATION
(A Development Stage Company)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
-------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $136,562 $ 11,230
-------- --------
Total Current Assets 136,562 11,230
-------- --------
PROPERTY AND EQUIPMENT - NET (Notes 2 and 3) 114,954 102,855
-------- --------
OTHER ASSETS
Deposits 32,231 6,831
Intangibles - net (Note 4) 105,993 112,744
-------- --------
Total Other Assets 138,224 119,575
-------- --------
TOTAL ASSETS $389,740 $233,660
======== ========
</TABLE>
2
<PAGE> 3
SIONIX CORPORATION
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
----------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 24,894 $ 134,229
Accrued expenses 127,996 138,082
Related party payables - current portion (Note 6) 50,000 62,304
Convertible debenture -- 20,000
----------- -----------
Total Current Liabilities 202,890 354,615
----------- -----------
LONG-TERM DEBTS
Related party payables - less current portion (Note 6) 327,351 368,351
----------- -----------
Total Long-Term Debts 327,351 368,351
----------- -----------
Total Liabilities 530,241 722,966
----------- -----------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock $0.001 par value; 100,000,000 shares
authorized, 32,746,875 and 25,221,875 shares issued
and outstanding, respectively 32,747 25,222
Additional paid-in capital 4,826,255 4,081,281
Deficit accumulated during the development stage (4,999,503) (4,595,809)
----------- -----------
Total Stockholders' Equity (Deficit) (140,501) (489,306)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 389,740 $ 233,660
=========== ===========
</TABLE>
3
<PAGE> 4
SIONIX CORPORATION
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the Nine Months For the Three Months October 3,
Ended June 30, Ended June 30, 1994 Through
---------------------- --------------------- June 30,
1999 1998 1999 1998 1999
--------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE $ -- $ -- $ -- $ -- $ 15,500
COST OF SALES -- -- -- -- 6,540
--------- --------- --------- -------- -----------
GROSS PROFIT -- -- -- -- 8,960
--------- --------- --------- -------- -----------
EXPENSES
Research and development 1,115 -- -- -- 850,353
Depreciation and
amortization 36,257 69,900 12,423 23,300 420,352
Administrative and
marketing 363,119 30,781 103,645 14,340 2,492,262
--------- --------- --------- -------- -----------
Total Expenses 400,491 100,681 116,068 37,640 3,762,967
--------- --------- --------- -------- -----------
LOSS FROM OPERATIONS (400,491) (100,681) (116,068) (37,640) (3,754,007)
--------- --------- --------- -------- -----------
OTHER INCOME (EXPENSE)
Interest income 6,594 -- 1,810 -- 6,594
Write-down of obsolete
software -- -- -- -- (53,614)
Write-down of obsolete
intangibles -- -- -- -- (1,040,865)
Settlement costs -- -- -- -- (25,125)
Interest (9,797) (14,452) (7,504) -- (132,486)
--------- --------- --------- -------- -----------
Total Other Income
(Expense) (3,203) (14,452) (5,694) -- (1,245,496)
--------- --------- --------- -------- -----------
NET LOSS $(403,694) $(115,133) $(121,762) $(37,640) $(4,999,503)
========= ========= ========= ======== ===========
LOSS PER SHARE $ (0.01) $ (0.00) $ (0.01) $ (0.00)
========= ========= ======== =========
</TABLE>
4
<PAGE> 5
SIONIX CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
From Inception on October 3, 1994 through June 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
-------------------- Paid-in Development Subscription
Shares Amount Capital Stage 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>
5
<PAGE> 6
SIONIX CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) (Continued)
From Inception on October 3, 1994 through June 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
---------------------- Paid-in Development Subscription
Shares Amount Capital Stage 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
services 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>
6
<PAGE> 7
SIONIX CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) (Continued)
From Inception on October 3, 1994 through June 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------- Paid-in Development Subscription
Shares Amount Capital Stage 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 80,880 81 80,799 -- --
