SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 20, 1996
---------------
fonix corporation
- - ------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
Delaware 0-23862 22-2994719
- - ------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
60 East South Temple Street, Suite 1225, Salt Lake City, Utah 84111
- - ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (801) 328-0161
-------------------
- - ------------------------------------------------------------------------------
(Former name or former address if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
fonix corporation, a Delaware corporation, hereby files the
accompanying interim financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. The following unaudited financial
information is filed with and made part of this Current Report
on Form 8-K:
Condensed Consolidated Balance Sheet
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits.
Exhibit 27--Financial Data Schedule
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
fonix corporation
By: /s/ THOMAS A. MURDOCK
--------------------------------
Thomas A. Murdock, President
Dated: June 21, 1996
------------------
<PAGE>
fonix corporation
[A Development Stage Company]
CONDENSED CONSOLIDATED BALANCE SHEET
[Unaudited]
<TABLE>
<CAPTION>
ASSETS
May, 31
1996
---------------
<S> <C>
Current assets:
Cash and cash equivalents: $ 22,511,505
Notes Receivable 1,946,894
Interest receivable 46,810
---------------
Total Current Assets 24,505,209
Property & Equipment, net of accumulated
depreciation of $10,196 184,615
Intangible assets, net of accumulated
amortization of $1,749 31,902
---------------
$ 24,721,726
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 13,867,625
Accounts payable 539,899
Accrued expenses 145,932
Convertible debenture 500,000
----------------
Total Current Liabilities 15,053,456
----------------
Stockholders' equity:
Preferred stock -
Common stock 3,730
Additional paid-in capital 21,022,991
Accumulated deficit (11,358,451)
----------------
Total stockholders' equity 9,668,270
----------------
$ 24,721,726
================
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
fonix corporation
[A Development Stage Company]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
[Unaudited]
<TABLE>
<CAPTION>
October 1,
Five months 1993
ended (inception) to
May 31, May 31,
1996 1996
<S> <C> <C>
--------------- ---------------
Revenues $ - $ -
--------------- ---------------
Expenses:
General and administrative 704,924 4,191,182
Research and development 1,555,135 7,668,122
---------------- ---------------
Total expenses 2,260,059 11,859,304
--------------- ---------------
Loss from operations (2,260,059) (11,859,304)
--------------- ---------------
Other income (Expenses):
Interest income 296,276 508,474
Interest (expense) (172,144) (545,044)
--------------- ---------------
Total Other Income (Expenses) 124,132 (36,570)
Loss before income taxes and
extraordinary item (2,135,927) (11,895,874)
Current tax expense - -
Deferred tax expense - -
--------------- ---------------
Loss before extraordinary item (2,135,927) (11,895,874)
Extraordinary income:
Forgiveness of debt, net of taxes - 537,422
--------------- ---------------
Net Loss $ (2,135,927) $ (11,358,452)
Loss per common share:
Loss before extraordinary items $ (0.06) $ (0.61)
Extraordinary item - 0.03
--------------- ---------------
Loss per common share $ (0.06) $ (0.59)
=============== ===============
Weighted average shares 32,981,003 19,403,724
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
fonix corporation
[A Development Stage Company]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Unaudited]
<TABLE>
<CAPTION>
October 1,
Five months 1993
ended (inception) to
May 31, May 31,
1996 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,135,927) $ (11,358,452)
Adjustments to reconcile net loss
to net cash used in operations:
Common stock issued for services - 422,750
Write-off of assets received in acquisition - 1,281
Depreciation and amortization 10,728 11,946
Non cash forgiveness of debt income - (537,422)
Changes in assets and liabilities:
(Increase) decrease in interest receivable (20,586) (46,810)
Increase (decrease) in accounts payable 13,845 2,175,168
Increase (decrease) in accrued expenses 114,936 237,850
--------------- ---------------
Net cash used in operating activities (2,017,004) (9,093,689)
Cash flows from investing activities:
Purchase of equipment (146,070) (194,813)
Investment in intangible assets (9,598) (33,651)
Investment in notes receivable (2,710,000) (2,746,894)
Payment of notes receivable 800,000 800,000
--------------- ---------------
Net cash used in investing activities (2,065,668) (2,175,358)
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 8,250,103 16,219,292
Payment of notes payable - (1,779,806)
Proceeds from debenture - 500,000
Proceeds from issuance of
common stock 10,494,462 18,841,064
--------------- ---------------
Net cash provided by financing activities 18,744,565 33,780,550
--------------- ---------------
Net increase in cash and cash equivalents 14,661,893 22,511,503
Cash and cash equivalents at beginning of period 7,849,610 -
--------------- ---------------
Cash and cash equivalents at end of period $ 22,511,503 $ 22,511,503
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest paid $ 157,208 $ 407,372
Income taxes paid $ - $ -
Supplemental Schedule of Non-cash Investing and
Financing Activities:
For the five month period ending May 31, 1996:
The Company issued 220,000 shares of common stock
for finders fees valued at $597,520.
