Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - SIONIX CORP | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - SIONIX CORP | ex31_2.htm |
EX-32.1 - EXHIBIT 32.1 - SIONIX CORP | ex32_1.htm |
EX-32.2 - EXHIBIT 32.2 - SIONIX CORP | ex32_2.htm |
EX-10.41 - EXHIBIT 10.41 - SIONIX CORP | sinx_1041.htm |
EX-10.39 - EXHIBIT 10.39 - SIONIX CORP | sinx_1039.htm |
EX-10.37 - EXHIBIT 10.37 - SIONIX CORP | sinx_1037.htm |
EX-10.40 - EXHIBIT 10.40 - SIONIX CORP | sinx_1040.htm |
EX-10.38 - EXHIBIT 10.38 - SIONIX CORP | sinx_1038.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
Fiscal Year Ended September 30, 2009
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _______________ to ________________
Commission
File Number 002-95626-D
SIONIX
CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
|
87-0428526
|
|
(State
or other jurisdiction
|
(I.R.S.
Employer Identification No.)
|
|
of
incorporation or organization)
|
2801
Ocean Park Boulevard, Suite 339
Santa Monica, California
90405
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (847) 235-4566
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
Name
of each exchange on which each is registered
|
|
N/A
|
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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 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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o The
registrant is not yet subject to this requirement.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. As of March 31, 2009, the aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference
to the price at which the common equity was sold was $11,345,760.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date. The number of shares of the
registrant’s common stock, $0.001 par value per share, outstanding as of January
6, 2010 was 148,795,947.
DOCUMENTS
INCORPORATED BY REFERENCE
None
TABLE
OF CONTENTS
Page
|
||||
PART
I
|
||||
ITEM
1.
|
DESCRIPTION
OF BUSINESS
|
4
|
||
ITEM
1A.
|
RISK
FACTORS
|
10
|
||
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
14
|
||
ITEM
2.
|
PROPERTIES
|
14
|
||
ITEM
3.
|
LEGAL
PROCEEDINGS
|
14
|
||
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
14
|
||
PART
II
|
||||
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
14
|
||
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
15
|
||
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
15
|
||
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
19
|
||
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
F-1
|
||
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
20
|
||
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES
|
20
|
||
ITEM
9B.
|
OTHER
INFORMATION
|
21
|
||
PART
III
|
||||
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
22
|
||
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
23
|
||
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
25
|
||
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
26
|
||
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
29
|
||
ITEM
15.
|
EXHIBITS
|
30
|
Note
Regarding Forward Looking Statements
This
Annual Report on Form 10-K contains “forward-looking
statements”. These forward-looking statements are based on our
current expectations, assumptions, estimates and projections about our business
and our industry. Words such as “believe,” “anticipate,” “expect,”
“intend,” “plan,” “may,” and other similar expressions identify forward-looking
statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but
are not limited to, those discussed in the section of this Annual Report titled
“Risk Factors” as well as the following:
·
|
The
current economic crisis in the United States, which may reduce the funds
available to businesses and government entities to purchase our
system;
|
·
|
whether
we will be able to raise capital as and when we need
it;
|
·
|
whether
our water purification system will generate significant
sales;
|
·
|
our
overall ability to successfully compete in our market and our industry;
and
|
·
|
unanticipated
increases in development, production or marketing expenses related to our
product and our business
activities,
|
and other
factors, some of which will be outside our control. You are cautioned not to
place undue reliance on these forward-looking statements, which relate only to
events as of the date on which the statements are made. We undertake
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof. You should
refer to and carefully review the information in future documents we file with
the Securities and Exchange Commission.
PART
I
ITEM
1.
|
DESCRIPTION
OF BUSINESS
|
We design
and develop turnkey stand-alone water treatment systems intended for
municipalities (both potable and wastewater), industry (both make-up water and
wastewater), mining, energy production, emergency response, military and small
residential communities. We were initially incorporated in Utah in
1996 and reincorporated in Nevada in 2003. As of December 21, 2009,
our executive offices are located at 2801 Ocean Park Blvd., Suite 339, Santa
Monica, California 90405. Our telephone number is (714) 678-1000, and
our website is www.sionix.com.
The
Water Purification Industry
INDUSTRY
BACKGROUND. The water purification industry is highly
fragmented, consisting of many companies involved in various capacities,
including companies that design fully integrated systems for processing millions
of gallons of water for municipal, industrial, and commercial
applications. Demand for water purification has continued to grow due
to economic expansion, population growth, scarcity of usable water, concerns
about water quality and regulatory requirements. Drinking water,
regardless of its source, may contain impurities that can affect the health of
consumers. Although municipal agencies and water utilities in the
United States are required to provide drinking water that complies with the U.S.
Safe Drinking Water Act, the water supplied to homes and businesses from
municipalities and utilities may contain high levels of bacteria, toxins,
parasites and human and animal-health pharmaceuticals, as well as high levels of
chlorine used to eliminate contaminants. The quality of drinking
water outside the United States and other industrialized countries is generally
much worse, with high levels of contaminants and often only rudimentary
purification systems. In the industrialized world, water quality is
often compromised by pollution, aging municipal water systems, and contaminated
wells and surface water. In addition, the specter of terrorism
directed at intentional contamination of water supplies has heightened awareness
of the importance of reliable and secure water purification. The
importance of effective water treatment is also critical from an economic
standpoint, as health concerns and impure water can impair consumer confidence
in food products. Discharge of impaired waters to the environment can
further degrade the earth's water and violate environmental laws, with the
possibility of significant fines and penalties from regulatory
agencies.
There are
over 200,000 public rural water districts in the United States. The
great majority of these are considered small to medium-sized public water
systems, which support populations of fewer than 10,000 people. A
substantial portion of these are in violation of the Safe Drinking Water Act at
any given time. This problem is expected to worsen as more stringent
EPA rules are implemented for small public water systems. Substantial
expenditures will be needed in coming years for repair, rehabilitation,
operation, and maintenance of the water and wastewater treatment
infrastructure. We believe that water districts using conventional
sand-anthracite filters will be unable to comply with the Clean Water Act
without massive installations of on-site chemical filter aids and disinfection
equipment, such as ozone or ultraviolet. On a worldwide level, water
supply issues are viewed by many as the next global crisis; while the quantity
of available fresh water is relatively fixed, the world population and demand
for clean water is rapidly increasing.
The
market for the treatment and purification of drinking water and the treatment,
recycling and reuse of wastewater has shown significant growth as world demand
for water of specified quality continues to increase and as regulations limiting
waste discharges to the environment continue to mount. In addition,
urbanization in the third world and the spread of agricultural activities has
increased the demand for public water systems.
