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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] 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 2-95626-D
SIONIX CORPORATION
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(Exact name of small business issuer as specified in its charter)
Utah 87-0428526
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7282 Jeronimo Road, Suite 108, Irvine, CA 92618
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(Address of principal executive offices)
949 454-9283
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 [X] No [ ]
As of June 30, 2000, the Company had 49,380,119 shares of its $.001 par value
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Balance Sheet at June 30, 2000 (unaudited) 3
Condensed Statements of Operations for the Three Months
Ended June 30, 2000 and June 30, 1999 (unaudited) 4
Condensed Statements of Operations for the Nine Months
Ended June 30, 2000 and June 30, 1999 (unaudited) 5
Condensed Statements of Cash Flows for the Nine Months Ended
June 30, 2000 and June 30, 1999 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
2
<PAGE> 3
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 2000
-------------
ASSETS
<S> <C>
Current assets:
Cash $ 675,760
-----------
Total current assets 675,760
-----------
Property and equipment, net 161,151
-----------
Other assets
Patents - net 96,991
Deposits 6,831
-----------
Total other assets 103,822
-----------
$ 940,733
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,842
Accrued interest 103,445
Notes payable - related parties 377,351
-----------
Total current liabilities 540,638
-----------
Shareholders' equity:
Common stock, 100,000,000 shares authorized, $.001 par value,
49,380,119 shares issued and outstanding 49,380
Additional paid in capital 7,495,312
Deficit accumulated during the development stage (7,144,597)
-----------
Total shareholders' equity 400,095
-----------
$ 940,733
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
COSTS AND EXPENSES:
Research and development $ -- $ --
Depreciation and amortization 12,973 12,423
General and administrative 809,659 103,645
----------- -----------
OPERATING LOSS (822,632) (116,068)
Other income (expense):
Interest income 8,982 1,810
Interest expense (7,250) (7,504)
----------- -----------
NET LOSS $ (820,900) $ (121,762)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.00)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 48,685,225 32,466,875
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS CUMULATIVE
ENDED JUNE 30, FROM INCEPTION
--------------------------------- (OCTOBER 3, 1994)
2000 1999 TO JUNE 30, 2000
------------- ------------ -----------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Research and development $ -- $ 1,115 $ 857,438
Depreciation and amortization 39,833 36,257 473,023
General and administrative 1,519,143 363,119 5,438,724
------------ ------------ -----------
OPERATING LOSS (1,558,976) (400,491) (6,769,185)
OTHER INCOME (EXPENSE):
Interest income 18,132 6,594 24,726
Interest expense (22,341) (9,797) (180,365)
------------ ------------ -----------
NET LOSS $ (1,563,185) $ (403,694) $(6,924,824)
============ ============ ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.01)
============ ===========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 43,398,279 28,984,375
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS CUMULATIVE
ENDED JUNE 30, FROM INCEPTION
---------------------------- (OCTOBER 3, 1994)
2000 1999 TO JUNE 30, 2000
------------ --------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,563,185) $(403,694) $(7,144,598)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 39,832 36,257 473,022
Common stock issued for services 1,033,730 -- 2,113,870
Write-down of obsolete assets -- -- 1,040,865
Gain on settlement of debt -- -- (19,522)
Change in assets and liabilities:
Decrease in other current assets 1,164 -- --
(Increase) decrease in deposits 30,400 (25,400) (6,831)
Increase (decrease) in accounts payable
and accrued expenses 603 (119,421) 200,979
----------- --------- -----------
Net cash used by operating activities (457,456) (512,258) (3,342,215)
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangibles -- -- (150,188)
Purchase of fixed assets (81,595) (41,605) (257,207)
----------- --------- -----------
Net cash used by investing activities (81,595) (41,605) (407,395)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable -- (73,304) (42,212)
Issuance of common stock 1,030,350 752,499 4,167,308
Proceeds received from notes
payable and convertible debenture -- -- 361,274
Payments on notes payable and
convertible debenture -- -- (61,000)
----------- --------- -----------
Net cash provided by financing activities 1,030,350 679,195 4,425,370
----------- --------- -----------
Net increase in cash 491,299 125,332 675,760
CASH, BEGINNING OF PERIOD 184,461 11,230 --
----------- --------- -----------
CASH, END OF PERIOD $ 675,760 $ 136,562 $ 675,760
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS CUMULATIVE
ENDED JUNE 30, FROM INCEPTION
------------------- (OCTOBER 3, 1994)
2000 1999 TO JUNE 30, 2000
------- -------- -----------------
<S> <C> <C> <C>
Supplemental disclosures of non-cash
investing and financing activities:
(Increase) in subscription notes
receivable and future production
costs receivable $ -- $ -- $(1,536,800)
Addition to debt for acquisition
on intangibles $ -- $ -- $ 1,302,914
Equipment acquired under lease payable $ -- $ -- $ 25,533
Cash paid for:
Interest $9,000 $11,379 $ 13,132
Income taxes $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Sionix Corporation (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they
do not include all of the information required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended June 30, 2000 are not necessarily
indicative of the results for any future period. These statements should
be read in conjunction with the Company's audited financial statements and
notes thereto for the year ended September 30, 1999.