The Company issued 200,000 shares of common stock
for finders fees valued at $304,000.
For the Year ending December 31, 1995:
The Company was forgiven of related party notes
payable of $286,493 and $135,368 with accrued
interest of $65,715 and $19,298, respectively.
The Company was also forgiven of various accounts
payable in the amount of $30,548.
The Company issued 231,630 shares of common stock
to cancel $187,621 in accounts payable.
The Company issued 3,700,000 warrants to purchase
common stock to a related company controlled by
the majority shareholders of the Company in exchange for
cancellation of outstanding and past due management fees
of $122,100.
The Company issued 3,700,000 shares of common
stock upon the conversion of warrants for cancellation of
of outstanding and past due management fees of $1,295,000.
The Company issued 285,000 shares of common stock
for services rendered valued at $167,750.
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
fonix corporation
[A Development Stage Company]
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements have
been prepared by the Company without audit. In the opinion of
management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented, have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in the
accompanying interim financial statements. It is suggested that
these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's December 31, 1995 audited financial statements.
The results of operations for the five months ended May 31, 1996 are
not necessarily indicative of the operating results for the full
year.
Research and Development - All monies that go to the unaffiliated
research and development entity are considered research and
development costs and are charged to research and development
expense as incurred. None of these costs are capitalized since the
Company does not have a product that meets the capitalization
requirements.
NOTE 2 - NOTES RECEIVABLE / PAYABLE
At May 31, 1996 the Company had a note receivable in the amount of
$710,000 which bears interest at 12% per annum and is due on demand.
Accrued interest on the note receivable amounted to $3,550 at May
31, 1996.
At May 31, 1996 the Company had a note receivable in the amount of
$36,894 which bears interest at 18% per annum and is due March 31,
1996. As of May 31, 1996 the principal balance had not been paid,
and the Company is taking measures to have the balance paid in full.
Accrued interest on the note receivable amounted to $1,628 at May
31, 1996.
At May 31, 1996 the Company had a note receivable in the amount of
$1,200,000 which bears interest at 12% per annum and is due
September 1, 1996 with options to be extended through December 1,
1996. At May 31, 1996 accrued interest on the note receivable
amounted to $800.
At May 31, 1996 the Company has a revolving note payable in the
amount of $13,867,625 to a bank at an interest rate of 5.95%. This
note payable is due August 12, 1996, and is secured by a certificate
of deposit in the amount of $20,000,000.
NOTE 3 - CONVERTIBLE DEBENTURES
In connection with a funding agreement entered into during October
1995, the Company issued a Series A Subordinated Convertible
Debenture in consideration for funds received in the amount of
$500,000 on October 23, 1995. The debenture is due October 23,
1996, has an annual interest rate of 5% and may be converted to
Series A Preferred Stock or into common stock [See Note 4].
NOTE 4 - CAPITAL STOCK
Preferred Stock - Pursuant to entering into a funding agreement, the
Company has agreed to amend its certificate of incorporation to
authorize the issuance of Series A Preferred Stock. As of May 31,
1996 the Company's board of directors and shareholders had not yet
authorized the issuance of preferred stock or determined the
dividend rate, liquidation preferences, participation rights, or
redemption requirements of the Series A Preferred Stock into which
the $500,000 debenture is convertible [See Note 3].