EXISTING PURIFICATION
SYSTEMS. Until the early twentieth century, municipal water
supplies consisted of flowing water directly from the source to the end user
with little or no processing. In the late 19th and early 20th
century, most large municipal water systems instituted a form of filtration
called “slow sand
filtration” to enhance the clarity and esthetics of delivered
waters. These municipal water filtration systems however were
extremely large plants that are typically excavated into the landscape of the
facility. The surface area required for these filters could vary
widely depending on the input quality of the water, but generally they require
extremely large areas, which are referred to as “footprints”.
In a
typical treatment facility, the first step adds to the raw incoming water a
substance which causes tiny, sticky particles (called “floc”) to form. Floc
attracts dirt and other particles suspended in the water. This
process of coagulation results in the heavy particles of dirt and floc clumping
together and falling to the bottom. These heavier particles form
sediment which is siphoned off, leaving the clearer water, which passes on to
filtration. The most common filtration method is known as “slow sand” or
sand-anthracite, in which the water flows into large shallow beds and passes
down through layers of sand, gravel and charcoal. The final process
is disinfection, which is intended to kill bacteria or other microorganisms left
in the water and leave a residual to keep the water safe through the delivery
pipes to the customer. Chlorine is the most commonly employed
disinfectant, although chloramine, ozone, and ultraviolet (UV) are also
used.
The
current trend in water filtration, due to the higher demands for water and the
reduction in clean or relatively clean source waters, is to clarify and heavily
filter all municipal water supplies. Smaller municipalities and water
districts will also be required to meet the added water quality goals of the
larger systems and will require the infrastructure to do so.
4
While “slow sand” filtration is by
far the most common treatment method used in the United States, it has serious
drawbacks. The treatment facilities occupy large tracts of
land. The filtration beds are large, shallow in-ground concrete
structures, often hundreds of feet long to accommodate large volumes of
water. The water being filtered must remain in these beds for a
comparatively long-time (known as “residence time”) in order
for low-density materials to settle out. The sand and charcoal
filtering medium rapidly becomes plugged and clogged. The bed must
then be taken off-line and back-flushed, which uses large amounts of water -
water which becomes contaminated and is therefore wasted. Additional
settling ponds are necessary to “de-water” this waste by
evaporation so that the dried solids may be disposed of in an environmentally
safe (but costly) method.
The
average life expectancy of a treatment plant is about 20 years, after which the
plant must be extensively renovated. Population growth necessitates
enlarging old facilities or building new ones, occupying still more valuable
land. This process requires lengthy environmental impact studies,
long design periods, and complex financing programs to fund costly construction
budgets, as lead times usually stretch out for years.
Aside
from cost and logistics there are many pathogens resistant to chlorine or small
enough to pass through the existing methods of filtration. Illnesses
such as hepatitis, gastroenteritis and Legionnaire's Disease, as well as
increasingly pervasive chemical contaminants, have become more
common. One of the more difficult of these problems is monitoring and
providing a barrier against microscopic protozoan parasites such as
cryptosporidium (3-4 microns in size) and giardia lamblia oocysts (5-7
microns). These common organisms exist naturally in the digestive
systems of livestock and wild animals, and end up in lakes and
streams. They have caused severe illness in millions of people in the
United States. Conventional “slow sand” water filtration
beds, used in most of the nation's public water districts, will not filter out
these parasites - the best treatment facilities are only able to remove
particles larger than 10-15 microns.
In recent
years, there have been several serious public health emergencies caused by
microbes breaking through the filtration barrier in treatment
facilities. When ingested, they can cause diarrhea, flu-like symptoms
and dehydration. In persons with immune system impairment, the
illness can be life-threatening. In 1993, over 400,000 people in
Milwaukee, Wisconsin became ill and about 100 people died during a failure in
the drinking water filtration system.
Most
surface water bodies in the United States, many of which supply drinking water,
are contaminated with these organisms. They are extremely resistant
to disinfection, and increasing disinfectant levels in the attempt to kill them
creates a new set of problems. Disinfectants such as chlorine can
react with organic matter in the water to form new chemicals known as “disinfection
byproducts”. These byproducts, of which trihalomethanes (THM)
are the most common, are thought to be health-threatening and possibly
cancer-causing. The Safe Drinking Water Act regulations address
minimum acceptable levels of these byproducts, including
THMs. Therefore, physical removal of the organisms from the water is
vitally important to their control.
The
challenge of removing organic matter from water has been at the crux of water
treatment since antiquity. Organic matter causes water to be cloudy,
or turbid. High levels of turbidity can indicate the presence of
pathogens and signal that the filtration process is not working
effectively. The presence of high levels of organic matter makes
disinfection more difficult and clogs filter media, causing long back-flush
cycles, which in turn increases the volume of back-flush
waste-water. In a typical treatment plant, this back-flush water can
account for up to 20 percent of the raw water volume flowing through the
facility.
Other
filtration methods, such as reverse osmosis and activated charcoal, may be
required to remove contaminants such as organic and inorganic chemicals, salts,
color, odors, and viruses. However, they too are clogged quickly by
organic particles in the water. These filter media are comparatively
expensive, and frequent back-flush cycles drastically shorten filter life,
thereby increasing the cost of treatment.
Products
and Technology
OUR BUSINESS
STRATEGY. Our business is to develop advanced water treatment
technology for public and private potable drinking water systems and wastewater
treatment systems, as well as industrial systems, in order to address these
issues. We have initially targeted (1) small to medium public and
private water districts that provide communities with drinking water or sewage
treatment service and (2) water reclamation systems of commercial-industrial
clients that create and dispose of contaminated wastewater.
DISSOLVED AIR
FLOTATION. Dissolved air flotation, or DAF, has been used in
water and wastewater treatment for more than eighty years, primarily in
Europe. Some of the first systems installed in the 1920s are still in
operation in Scandinavia. The DAF method involves injecting
microscopic bubbles of air under pressure into the water being
treated. The air molecules bond with organic matter in the water, and
because of their lightness, the clumps float to the surface, where they are
skimmed away. Over the eight decades this technology has been
utilized, various improvements have been made in the
technology. Until recently, it has not been utilized widely in the
United States, and is used primarily for wastewater treatment.
5
SIONIX “ELIXIR” WATER TREATMENT
SYSTEMS. The dissolved air flotation system we developed,
which employs patented technology, removes more than 99.95+ percent of the
organic particles in water, and provides a barrier against microbial
contaminants such as cryptosporidium and giardia lamblia. Each
ELIXIR Water Treatment System is a self-contained water treatment system or
pre-treatment process using ordinary air, with minimal chemical flocculent
aids. Our goal is to provide effective, practical and economic
solutions to problems caused by pollution and toxic chemicals that seriously
threaten public health and our environment. Our systems significantly
reduce the risk of bacterial or parasitic contamination, particularly
cryptosporidium, giardia, and e-coli, with minimal disinfectant
by-products. Our systems are designed for quick installation, easy
access for simple maintenance and are cost-effective for even the smallest water
utilities or commercial applications. This technology is designed to
support public water treatment plants, sewage treatment plants, water
reclamation facilities, commercial air conditioning cooling towers, and
emergency water systems for floods, earthquakes and other natural
disasters. Our system occupies a small footprint, is modular,
self-contained and portable.