Issuance of common stock for
cash at $0.69 per share 14,545 15 9,985 -- --
Issuance of common stock for
cash at $0.67 per share 60,000 60 39,940 -- --
Issuance of common stock for
cash at $0.56 per share 4,444 4 2,496 -- --
Issuance of common stock for
cash at $0.50 per share 368,000 368 183,632 -- --
Issuance of common stock for
cash at $0.31 per share 8,064 8 2,492 -- --
Issuance of common stock for
cash at $0.25 per share 186,800 187 46,513 -- --
Issuance of common stock for
services at $0.20 per share 274,299 274 54,586 -- --
Cancellation of shares issued for
agreement for future production
costs and other shares (542,138) (542) (674,458) -- 675,000
Net loss for the year ended
September 30, 1997 -- -- -- (858,916) --
----------- -------- ----------- ----------- -----------
Balance, September 30, 1997 24,054,590 $ 24,055 $ 5,028,702 $(2,697,433) $(1,656,800)
----------- -------- ----------- ----------- -----------
</TABLE>
7
<PAGE> 8
SIONIX CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) (Continued)
From Inception on October 3, 1994 through June 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------- Paid-in Development Subscription
Shares Amount Capital Stage Receivable
----------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1997 24,054,590 $ 24,055 $ 5,028,702 $(2,697,433) $(1,656,800)
Common stock issued for
cash at $0.10 per share 2,810,000 2,810 278,190 -- --
Common stock issued for
services valued at $0.10
per share 895,455 895 88,651 -- --
Option to purchase 2,200,000
shares of common stock at
$0.001 per share -- -- 220,000 -- --
Cancellation of common
stock and options (2,538,170) (2,538) (1,534,262) -- 1,656,800
Net loss for the year ended
September 30, 1998 -- -- -- (1,898,376) --
----------- -------- ----------- ----------- -----------
Balance, September 30, 1998 25,221,875 25,222 4,081,281 (4,595,809) --
Common stock issued for
cash at $0.10 per share
(unaudited) 7,525,000 7,525 744,974 -- --
Net loss for the nine months
ended June 30, 1999
(unaudited) -- -- -- (403,694) --
----------- -------- ----------- ----------- -----------
Balance, June 30, 1999
(unaudited) 32,746,875 $ 32,747 $ 4,826,255 $(4,999,503) $ --
=========== ======== =========== =========== ===========
</TABLE>
8
<PAGE> 9
SIONIX CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the Nine Months For the Three Months October 3,
Ended June 30, Ended June 30, 1994 Through
------------------------ ------------------------ June 30,
1999 1998 1999 1998 1999
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(403,694) $(115,133) $(121,762) $ (37,640) $(4,999,503)
Adjustments to Reconcile Net
Loss to Net Cash Used by
Operating Activities:
Depreciation and amortization 36,257 69,900 12,423 23,300 420,352
Common stock issued for services -- -- -- -- 644,331
Write down of obsolete assets -- -- -- -- 1,040,865
Change in Assets and Liabilities
(Increase) decrease in
accounts receivable -- -- -- -- --
(Increase) decrease in advances -- (17,254) -- (17,254) --
(Increase) in deposits (25,400) (10,000) (9,999) (10,000) (32,233)
(Increase) decrease in inventory -- -- -- -- --
Increase (decrease) in accounts
payable and accrued expenses (119,421) (61,763) (12,201) (22,954) 171,059
--------- --------- --------- --------- -----------
Net Cash Used by Operating Activities (512,258) (134,250) (131,539) (64,548) (2,755,129)
--------- --------- --------- --------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of intangibles -- (10,448) -- -- (150,188)
Purchase of fixed assets (41,605) (52,010) (5,390) (52,010) (167,342)
--------- --------- --------- --------- -----------
Net Cash Used by
Investing Activities (41,605) (62,458) (5,390) (52,010) (317,530)
--------- --------- --------- --------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Repayment of notes payable
and contracts payable (73,304) (9,877) (2,367) (9,937) (103,211)
Proceeds from sale of common stock 752,499 153,500 56,000 153,500 2,951,158
Proceeds from notes payable
and convertible debenture -- 81,269 -- -- 361,274
--------- --------- --------- --------- -----------
Net Cash Provided by
Financing Activities $ 679,195 $ 224,892 $ 53,633 $ 143,563 $ 3,209,221
--------- --------- --------- --------- -----------