NOTE B - RECLASSIFICATIONS
Reclassifications of certain prior period balances have been made to
conform with the current presentation.
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Item 2. Management's Discussion and Analysis or Plan of Operation
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 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 technical problems in bringing the product to market, the
costs associated with commencement of production of the products, possible
product obsolescence, increased levels of competition, 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.
Plans for Ensuing Twelve Months. During the next twelve months the Company
plans to commence production and marketing of its DAF (Dissolved Air Flotation)
Water Filtration systems, Automatic Back-Flush Filtration System, O-Zone Mixing
Chamber and other related products. The Company anticipates that it will
contract for the manufacture of some components directly, but will enter into a
joint venture or similar arrangement with an established manufacturer for the
production of most components and final assembly, as well as most aspects of
marketing and sales. The Company is currently negotiating a joint venture
agreement with an established manufacturing company in a related business. With
respect to the components to be produced by the Company, it has executed several
contracts and fabrication has commenced on several components for production of
the DAF system. The Company does not anticipate any significant purchases of
equipment or other significant capital expenditures in this connection, nor does
it expect to significantly increase the number of employees until such time as
production has commenced and additional employees are needed in the areas of
administration, quality control, sales and customer technical support.
The Company does not contemplate the need to raise additional equity
capital during the next twelve months in order to commence production. It
believes its current cash reserves are sufficient to meet its presently
anticipated cash needs until it begins to collect revenues from the sale of
products through the anticipated joint venture. The Company believes that use of
the joint venture arrangement will significantly decrease its capital
requirements to commence production. However, in the event that unforeseen
events occur, the Company encounters delays in bringing the products to
production, or the Company pursues other business opportunities, it may be
required to raise additional equity capital.
9
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Results of Operations (Nine Months Ended June 30, 2000 Compared to Nine
Months Ended June 30, 1999). For the nine months ended June 30, 2000, the
Company reported a loss of $1,563,185, or $.04 per share. This compares with a
loss of $403,964, or $.01 per share, for the nine months ended June 30, 1999.
The increase in the loss is principally due to higher administrative and
marketing costs incurred as the Company nears production, as well as to "book"
expense related to issuance of shares to officers and other employees as
compensation pursuant to their Employment Agreements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 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.
The defendants have filed a cross-complaint against the Company based on a
breach of contract cause of action and to collect loans allegedly made by them
to the Company. The case is currently in the discovery stage.
The Company has filed an action for professional negligence, malpractice,
breach of fiduciary duty and breach of contract against Gilliam, Duncan & Harms,
its previous patent counsel, Wenthur & Chachas, its previous corporate counsel,
and the individual attorneys in these firms (Sionix Corporation v. Gilliam,
Duncan & Harms, et al, San Diego County Superior Court, Case No. GIC 747267).
The action alleges, among other things, that the patent attorneys assisted the
defendants in the Sionix v. Moorehead case in infringing Sionix's patents and
misappropriating its trade secrets. The action seeks compensatory damages,
injunctive relief, declaratory relief, attorneys fees and interest. The
proceeding is in an early discovery stage.
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The Company is the defendant in an action, Barnett v. Sionix Corporation,
pending in Orange County Superior Court, (Case No. 00CC05463). The complaint
seeks repayment of approximately $150,000 in alleged loans by the plaintiff, who
is the mother-in-law of the former Chief Executive Officer of the Company,
Michael Taylor. The Company has cross-complained against the plaintiff and Mr.
Taylor for breach of fiduciary duty relating to the alleged loans.
Item 2. Changes in Securities and Use of Proceeds
During the three months ended June 30, 2000, the Company issued 1,213,114
shares of its Common Stock to seven persons, including employees and independent
contractors, for services rendered. The Company believes all of such sales were
exempt from the registration requirements of the Securities Act of 1933, as
amended, by virtue of Section 4 (2) thereof and Regulation D thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
Reports on Form 8-K
Not applicable.
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.
SIONIX CORPORATION
By: /s/ James J. Houtz
------------------------
James J. Houtz
President
Dated: August 21, 2000
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