Our
ELIXIR system utilizes and refines DAF technology to provide a pre-treatment
process using ordinary oxygen that we believe is highly
efficient. The water is treated by saturating recirculated
post-filter water with excess dissolved air, and injecting this excess air in
the form of microscopic bubbles in a DAF particle
separator. Pressurized water can hold an excess amount of dissolved
air and forms microscopic bubbles when injected into water, which has a lower
pressure. A booster pump recirculates a small amount (approximately
10%) of the post-filtered water through the dissolved air-saturation
system. Oxygen and nitrogen molecules are transferred directly into
the recirculated high-pressure water without forming air
bubbles. This method of transferring air into water is 100%
efficient, and reduces the amount of energy required to saturate recirculated
water with excess dissolved air. The ELIXIR provides a denser
concentration of white water bubbles. This process requires less
energy than a conventional system, and uses a fraction of the floor
space.
Our
system can help ordinary filters meet Safe Drinking Water Act regulations and we
believe that our system is effective in eliminating potentially cancer-causing
disinfection by-product precursors while reducing the risk of bacterial or
parasitic contamination, particularly THM, cryptosporidium and
giardia.
By
significantly reducing turbidity, the ELIXIR system remediates against
disinfection byproducts such as THM. Used in conjunction with
filtration or disinfection technology which may be required by specific raw
water conditions, it reduces back-flushing cycle times, thereby lengthening the
life of post-DAF equipment.
Each of
our systems is completely modular. We customize each system
installation with filtration and disinfection options appropriate for the
user. The entire unit is built into a standard thirty-foot or
forty-foot ISO transportable container, making it easy to move by truck, train,
plane, helicopter, or ship. Standard configuration includes a small
control and testing laboratory located in the front of the
container. The addition of a generator module makes the system
self-powered. The customer can operate and control the entire system
from a remote site via hardwired or wireless communications. A
comprehensive service and maintenance program (which will be part of all
equipment leases) includes a standard upgrade path.
A single
unit should produce a minimum of 225 gallons of post-DAF treated water per
minute (about 325,000 gallons, or one acre-foot, per day). If
additional reverse osmosis treatment is required to produce potable water,
output is generally 50% less. Per capita usage of water in the United
States is among the highest in the world. Two or more units can be
ganged together for increased capacity.
Our
systems are ideal for small to medium-sized potable water treatment
utilities. They serve equally well in commercial/industrial uses
where incoming process water must be treated to high levels of purity, or
wastewater must be decontaminated before discharge to the
environment. The products can also address water quality issues faced
by commercial and industrial facilities that process water or produce toxic
wastewater, such as food and beverage processing plants, dairy product
facilities, and fresh water aquaculture installations, such as fish
farms.
In
general, water districts using sand-anthracite filters cannot meet the EPA
Surface Water Treatment rules without a massive increase in on-site chemical
filter-aids, additional filtering and the installation of ozone or other
disinfection equipment. Plant operators must continually test raw
influent water to adjust chemical filter aid dosage
properly. Chemical and metal (alum) filter-aids increase sludge
volume and landfill disposal problems.
Our
systems include automatic computer controls to optimize ozone concentration
levels and reduce monthly energy costs. Higher ozone contact
concentration levels using smaller sized generators are possible if most of the
algae are removed first by DAF. Extended contact time increases
collision rate of ionized ozone molecules with negatively charged organic
suspended particles. By utilizing the ELIXIR to pre-treat the
feedwater, less energy is required to create the appropriate amount of
ozone. By creating a turbulent flow of water and gas within the
mixing chamber, we have achieved a much higher saturation with less ozone (and a
minimum of excess ozone) than in other mixing methods.
The
ELIXIR system is assembled in a steel container which is sealed, thus preventing
tampering or incursion by bio-terrorism or airborne contaminants. Should
catastrophic damage be incurred, a replacement unit may be installed within a
few days rather than many months or years with in-ground systems.
6
Pilot
Program-Villa Park Dam
In
November 2006 we entered into an oral agreement with the Serrano Water District
("SWD") in Orange County, California to install an ELIXIR system at the Villa
Park Dam (near Anaheim, California) for testing of the system by processing
flood water residue behind the dam. Under our arrangement, scientists
and engineers from California State University at Fullerton
are coordinating with the SWD to trace and record the cleaning efficiency
for the various contaminants in the water (thought to be iron, manganese and
algae) against the flow rate capacity of the ELIXIR system. We
designed the system placed at the dam site for research purposes. It
contains a variety of sampling sites within the system to extract and test water
outside the system, as well as a suite of internal water quality measurement
instruments to monitor the cleaning process.
Villa
Park Dam is operated by Orange County Flood Control and is designed to check the
flow of flood waters from several small watersheds in the northern Santa Ana
Mountains. The dam is capable of impounding up to 15,000 acre-feet of
water (4.9 billion gallons), although its purpose is to check and safely release
the waters during periods of heavy rainfall into Santiago Creek, where it is
diverted to groundwater recharge ponds or allowed to discharge to the
ocean. Serrano Water District has rights to 3,000 acre-feet of water
from the impoundment pool. Until now, impounded waters have been
released to flow downstream during storms. However, under the
project, rain and other water will flow down creeks and collect to form a
useable pool of water behind the dam. This water slowly degrades
during the summer and has been shown to be very septic and has exceptionally
high values of iron and manganese. This water has been prohibitively
expensive to treat for drinking water.
In May
2007 we placed an ELIXIR system at the dam and began processing runoff
water. We began a thorough evaluation of every component in the
system during this testing period. Data are being used to evaluate
the baseline water quality to be treated, as part of an ongoing water collection
and analysis study of the ELIXIR water treatment system. Several
testing and research programs to evaluate the treatment system were
implemented.
The SWD
pilot project was terminated in October 2008 once the retention reservoir behind
Villa Park Dam was drained for periodic cleaning. With the exception
of testing for Total Dissolved Solids ("TDS"), all other testing was completed
in compliance with California's Title 22 certification program. TDS
levels could not be properly tested since the reservoir was being drained and
the dynamics of the forced water flow agitated sediment normally deposited on
the bottom to mix with the draining water, producing readings above the testing
thresholds.