</TABLE>
9
<PAGE> 10
SIONIX CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the Nine Months For the Three Months October 3,
Ended June 30, Ended June 30, 1994 Through
--------------------- ----------------------- June 30,
1999 1998 1999 1998 1999
-------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH $125,332 $ 28,184 $ (83,296) $ 27,005 $ 136,562
CASH AT BEGINNING OF PERIOD 11,230 271 219,858 1,450 --
-------- -------- --------- -------- -----------
CASH AT END OF PERIOD $136,562 $ 28,455 $ 136,562 $ 28,455 $ 136,562
======== ======== ========= ======== ===========
CASH PAID FOR:
Interest $ 11,379 $ -- $ 7,505 $- $ 17,513
Income taxes $ -- $ -- $ -- $- $ --
SUPPLEMENTAL DISCLOSURES
OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Decrease (Increase) in
subscription notes receivable
and future production costs
receivable $ -- $120,000 $ -- $- $(1,536,800)
Addition to debt for acquisition
of intangibles $ -- $ -- $ -- $- $ 1,302,914
Common stock issued for services $ -- $ -- $ -- $- $ 644,331
Equipment acquired under
lease payable $ -- $ -- $ -- $- $ 25,533
</TABLE>
10
<PAGE> 11
SIONIX CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999 and September 30, 1998
NOTE 1 - COMPANY ORGANIZATION AND BUSINESS ACTIVITY
Sionix 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
December 31, 1998 have been principally devoted to research and
development, organizational activities, and raising capital. As of June
30, 1998, the Company has had $15,500 of 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 a September 30 year end.
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. Research and Development
Research and development costs are expensed as incurred.
11
<PAGE> 12
SIONIX CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999 and September 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding at the date of the
financial statements. Stock warrants and stock options have been
included in the fully diluted loss per share.
f. Provision for Income Taxes
No provision for federal 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
carryforwards of approximately $4,250,000 will expire by the year 2013.
g. 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.
h. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a
fair presentation. Such
adjustments are of a normal, recurring nature.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 consisted of the following:
<TABLE>
<S> <C>
Computers and test equipment $ 195,861
Furniture and fixtures 25,834
---------
Total 221,695
Less accumulated depreciation (106,741)
---------
Property and Equipment - Net $ 114,954
=========
</TABLE>
Depreciation expense for the nine months ended June 30, 1999 and the
year ended September 30, 1998 was $29,506 and $31,565, respectively.
12
<PAGE> 13
SIONIX CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999 and September 30, 1998
NOTE 4 - INTANGIBLE ASSETS
Intangible assets at June 30, 1999 consisted of the following:
<TABLE>
<S> <C>
Patents issued and pending $135,033
Less accumulated amortization (29,040)
--------
Intangible Assets - Net $105,993
========
</TABLE>
Amortization expense for the nine months ended June 30, 1999 and for
the year ended September 30, 1998 was $6,751 and $99,154, respectively.
NOTE 5 - LOAN PAYABLE
Pursuant to an acquisition agreement, 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. The liability is included in the related party
payables.
NOTE 6 - 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 June 30, 1999, $377,351 was due by
the Company as a result of these promissory notes of which $50,000 is
considered to be current. The notes bear interest at rates of 7% to
13.5%. All of the notes are due on demand and are unsecured.
NOTE 7 - STOCKHOLDERS' EQUITY
During the year ended December 31, 1995, 414,200 shares of common stock
were issued in return for notes receivable in the amount of $1,656,800.
These notes were secured by the shares issued and were non-recourse.
They had a stated interest rate of 6% and had maturity dates ranging
from March 1, 1998 to September 7, 1998. During the year ended
September 30, 1998, the shares originally issued in conjunction with
the receivable were canceled along with the corresponding subscription
receivable.