Funding Agreement - In October 1995, the Company entered into a
funding arrangement with a private investment entity. Under terms
of the agreement, the private investment entity agreed to fund the
Company with $6,050,000 ("Funding Commitment") over an 11 month
period in exchange for the Company's issuance of a total of
11,562,500 shares of the Company's common stock, and a $500,000
Series A Subordinated Convertible Debenture (the "Debenture") which
is convertible into 166,167 shares of Series A Preferred Stock
(described above) or into the same number of shares of common stock.
The preferred stock, assuming it is authorized and issued, may be
converted to common stock at the discretion of the investor on a one
for one basis. The first $1,540,000 of the Funding Commitment was
paid to the Company on October 23, 1995 as consideration for the
issuance of the Debenture and the issuance of 2,166,667 shares of
common stock [See Note 3]. The balance of the Funding Commitment,
$4,510,000 is to be paid as consideration for the issuance by the
Company of 9,395,833 shares of common stock. As of May 31, 1996 the
private investment entity had paid a total of $3,550,000 in exchange
for which the Company has issued 7,395,833 shares of common stock.
The remaining balance of the Funding Commitment of $2,000,000 is
payable by the private investment entity through September 1996 subject
to the Company completing certain technology development milestones.
The balance of the shares of common stock (4,166,667) due the investor,
will be issued proportionately upon receipt of the remaining
installment payments made by the investor.
Common Stock Transactions - During the five months ended May 31,
1996, the Company issued a total of 7,894,575 shares of common stock
for net cash proceeds of $12,108,087 at prices ranging from $.48 to
$3.38 per share. Included in these issuances were 420,000 shares
issued as a finders fee, valued at $901,520 and 4,052,083 shares
issued as part of a funding arrangement [See Note 4, 2nd paragraph].
Stock Options and Warrants - On April 30, 1996, the directors
approved a directors' stock option plan, under which the aggregate
number of shares available for issuance is 5,400,000 shares. The
plan is administered by a committee consisting of two or more
directors of the Company. The Plan provides that each director
shall receive options to purchase 200,000 shares of common stock for
services rendered as a director for each calendar year or portion of
a calendar year not less than six months. The exercise price of
such options is 100% of the closing market price of the stock on the
date the options are granted. The option term is ten years from the
date of grant. On April 30, 1996, 4,400,000 options were granted to
the Company's current directors under the plan. Of that amount,
options to acquire 2,000,000 shares were granted to directors for
prior years' service, which options vested on the date of grant and
are exercisable at any time after six months from the date of grant.
The remaining options to purchase 2,400,000 shares granted on April
30, 1996 shall vest at the rate of 200,000 shares per calendar year
or portion of a calendar year not less than 6 months during which
the option holder serves as a director, starting with calendar 1996.
The vesting date for such options shall be January 1 following the
year during which the service was rendered commencing on January 1,
1997. The exercise price of the options granted on the plan
adoption date is $4.0625 per share of common stock, which is equal
to the closing market price of the Company's common stock on April
30, 1996.
On April 30, 1996 the directors approved an employee stock option
plan, under which the aggregate number of shares available for
issuance is 900,000 shares. The plan is administered by a committee
consisting of two or more disinterested directors of the Company.
Employee plan options may be granted to officers, key employees and
to other key individuals at the discretion of the plan committee.
The term of the plan is 10 years. As of May 31, 1996, no options
had been granted under the employee plan.
On April 3, 1995 three unrelated individuals were offered and
purchased 120,000 warrants for restricted common stock in
connection with a stock purchase agreement. The warrants were
purchased at $.0033 per share with an exercise price of $2.00 per
share. The warrants are exercisable anytime prior to April 3, 1998.