Pilot
Program-Arkansas
On June 6, 2008 we were awarded a
contract from Innovated Water Equipment, Inc. ("IWE") of Little Rock,
Arkansas for the delivery of an ELIXIR system to treat production
water from gas and oil wells in the Arkansas vicinity. The unit was
delivered during the 1st week of July 2009, commenced testing operations on
August 25, 2009 and concluded testing operations on November 3,
2009. The purpose of the pilot program was to clean all impurities so
that the treated water could be returned to ground water as well as to treat
contaminated production water from oil and gas producers for recirculation in
the fracturing process commonly utilized in the drilling industry to free up
captured gas and oil reserves unavailable for normal drilling
operations. Water conditions at the testing site were extremely
difficult as each truckload of production water varied substantially which made
extremely difficult treatment conditions requiring radically different chemical
mixtures to produce consistent results. With the exception of
permeate to return ratios for purposes of returning treated water to the ground
water caused by outputs through the reverse osmosis system that were not
originally specified and scaling indices caused by improper chemical mixtures
that were outside of the purview of our testing parameters, testing results
confirmed the efficacy of the Sionix ELIXIR system.
We have has been advised by IWE that
the system has been disabled at the initial testing site and is being removed to
a new "land farm" with substantially more stable production water where testing
conditions will be more stable.
With the results from these two pilot
studies, management expects to launch an aggressive marketing and sales program
to promote the turnkey Sionix products and water treatment solutions to all
potential market sources and distribution channels throughout the
world.
Marketing
and Customers
THE MARKET. The
potable water market includes residential, commercial, and food service
customers. Demand is driven both by consumer desire to improve the
taste and quality of drinking water and by the expanded concern of regulatory
agencies. According to industry analysts, water safety concerns not
only contributed to growth in the water filtration market, but also helped drive
the growth of consumer bottled water per capital consumption from 1.6 gallons in
1976 to 28.5gallons in 2009
(www.washingtonpost.com/sp-dyn/content/article/2009/09/AR2009081203074.html),
representing sales of approximately $11 billion
(www.ewg.org/node/27730).
According
to industry data, it is estimated that 1.1 billion people in the world do not
have safe drinking water
(www.globalissues.org/article/26/poverty-facts-and-stats). There is
significant market potential in Asian, Africa, and Latin American countries,
where the quality of drinking water has been found to be severely deficient in
several regions.
7
In the
United States, we plan to target the established base of small to medium water
providers, as well as industrial users (such as the dairy industry, meat and
poultry producers, cruise ship operators, food and beverage processors,
pharmaceuticals, cooling tower manufacturers and oil and gas producers) and
disaster relief agencies with a need for a clean and consistent water
supply. Outside the United States, we plan to market principally to
local water systems and international relief organizations.
Our
marketing efforts emphasize that our products are easily expandable and
upgradable; for example, adding ozone and microfiltration equipment to a DAF
unit is similar to adding a new hard drive to a personal
computer. Each piece of equipment comes with state-of-the-art
telemetry and wet-chemistry monitoring that expands as the system
does. We plan to provide lease financing for all of our products, not
only making it easy for a customer to acquire the equipment, but also
guaranteeing that the customer will always have access to any refinements and
improvements made to the product.
Pilot
study requirements and potential adverse environmental effects can generally be
more easily addressed with our prepackaged plant approach. Our
initial approach to the market place is to supply the best of practice process
for the largest number of water types encountered. The following is a
brief description of the types of customers we intend to market to:
DOMESTIC WATER
UTILITIES. There are over 200,000 public water
systems (www.agwt.org/info/privateorpublic.htm) in the United
States. The great majority of these are considered small to
medium-sized public water systems, which support populations of fewer than
10,000 people. We believe that the ELIXIR system can provide a
comprehensive solution for these utilities. It occupies a small
footprint and is self-contained and portable. Equally important, in
most cases, it does not require costly and time-consuming environmental
studies.
INDUSTRIAL WASTEWATER
PURIFICATION. Many industries use water in their manufacturing
processes that results in contamination. This wastewater must be
treated and purified before it can be reused or released into the ocean or
streams. Principal markets are pharmaceutical manufacturers,
producers of paper products, the dairy industry, and silicon chip
manufacturers. The small footprint, low cost, and predictably
efficient output of the ELIXIR system make it an excellent choice for customers
in these markets.
FOOD AND BEVERAGE
INDUSTRY. The production of beer and wine, soft drinks, and
food products require water of a specific purity that must be controlled and
monitored as part of the production process. The food service industry has an
increasing need for consistent global product quality. Food service includes
water used for fountain beverages, steam ovens, coffee and tea.
HEALTHCARE
INDUSTRY. Hospitals require clean, uncontaminated water for
their normal day-to-day operations. They also produce contaminated
water that may require treatment before being reused or released. The
ELIXIR system will process waste-water to a specific and controlled
purity. The systems can be used to filter water going into or coming
out of use. In such exacting situations, the customer may be able to
reuse contaminated water or ensure decontamination before
discharge.
WASTEWATER UTILITIES (SEWAGE
TREATMENT). Sewage overflows are a major problem in many
communities. The unit can function as a cost-effective emergency
alternative to mitigate the problem of overflows and/or as a supplement to
existing fixed treatment systems during emergency conditions.
THIRD-WORLD
MARKETS. In addition to the domestic market, fast spreading
urbanization in third-world countries has created a growing demand for public
water systems. Most of the fatal waterborne illnesses occur in these
countries. Industrial and agricultural contamination of water
supplies is epidemic because environmental controls are neither adequate nor
well enforced. Moreover, in the smaller villages and tribal regions
of certain third world countries where water supplies are frequently
contaminated by raw sewage, the Sionix modular, mobile units are a low cost
alternative to fixed systems where water output is less than 400,000 gallons a
day.
EMERGENCIES AND NATURAL
DISASTERS. During natural disasters such as earthquakes,
floods, hurricanes, and tornadoes, it is the role of the National Guard and the
Federal Emergency Management Agency (FEMA) to assist local authorities with
emergency services. Damage to local utilities can disrupt the
drinking water supply and cause the failure of wastewater (sewage) treatment
plants. The ELIXIR system can help address both of these
problems. The system is completely self-contained, can be easily
transported from place to place, is highly efficient, and can be equipped with
its own power package.
DESALINIZATION. Reverse
osmosis (RO) is among the most efficient desalinization processes available
today. A RO desalinization system requires prefiltration to reduce
clogging of the filter membrane by organic matter. Placed in front of
an RO filter unit in a desalinization system, the ELIXIR unit will greatly
lengthen the time between costly back-flushes and prolong the life of the RO
filters.
MARKETING
METHODS. We plan to market our products through participation
in industry groups, selected advertising in specialized publications, trade
shows, and direct mail. Initially we intend to utilize in-house
marketing in conjunction with outsourced marketing consultants and national and
international distributorships.