13
<PAGE> 14
SIONIX CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999 and September 30, 1998
NOTE 8 - COMMON STOCK PURCHASE WARRANTS
The Company's Board of Directors has authorized and approved 851,400
common stock purchase warrants as of December 31, 1998 as follows:
<TABLE>
<CAPTION>
Number Exercise Price Expiration
of Warrants Per Share Date
----------- -------------- ----------
<S> <C> <C>
851,400 $0.50 June 30, 1999
</TABLE>
NOTE 9 - 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. In the opinion of management, sales of the Company's
products, together with the proceeds of an offering of its common
stock, will be sufficient for it to continue as a going concern.
NOTE 10 - COMMITMENTS
Employment Agreement
On January 1, 1998, the Company entered into an employment contract
with an officer and director. The employment contract calls for
payments of $7,083 per month to the officer through September 30, 2003.
As a signing bonus, the officer was given the option to purchase
2,200,000 shares of the Company's common stock at $0.001 per share.
Accordingly, compensation expense of $220,000 has been recorded.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General. The Company has formulated its business plans and strategies
based on certain assumptions of the Company's management regarding the size of
the market for the products which the Company will be able to offer, the
Company's anticipated share of the market, and the estimated prices for and
acceptance of the Company's products. The Company
14
<PAGE> 15
continues to believe its business plans and the assumptions upon which they are
based are valid. Although these plans and assumptions are based on the best
estimates of management, there can be no assurance that these assessments will
prove to be correct. No independent marketing studies have been conducted on
behalf of or otherwise obtained by the Company, nor are any such studies
planned. Any future success that the Company might enjoy will depend upon many
factors, including factors which may be beyond the control of the Company or
which cannot be predicted at this time. These factors may include product
obsolescence, increased levels of competition, including the entry of additional
competitors and increased success by existing competitors, changes in general
economic conditions, increases in operating costs including cost of supplies,
personnel and equipment, reduced margins caused by competitive pressures and
other factors, and changes in governmental regulation imposed under federal,
state or local laws.
The Company's operating results may vary significantly due to a variety
of factors including changing customers profiles, the availability and cost of
raw materials, the introduction of new products by the Company or its
competitors, the timing of the Company's advertising and promotional campaigns,
pricing pressures, general economic and industry conditions that affect customer
demand, and other factors.
Results of Operations (Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998 and Six Months Ended March 31, 1999). The focus
of the Company's efforts has changed to concentrate on development,
manufacturing and distribution of the Company's hardware products. The immediate
focus is on the DAF (Dissolved Air Flotation) System, Automatic Back-Flush
Filtration System, 0-Zone Mixing Chamber and other related products, some of
which have their own separate markets. The Company has suspended work on the
Sionix, SCADA System and SCADA Manager Software program, which constituted much
of the Company's focus during the three months ended June 30, 1998..
The Company is continuing with engineering focus on hardware and water
filtration equipment. The first phase of testing was completed in November 1998.
The second phase of testing was completed in April 1999 and has revealed useful
data. Management is implementing engineering changes prior to the execution of
contracts for production tooling. Management is in negotiations with suppliers
for tooling and production of various support products that have their own
markets. .
For the three months ended June 30, 1999, the Company reported a net
loss of $121,762. This compares with a net loss of $131,376, for the immediately
preceding quarter (ending March 31, 1999), and a net loss of $37,640 during the
year-ago quarter (ending June 30, 1998) . The decreased quarter to quarter loss
is principally due to slightly lower administrative and marketing expenses. The
increased loss compared with the comparable quarter in 1998 is due to higher
administrative and marketing expenses, as the Company moves toward production.
Liquidity and Capital Resources. On June 30, 1999, the Company had cash
on hand of $136,352. The principal source of liquidity has been sales of
securities. Management
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<PAGE> 16
anticipates that additional capital will be required to finance the Company's
operations. The Company believes that expected cash flow plus the anticipated
proceeds from sales of securities will be sufficient to finance the Company's
operations at currently anticipated levels for a period of at least twelve
months. However, there can be no assurance that the Company will not encounter
unforeseen difficulties that may deplete its capital resources more rapidly than
anticipated.
Year 2000 Issues. The "year 2000" issue concerns the potential exposure
related to the possible automatic generation of business and financial
misinformation resulting from the application of computer programs which have
been written using two digits, rather than four, to define the applicable year
of business transactions. When the year 2000 begins, programs with such
date-related logic will not be able to distinguish between the years 1900 and
2000, potentially causing software and hardware to fail, generating erroneous
calculations or presenting information in an unusable format.