In April 1995, all of the disinterested directors of the Company
approved the issuance of warrants to purchase 3,700,000 shares of
common stock to an entity controlled by the majority shareholders of
the Company with the right to convert accrued management fees due
from the Company to that entity for the purchase of 3,700,000
warrants and the exercise price of the warrants. The warrants were
offered in April 1995, purchased on July 31, 1995 for a purchase
price of $.033 per warrant and were then exercised on August 11,
1995 at $.35 per share. The related entity controlled by the
majority shareholders of the Company canceled invoices for
$1,417,100 in management fees due from the Company as consideration
for the warrants and the exercise price of the warrants. The
exercise price was less than the market price of the Company's
common stock because, among other reasons, the shares issued upon
exercise of the warrants are restricted shares pursuant to Rule 144
and to assist the Company in relieving debt and preserving limited
cash reserves by converting payables to restricted common stock.
In November 1994, the Company granted the right to purchase warrants
for the purchase of an aggregate of 155,000 shares of restricted
common stock to certain individuals, including warrants for 30,000
shares to three directors. In October 1995, certain of these
individuals were granted the right to purchase warrants to purchase
an additional 185,000 shares of restricted common stock. In order
to preserve the Company's limited cash , warrants were granted in
lieu of cash for services rendered to the Company. The warrants
can be purchased for $.033 per share of common stock and can be
exercised at $.50 per share of common stock. On October 30, 1995,
one of these individuals exercised 50,000 of these warrants for a
price of $.50 per share. None of the other warrants have been
purchased. The warrants, as well as the right to purchase the
warrants, expire April 24, 1998 and October 23, 1998.
In October 1994, the Company granted 150,000 warrants to purchase
restricted common stock. Due to the limited cash funds of the
Company, these warrants were granted in lieu of cash for previous
and future services. The 150,000 outstanding warrants have an
exercise price of $2.00 per share and expire in December 1997.
As part of a September 30, 1994 restated stock purchase agreement,
the Company granted a shareholder the right to purchase 500,000
warrants for the purchase of common stock under Regulation S, each
warrant entitling the holder thereof to purchase one share of common
stock. The total purchase price for the 500,000 warrants is
$50,000, $.10 per warrant. In December 1995 the 500,000 warrants
were purchased for $50,000. At the time of the purchase of such
warrants, the rights were assigned to two foreign entities which
purchased the 500,000 shares of common stock underlying the
warrants, 166,667 and 333,333, respectively. $500,000 was received
as consideration for the exercise of all 500,000 warrants at an
exercise price of $1.00 per share of common stock.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company recorded the following expenses for services rendered
and recorded the following balances which were payable to a company
owned by the majority shareholders for the five months ended, May
31, 1996:
Five months ended
Expenses: May 31, 1996
------------------
Management fees expense $ 232,000
Rent expense 12,476
Payables:
Accounts payable $ 379,476
The Company has rented office space from a company owned by the
majority shareholders under a month-to-month lease for $2,000 per
month. In May 1996 the month-to-month base lease increased to
Approximately $4,500 per month.
In October 1995, a note payable to an officer and shareholder of the
Company in the amount of $286,493 and accrued interest thereon of
$65,715, were forgiven and were accounted for as extraordinary
income from forgiveness of debt to the Company.
In October 1995, a note payable to a Company owned by the majority
shareholders in the amount of $135,368 and accrued interest thereon
of $19,298, were forgiven by the related company, and were accounted
for as extraordinary income from forgiveness of debt to the Company.
NOTE 6 - RESEARCH AND DEVELOPMENT
On or about October 16, 1993, the Company entered into an agreement
with a research and development entity ("R&D Entity"), whereby the
R&D Entity is developing certain technology related to the Company's
voice-activated computer hardware and software (the "VoiceBox
Technology"). The president of the Company is one of seven members
of the board of directors of the R&D Entity, and the executive
officers and directors of the Company collectively own less than
five percent of the common stock of the R&D Entity. Under the
terms of the agreement, the Company owns the intellectual property
rights, all technology and technology rights that are developed by
the entity with respect to the VoiceBox Technology. The Company
agreed to provide all funding necessary for the R&D Entity to
develop a commercially viable product. There is no minimum
requirement or limit with respect to the amount of the funding to be
provided by the Company. However, under the terms of the agreement
the Company is obligated to use its best efforts in raising the
necessary funding for the development, manufacturing and marketing
of the VoiceBox Technology. The Company has not yet completed the
research and development of its product, and consequently, has not
recorded any revenues from sales. Under the terms of the agreement,
the Company paid $1,555,135 to the R&D Entity for research and
development for the five months ended May 31, 1996. If and when the
Company completes the development of the VoiceBox Technology and
develops a commercially viable product based thereon, and assuming
sales of such a product commence, the Company will be obligated to
pay the unaffiliated R&D Entity a royalty fee amounting to ten
percent (10%) of the sales price of each commercial unit sold.