8
Patents
We hold 8
U.S. patents on technology related to or incorporated into the ELIXIR system and
related components, however, as of the date of this filing, only 2 are actively
used in the ELIXIR system. An additional patent application is pending. Our
patents cover process, system and waste handling, an automatic backflushing
system using air pressure to activate the valves, the ozone mixing system, and
the inline wet-chemistry water quality monitoring system. The extent to which
patents provide a commercial advantage, or inhibit the development of competing
products, varies. We also rely on common law concepts of confidentiality and
trade secrets.
Competition
Due to
the economic barriers created by the investment necessary to tool a
manufacturing facility and employ the personnel necessary to develop and sell
the equipment, competition in the water purification and filtration industry may
grow slowly. However, our products must compete with water filtration
and purification equipment produced by companies that are more established than
we are and have significantly greater resources than we have, such as General
Electric Co., Siemens Water Technologies and Cuno Incorporated. We
also compete with large architectural/engineering firms that design and build
water treatment plants and wastewater facilities and with producers of new
technologies for water filtration. Competitive factors include system
effectiveness, operational cost and practicality of application, pilot study
requirements and potential adverse environmental effects. In
competing in this marketplace, we have to address the conservative nature of
public water agencies and fiscal constraints on the installation of new systems
and technologies. We do not represent a significant presence in the
water treatment industry.
Regulatory
Matters
Process
water treatment plants and wastewater plants must comply with clean water
standards set by the Environmental Protection Agency under the authority of the
Clean Water Act and standards set by states and local communities. In
many jurisdictions, including the United States, because process water treatment
facilities and wastewater treatment systems require permits from environmental
regulatory agencies, delays in permitting could cause delays in construction or
usage of the systems by prospective customers.
In 1974,
the Safe Drinking Water Act (SDWA) was passed. It empowered the EPA
to set maximum levels of contamination allowable for health-threatening
microbes, chemicals, and other substances which could find their way into
drinking water systems, and gave the agency the power to delegate
enforcement.
By 1986,
Congress was dissatisfied with the speed with which the EPA was regulating and
enforcing contaminant limits. The SDWA revision that year set rigid
timetables for establishing new standards and ordered water systems to monitor
their supplies for many substances not yet regulated by EPA
standards.
Additionally,
it limited polluting activities near public groundwater wells used as drinking
water sources - an acknowledgment of the growing threat to underground water
supplies. It named 83 contaminants and set out a program for adding
25 more every 3 years, as well as specifying the “best available technology”
for treating each contaminant.
The
timetable for imposing these regulations was rigid and tended to treat all
contaminants as equally dangerous, regardless of relative risk. The cost to
water districts for monitoring compliance became a significant burden,
especially to small or medium-sized districts. The 1986 law authorized the EPA
to cover 75 percent of state administrative costs, but in actuality, only about
35 percent was funded.
Congress
updated the SDWA again in 1996, improving on the existing regulations in two
significant ways. First, they changed the focus of contaminant regulations to
reflect the risk of adverse health effects, the rate of occurrence of the
contaminant in public water systems, and the estimated reduction in health risk
resulting from regulation. Along with this, a thorough cost-benefit analysis
must be performed by the EPA, with public health protection the primary basis
for determining the level at which drinking water standards are set. Second,
states were given greater flexibility to implement the standards while arriving
at the same level of public health protection. In addition, a revolving loan
fund was established to help districts build necessary improvements to their
systems.
Research
and Development
Research
and development expenses for the year ended September 30, 2009 were $761,440
while research and development expenses for the year ended September 30, 2008
were $1,060,933. Research and development consists of additional
modifications to the ELIXIR system based on the varying water conditions
experienced by the Company’s customer and prospects, and adjustments to unit
functionality based on testing results. We capitalize development costs in
accordance with GAAP. All other costs, including salaries and wages of employees
included in research and development, have been expensed as
incurred.
9
Manufacturing
and Raw Materials
The
Company terminated manufacturing operations in the Anaheim, CA facility as of
December 21, 2009. Overhead costs of maintaining an in-house
manufacturing facility could not be justified for the low volume production and
assembly operations that sales were generating or expected to generate over the
foreseeable future. Accordingly, the Company is in discussions with several
sub-contract manufacturing organizations to manufacture and assemble the Sionix
products in accordance with its specifications and design requirements. These
arrangements are anticipated to cover various international geographic regions,
with a single contract manufacturer for the North American continent. It is
expected that international arrangements will be completed as distribution
channels in those international territories are established and sales growth
occurs. The materials used in the production of the Sionix products are easily
obtainable from a variety of suppliers.
Employees
We have four full-time
employees as of the date of this report, none of whom are covered by any
collective bargaining agreement. The Company considers its relationship with its
employees to be good.
ITEM
1A.
|
RISK
FACTORS
|
In
addition to the factors discussed elsewhere in this report, the following risks
and uncertainties could materially adversely affect our business, financial
condition and results of operations. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and financial condition.
We
have never reported any revenues.
We have
been in business for more than ten years and never reported any revenues from
operations. We have been in the development stage since inception,
and although we have delivered on an order for one water treatment system,
revenue from this system has not yet been recognized. Except for the
deposit we received for this one order, all of our working capital has been
generated by sales of securities and loans.
We
have a history of operating losses, which may continue.
We have a
history of losses and may continue to incur operating and net losses for the
foreseeable future. Although we had net income of $5,024,198 for the year
ended September 30, 2009, as of September 30, 2009 our accumulated deficit was
$28,890,537. We have not achieved profitability on a quarterly or on
an annual basis from normal operations. We may not be able to
generate revenues or reach a level of revenue to achieve
profitability.
We do not have sufficient cash to
support our operations and we will need to find capital to
operate. If
we are unable to raise capital as we need it, we may have to curtail, or even
cease, our operations.
We have
not recognized any revenues since the inception of our business and we do not
have enough cash to support our operations. Our capital requirements
have been and will continue to be significant. In order to fund
shortages of capital, we have borrowed money from our major stockholders and
sold our securities. Our major stockholders are not under any
obligation to continue providing loans to us.
We will
need to raise additional capital to continue our operations. If we
are unsuccessful in finding financing, we may be required to severely curtail,
or even to cease, our operations.
During
the 2010 fiscal year, approximately $2.7 million in debt will need to be
repaid. We are not certain that we will have the funds to repay this
debt, which could subject us to legal action. Any such actions would
adversely affect our business and financial condition.
During 2010
approximately $2.7 million of debt securities that we issued will need to be
repaid. We do not currently have the funds to repay this debt and we
cannot assure you that we will be able to raise the funds or to renegotiate the
terms of the loans. If we default on these obligations and if our
investors refuse to renegotiate the terms of the loans, we may be subjected to
lawsuits which would further strain our finances and disrupt our business and
would adversely affect our business and financial
condition.
Our auditors have indicated that our inability to generate sufficient revenue raises substantial doubt as to our ability to continue as a going concern.