The Company is dependent on multiple computer servers and the
third-party computer programs running on them to provide data in support of its
accounting and engineering functions. The Company's plan for year 2000
compliance includes the following phases: (i) conducting a comprehensive
inventory of the Company's internal systems, including information technology
systems and non-information technology systems and the systems acquired or to be
acquired by the Company from third parties, (ii) assessing and prioritizing any
required changes, upgrades, or enhancements, (iii) resolving any problems by
repairing or, if appropriate, replacing the non-compliant systems, (iv) testing
all remediated systems for Year 2000 compliance and (v) developing contingency
plans that may be employed in the event that any system used by the Company is
unexpectedly affected by a previously unanticipated problem relating to the Year
2000.
In recognition of the potential year 2000 problem, the Company has
begun a program to replace any of its existing communications, engineering and
accounting software that is not year 2000 compliant with new software that is
warranted by its vendors as being year 2000 compliant. It is anticipated that
the costs of such replacement will not be material.
The Company has relationships with various third parties on whom it
relies to provide goods and services necessary for the manufacture and
distribution of its products. These include suppliers and vendors. As part of
its determination of year 2000 readiness, the Company has identified material
relationships with third party vendors and is in the process of assessing the
status of their compliance through the use of informal inquiries and review of
hardware and software documentation.
The components to be purchased by the Company in connection with the
manufacture of its products are generally available through numerous independent
sources. Due to the broad diversification of these sources, the risk associated
with potential business interruptions as a result of year 2000 non-compliance by
one or more sources is not considered significant. It is
16
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anticipated that the steps the Company has taken and is continuing to take to
deal with the year 2000 problem will reduce the risk of significant business
interruptions, but there is no assurance that this outcome will be achieved.
Failure to detect and correct all internal instances of non-compliance or the
inability of third parties to achieve timely compliance could result in the
interruption of normal business operations which could, depending on its
duration, have a material adverse effect on the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 10, 1999 the Company filed an action against Jack Moorehead,
Dascore, LLC, S. Donna Friedman and certain others in the U.S. District Court
for the Southern District of California (Case No. 99-cv-1201-K-LSP). Moorehead
is the former President of the Company, and Dascore LLC is an entity controlled
by him and in a business related to that of the Company. S. Donna Friedman is a
former officer and director of the Company.
The Complaint alleges, among other things, that the defendants have
infringed and continue to infringe on certain patents owned by the Company, and
that they are familiar with the Company's intellectual property through their
past positions with the Company. The Complaint also alleges that the defendants
have sold or attempted to sell technology owned by the Company and covered by
the Company's patents, and that the defendants are unfairly competing with the
Company by exploiting its technology without payment. In addition, the action
includes claims of false advertising, in that the defendants are falsely
representing that they own the technology; interference with economic relations
and interference with prospective advantage, relating to the effect that the
defendants' conduct has had on the Company's dealings with third parties; and
misappropriation of trade secrets learned by the defendants while associated
with the Company. The complaint further alleges that the defendants conspired to
convert technology, money and equipment owned by the Company, and used Company
funds to pay personal expenses. Finally, the complaint alleges that Moorehead
and Friedman defrauded the Company and breached their fiduciary duties to the
Company in connection with their departure from the Company and their retention
of property of the Company.
In the Complaint, the Company seeks monetary damages in an amount to be
determined, injunctive relief, an accounting and a declaratory judgment.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 -- Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the three months ended June 30, 1999 the Company filed a Report
on Form 8-K, dated June 10, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 12, 1999 Sionix Corporation
By: /s/ James J. Houtz
-----------------------------------------
James J. Houtz, President
By: /s/ Robert E. McCray
-----------------------------------------
Robert E. McCray, Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 136,562
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 136,562
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 389,740
<CURRENT-LIABILITIES> 202,890
<BONDS> 0
0
0
<COMMON> 32,747
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 389,740
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 116,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (121,762)
<INCOME-TAX> (121,762)
<INCOME-CONTINUING> (121,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121,762)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.00)
</TABLE>