NOTE 7 - CONTINGENCIES
The Company is involved in various litigation as part of its normal
business operations. In management's opinion, the ultimate
resolution of such litigation, individually and collectively, will
not have a material adverse effect on the Company's financial
position.
A former attorney of the Company caused the transfer agent to issue
a certificate for 138,389 shares of common stock. The Company never
properly authorized the issuance of this certificate or the shares
represented by the certificate, nor received consideration for the
shares. The Company is attempting to resolve this problem with its
former attorney. These shares are not included as issued and
outstanding shares in the accompanying financial statements.
NOTE 8 - INCOME TAXES
The Company's income taxes are recorded in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes [FASB 109]. FASB 109 requires the Company to provide a net
deferred tax asset or liability equal to the expected future tax
benefit or expense of temporary reporting differences between book
and tax accounting and any available operating loss or tax credit
carryforwards. At May 31, 1996 the total of all deferred tax assets
is approximately $3,967,000 and the total of the deferred tax
liabilities is approximately $1,000. The amount of and ultimate
realization of the benefits from the deferred tax assets for income
tax purposes is dependent, in part, upon the tax laws in effect, the
Company's future earnings, and other future events, the effects of
which cannot be determined. Because of the uncertainty surrounding
the realization of the loss carryforwards the Company has
established a valuation allowance of approximately $3,967,000 for
the five months ended May 31, 1996. The net change in the valuation
allowance is $725,989 for the five months ended May 31, 1996.
The Company has available at May 31, 1996, unused operating loss
carryforwards of approximately $10,900,000, which may be applied
against future taxable income and which expire in various years
beginning in 2000 through 2010.
NOTE 9 - GOING CONCERN
The accompanying consolidated financial statements of fonix
corporation have been prepared on a going-concern basis, which
contemplates profitable operations and the satisfaction of
liabilities in the normal course of business. There are
uncertainties that raise substantial doubt about the ability of the
Company to continue as a going concern. As shown in the
consolidated statements of operations, the Company has not yet
achieved operations and continues to report operating losses
including a loss of $2,135,927 for the five month period ended May
31, 1996. As of May 31, 1996, the Company has working capital of
$9,451,753 which may not be adequate to finish the development of
the technology. These items raise substantial doubt about the
ability of the Company to continue as a going concern.
Although there has been substantial progress in the development of
the Company's voice-activated computer hardware and software, the
Company does not have a viable product, has not had any sales, and
there can be no assurance that the Company will develop a viable
product or have any sales. Management plans to continue financing
the development of the Company's technology through additional
loans and/or sales of the Company's equity securities.
The Company's continuation as a going concern is dependent upon its
ability to satisfactorily meet its debt obligations, meet its
product development goals, secure adequate new financing and
generate sufficient cash flows from operations. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
NOTE 10 - SUBSEQUENT EVENTS
Issuance of Stock - Subsequent to May 31, 1996, the Company issued
an additional 100,000 shares of common stock to offshore investors
for net cash proceeds of $236,000.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 22,512
<SECURITIES> 0
<RECEIVABLES> 1,994
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,505
<PP&E> 195
<DEPRECIATION> 10
<TOTAL-ASSETS> 24,722
<CURRENT-LIABILITIES> 15,053
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 9,664
<TOTAL-LIABILITY-AND-EQUITY> 24,722
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> (2,136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,136)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