Our
audited financial statements for the period ended September 30, 2009 were
prepared on a going concern basis. Our auditors have indicated that
our inability to generate revenue raises substantial doubt as to our ability to
continue as a going concern. Through September 30, 2009, we incurred
cumulative losses of $28,890,537 including net income for the year ended
September 30, 2009 of $5,024,198. We have negligible cash flow from
operations and our ability to maintain our status as an operating company is
entirely dependent upon obtaining adequate cash to finance our overhead,
research and development activities, and acquisition of production
equipment. We do not know if we will achieve a level of revenues
adequate to support our cost and expenses. In order to meet our basic
financial obligations, including rent, salaries, debt service and operations, we
plan to seek additional equity or debt financing. Because of our
history and current debt levels, there is considerable doubt that we will be
able to obtain financing. Our ability to meet our cash requirements
for the next twelve months depends on our ability to obtain
financing. There is no assurance that we will be able to implement
our business plan or continue our operations.
10
Failure
to maintain effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act of 2002 may result in actions filed
against us by regulatory agencies or in a reduction in the price of our common
stock.
We are
required to maintain effective internal control over financial reporting under
the Sarbanes-Oxley Act of 2002 and related regulations. Any material
weakness in our internal control over financial reporting that needs to be
addressed, or disclosure of a material weakness in management’s assessment of
internal control over financial reporting, may reduce the price of our common
shares because investors may lose confidence in our financial
reporting. Our failure to maintain effective internal control over
financial reporting could also lead to actions being filed against us by
regulatory agencies.
In
connection with the restatement of our consolidated financial statements for the
years ended September 30, 2007 and 2008, we identified weaknesses in internal
control over financial reporting that were material weaknesses as defined by
standards established by the Public Company Accounting Oversight
Board. The deficiencies related to our lack of a sufficient number of
internal personnel possessing the appropriate knowledge, experience and training
in applying US GAAP and in reporting financial information in accordance with
the requirements of the SEC and our lack of an audit committee to oversee our
accounting and financial reporting processes, as well as other
matters. (See the discussion of our Controls and Procedures at Item
8A of this Amendment No. 1.) We cannot assure you that our
remediation of our internal control over financial reporting relating to the
identified material weaknesses will establish the effectiveness of our internal
control over financial reporting or that we will not be subject to material
weaknesses in the future.
We
may be unable to compete successfully in our industry.
Many of
our competitors, such as General Electric Co., Cuno Incorporated and Siemens
Water Technologies, are large, diversified manufacturing companies with
significant expertise in the water quality business and contacts with water
utilities and industrial water consumers. These competitors have
significantly greater name recognition and financial and other
resources. We may not be able to compete successfully against
them. We do not represent a significant presence in the water
treatment industry.
Our
industry is subject to government regulation, which may increase our costs of
doing business.
Treatment
of domestic drinking water and wastewater is regulated by a number of federal,
state and local agencies, including the U.S. Environmental Protection
Agency. The changing regulatory environment, including changes in
water quality standards, could adversely affect our business by requiring us to
re-engineer our products or invest in new technologies. This could
have a material adverse effect on our business by increasing our costs of doing
business.
We may be subject
to product liability claims for which we do not have
insurance. If we were
required to pay a substantial product liability claim, our business and
financial condition would be materially adversely affected.
We, like
any other manufacturer of products that are designed to treat food or water that
will be ingested, face an inherent risk of exposure to product liability claims
in the event that the use of our products results in injury. Such
claims may include, among others, that our products fail to remove harmful
contaminants or bacteria, or that our products introduce other contaminants into
the water. While we intend to obtain and maintain product liability
insurance, there can be no assurance that such insurance will continue to be
available at a reasonable cost, or, if available, will be adequate to cover
liabilities. In the event that we do not have adequate insurance,
product liability claims relating to defective products could have a material
adverse effect on our business and financial condition.
11
Our
water treatment system and the related technology are unproven and may not
achieve widespread market acceptance among our prospective customers. If we are
unable to sell our water treatment systems, our business will
suffer.
Although
we have installed a water treatment system in one customer location, our
products have not been proven in a commercial context over any significant
period of time. We have developed our proprietary technology and
processes for water treatment based on dissolved air flotation technology, which
competes with other forms of water treatment technologies that currently are in
operation throughout the United States. Our water treatment system
and the technology on which it is based may not achieve widespread market
acceptance. Our success will depend on our ability to market our
system and services to businesses and water providers on terms and conditions
acceptable to us and to establish and maintain successful relationships with
various water providers and state regulatory agencies.
We
believe that market acceptance of our system will depend on many factors
including:
●
|
the
perceived advantages of our system over competing water treatment
solutions;
|
●
|
the
safety and efficacy of our system;
|
●
|
the
availability of alternative water treatment
solutions;
|
●
|
the
pricing and cost effectiveness of our
system;
|
●
|
our
ability to access businesses and water providers that may use our
system;
|
●
|
the
effectiveness of our sales and marketing
efforts;
|
●
|
publicity
concerning our system and technology or competitive
solutions;
|
●
|
timeliness
in assembling and installing our system on customer
sites;
|
●
|
our
ability to respond to changes in regulations;
and
|
●
|
our
ability to provide effective service and maintenance of our systems to our
customers’ satisfaction.
|
If our
system or our technology fails to achieve or maintain market acceptance or if
new technologies are introduced by others that are more favorably received than
our technology, are more cost effective or otherwise render our technology
obsolete, we may not be able to sell our systems. If we are unable to
sell our systems, our business and prospects would suffer.
We
must meet evolving customer requirements for water treatment and invest in the
development of our water treatment technologies. If we fail to do
this, our business and operations will be adversely affected.
If we are
unable to develop or enhance our systems and services to satisfy evolving
customer demands, our business, operating results, financial condition and
prospects will be harmed significantly.
Failure
to protect our intellectual property rights could impair our competitive
position.
Our water
treatment systems utilize a variety of proprietary rights that are important to
our competitive position and success. Because the intellectual
property associated with our technology is evolving and rapidly changing, our
current intellectual property rights may not protect us adequately. We rely on a
combination of patents, trademarks, trade secrets and contractual restrictions
to protect the intellectual property we use in our business. In
addition, we generally enter into confidentiality or license agreements or have
confidentiality provisions in agreements with our employees, consultants,
strategic partners and customers and control access to, and distribution of, our
technology, documentation and other proprietary information.
Because
legal standards relating to the validity, enforceability and scope of protection
of patent and intellectual property rights in new technologies are uncertain and
still evolving, the future viability or value of our intellectual property
rights is uncertain. Furthermore, our competitors independently may
develop similar technologies that limit the value of our intellectual property
or design around patents issued to us. If competitors or third
parties are able to use our intellectual property or are able to successfully
challenge, circumvent, invalidate or render unenforceable our intellectual
property, we likely would lose any competitive advantage we might
develop. We may not be successful in securing or maintaining
proprietary or patent protection for the technology used in our system or
services, and protection that is secured may be challenged and possibly
lost.
Demand
for our products could be adversely affected by a downturn in government
spending related to water treatment, or in the cyclical residential or
non-residential building markets.
12
Our business
will be dependent upon spending on water treatment systems by utilities,
municipalities and other organizations that supply water which, in turn, is
often dependent upon residential construction, population growth, continued
contamination of water sources and regulatory responses to this
contamination. As a result, demand for our water treatment systems
could be impacted adversely by general budgetary constraints on governmental or
regulated customers, including government spending cuts, the inability of
government entities to issue debt to finance any necessary water treatment
projects, difficulty of customers in obtaining necessary permits or changes in
regulatory limits associated with the contaminants we seek to address with our
water treatment system. A slowdown of growth in residential and
non-residential building would reduce demand for drinking water and for water
treatment systems. The residential and non-residential building
markets are generally cyclical, and, historically, down cycles have typically
lasted a number of years. Any significant decline in the governmental spending
on water treatment systems or residential or non-residential building markets
could weaken demand for our systems.
You
may have difficulty trading our common stock as there is a limited public market
for our shares.
Our
common stock is currently quoted on the OTC Bulletin Board under the symbol
“SINX.” Our common
stock is not actively traded and there is a limited public market for our
shares. As a result, a shareholder may find it difficult to dispose of, or to
obtain accurate quotations of the price of, our common stock. This severely
limits the liquidity of our common stock, and would likely have a material
adverse effect on the market price for our common stock and on our ability to
raise additional capital. An active public market for shares of our common stock
may not develop, or if one should develop, it may not be sustained.
Applicable
SEC rules governing the trading of “penny stocks” may limit the trading and
liquidity of our common stock which may affect the trading price of our common
stock.
Our
common stock is considered to be a “penny stock” under federal securities
laws. Penny stocks are subject to SEC rules and regulations which
impose limitations upon the manner in which such shares may be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding such a
purchaser and receive such purchaser’s written agreement to a transaction prior
to sale. These regulations have the effect of limiting the trading activity of
our common stock and reducing the liquidity of an investment in our common
stock.
We
do not anticipate that we will pay dividends on our common stock any time in the
near future.
We have
not paid any cash dividends on our common stock since our inception and do not
anticipate paying any cash dividends in the foreseeable future. We
plan to retain our earnings, if any, to provide funds for the expansion of our
business. Our board of directors will determine future dividend policy based
upon conditions at that time, including our earnings and financial condition,
capital requirements and other relevant factors.
You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common stock.
As of
September 30, 2009, there were 148,314,046 shares of our common stock
outstanding. In the future, we may be required to issue a total of
79,880,561shares
of common stock if all of our outstanding options, warrants and
convertible promissory notes are exercised or converted. Many of
these shares may be issued below the market value of our shares on the date the
securities are exercised or converted. The future issuance of any
such additional shares of our common stock or other securities we may issue for
raising capital or paying for services may create downward pressure on the
trading price of our common stock. Holders of our common stock will
have their holdings diluted as a result of the issuance of additional shares of
our common stock.
We
have failed to file annual or quarterly reports on a timely basis two times
during the past two years. If we fail to file one more report on a
timely basis, the OTCBB will no longer allow our common stock to be
quoted.
Section
6530(e)(1) of the FINRA Manual states,
Notwithstanding
the foregoing paragraphs, a member shall not be permitted to quote a security
if: (A) while quoted on the OTCBB, the issuer of the security has failed to file
a complete required annual or quarterly report by the due date for such report
(including, if applicable, any extensions permitted by SEC Rule 12b-25) three
times in the prior two-year period . . . .
If we fail to
file an annual or quarterly report on a timely basis, the OTCBB will no longer
allow our common stock to be quoted. We cannot assure you that we
will be able to file our reports in accordance with the requirements of the
OTCBB.
13
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2.
|
PROPERTIES
|
As of
August 1, 2008, we entered into a 36-month lease for an industrial site
consisting of approximately 12,000 square feet of administrative offices and a
manufacturing facility. Monthly lease payments for the period from
August 1, 2008 through July 31, 2009 are $8,650 plus common area maintenance
charges; monthly lease payments for the period from August 1, 2009 through July
31, 2010 are $8,995 plus common area maintenance charges and monthly lease
payments for the period from August 1, 2010 through July 31, 2011 are $9,355
plus common area maintenance charges.
On
December 21, 2009, we vacated these premises and are currently in discussions
with the landlord regarding the termination of our future obligations under this
lease. We are currently renting on a month-to-month basis a single office for
administrative purposes, and our monthly obligation under this rental agreement
is $1,200.
ITEM
3.
|
LEGAL
PROCEEDINGS
|
Not
applicable.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
During
the fourth quarter of the 2009 fiscal year, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock is quoted on the OTC Bulletin Board under the symbol “SINX”. The table
below sets forth the range of high and low bid quotes of our common stock for
each quarter for the last two fiscal years as reported by the OTC Bulletin
Board. The bid prices represent inter-dealer quotations, without
adjustments for retail mark-ups, markdowns or commissions and may not
necessarily represent actual transactions.
High
|
Low
|
|||||||
Fiscal
Year Ended September 30, 2009:
|
||||||||
First
Quarter
|
0.140
|
0.090
|
||||||
Second
Quarter
|
0.120
|
0.050
|
||||||
Third
Quarter
|
0.200
|
0.070
|
||||||
Fourth
Quarter
|
0.230
|
0.160
|
||||||
Fiscal
Year Ended September 30, 2008:
|
||||||||
First
Quarter
|
0.300
|
0.220
|
||||||
Second
Quarter
|
0.245
|
0.120
|
||||||
Third
Quarter
|
0.355
|
0.100
|
||||||
Fourth
Quarter
|
0.220
|
0.130
|
As of
January 6, 2010, we had approximately 814 shareholders of record. This number
does not include an indeterminate number of shareholders whose shares are held
by brokers in street name.
Dividends
We have
not paid any cash dividends on our common stock since our inception and do not
anticipate paying any cash dividends in the foreseeable future. We
plan to retain our earnings, if any, to provide funds for the expansion of our
business. Our board of directors will determine future dividend policy based
upon conditions at that time, including our earnings and financial condition,
capital requirements and other relevant factors.
14
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth certain information regarding our equity compensation
plans as of September 30, 2009.
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
Weighted average
exercise price of
outstanding
options, warrants
and rights
|
Number of
securities
remaining available
for future issuance
under equity
compensation
plans
|
|||
Equity
Compensation Plan Approved by Stockholders
|
||||||
None
|
-
|
-
|
-
|
|||
Equity
Compensation Plan Not Approved by Stockholders
|
||||||
2001
Executive Officers Stock Option Plan
|
7,034,140
|
$
|
0.15
|
542,540
|
Recent
Issuances of Unregistered Securities
During
the fourth quarter of the last fiscal year, we issued the following unregistered
securities. We relied on Section 4(2) of the Securities Act of 1933,
as amended, to make the offering inasmuch as the securities were issued to
accredited investors only without any form of general solicitation.
On July
15, 2009 and August 11, 2009, we borrowed a total $150,000 from Trillium Partner
LP and MKM Capital. The loans are evidenced by two promissory notes and mature
90 days from the date of the notes. As consideration for the loans, we issued a
total of 300,000 shares of common stock to these lenders. The notes accrue
interest at the rate of 10% per annum until the principal amount and all accrued
interest is repaid. There is no prepayment penalty associated with
the notes.
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
As a
smaller reporting company we are not required to provide this
information.
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
General.
The
following discussion and analysis should be read in conjunction with our
financial statements and notes thereto, included elsewhere in this report.
Except for the historical information contained in this report, the following
discussion contains certain forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results may differ materially from the results
discussed in the forward-looking statements as a result of certain factors
including, but not limited to, those discussed in the section of this report
titled “Risk Factors”, as well as other factors, some of which will be outside
of our control. You are cautioned not to place undue reliance on
these forward-looking statements, which relate only to events as of the date on
which the statements are made. We undertake no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. You should refer to and carefully review
the information in future documents we file with the Securities and Exchange
Commission.
Application of Critical Accounting Policies and Estimates
The
preparation of our financial statements in accordance with U.S. GAAP requires
management to make judgments, assumptions and estimates that affect the amounts
reported. A critical accounting estimate is an assumption about highly uncertain
matters and could have a material effect on the consolidated financial
statements if another, also reasonable, amount were used or a change in the
estimate is reasonably likely from period to period. We base our assumptions on
historical experience and on other estimates that we believe are reasonable
under the circumstances. Actual results could differ significantly from these
estimates. There were no changes in accounting policies or significant changes
in accounting estimates during the 2009 fiscal year.
15
Management
believes the following critical accounting policies reflect its more significant
estimates and assumptions.
Revenue Recognition.
The Company plans to recognize revenue when there is persuasive evidence of an
arrangement, title and risk of loss has passed to the customer, delivery has
occurred or the services have been rendered, the sales price is fixed or
determinable and collection of the related receivable is reasonably assured. In
general, the Company plans to require a deposit from a customer before a unit is
fabricated and shipped. It is the Company's policy to require an
arrangement with its customers, either in the form of a written contract or
purchase order containing all of the terms and conditions governing the
arrangement, prior to the recognition of revenue. Title and risk of loss will
generally pass to the customer at the time of delivery of the product to a
common carrier. At the time of the transaction, the Company will assess whether
the sales price is fixed or determinable and whether or not collection is
reasonably assured. If the sales price is not deemed to be fixed or
determinable, revenue will be recognized as the amounts become due from the
customer. The Company does not plan to offer a right of return on its products
and the products will generally not be subject to customer acceptance rights.
The Company plans to assess collectability based on a number of factors,
including past transaction and collection history with a customer and the
creditworthiness of the customer. The Company plans to perform ongoing credit
evaluations of its customers' financial condition. If the Company determines
that collectability of the sales price is not reasonably assured, revenue
recognition will be deferred until such time as collection becomes reasonably
assured, which is generally upon receipt of payment from the customer. The
Company plans to include shipping and handling costs in revenue and cost of
sales.
Support Services. The
Company plans to provide support services to customers primarily through service
contracts, and it will recognize support service revenue ratably over the term
of the service contract or as services are rendered.
Warranties. The
Company's products are generally subject to warranty, and related costs will be
provided for in cost of sales when revenue is recognized. Once the Company has a
history of sales, the Company's warranty obligation will be based upon
historical product failure rates and costs incurred in correcting a product
failure. If actual product failure rates or the costs associated with fixing
failures differ from historical rates, adjustments to the warranty liability may
be required in the period in which determined.
Allowance for Doubtful
Accounts. The Company will evaluate the adequacy of its allowance for
doubtful accounts on an ongoing basis through detailed reviews of its accounts
and notes receivables. Estimates will be used in determining the
Company's allowance for doubtful accounts and will be based on historical
collection experience, trends including prevailing economic conditions and
adverse events that may affect a customer's ability to repay, aging of accounts
and notes receivable by category, and other factors such as the financial
condition of customers. This evaluation is inherently subjective because
estimates may be revised in the future as more information becomes available
about outstanding accounts.
Inventory Valuation.
Inventories will be stated at the lower of cost or market, with costs generally
determined on a first-in first-out basis. We plan to utilize both specific
product identification and historical product demand as the basis for
determining excess or obsolete inventory reserve. Changes in market conditions,
lower than expected customer demand or changes in technology or features could
result in additional obsolete inventory that is not saleable and could require
additional inventory reserve provisions.
Goodwill and other
Intangibles. Goodwill and intangible assets with indefinite lives will be
tested annually for impairment in accordance with the provisions of Financial Accounting
Standards Board Accounting Standards Codification (“ASC”) Topic 350,
“Intangibles, Goodwill and
Other”. We will use our judgment in assessing whether assets may have
become impaired between annual impairment tests. We perform our annual test for
indicators of goodwill and non-amortizable intangible assets impairment in the
fourth quarter of our fiscal year or sooner if indicators of impairment
exist.
Legal Contingencies.
From time to time we may be a defendant in litigation. As required by ASC Topic
450, “Contingencies”,
we are required to determine whether an estimated loss from a loss contingency
should be accrued by assessing whether a loss is deemed probable and the loss
amount can be reasonably estimated, net of any applicable insurance proceeds.
Estimates of potential outcomes of these contingencies are developed in
consultation with outside counsel. While this assessment is based upon all
available information, litigation is inherently uncertain and the actual
liability to fully resolve this litigation cannot be predicted with any
assurance of accuracy. Final settlement of these matters could possibly result
in significant effects on our results of operations, cash flows and financial
position.
Warrant Liability.
The Company calculates the fair value of warrants and options using the Black
Sholes model. Assumptions used in the calculation include the risk free interest
rate, volatility of the stock price, and dividend yield. Estimates used in the
calculation include the expected term of the warrants or options.
Accrued
Derivative Liabilities. The Company
applies ASC Topic 815, “Derivatives and Hedging,” which provides a two-step
model to determine whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock and thus able to qualify for equity treatment.
However, liability accounting is triggered as there were insufficient shares to
fulfill all potential conversions. The Company determines which instruments or
embedded features require liability accounting and records the fair values as an
accrued derivative liability. The changes in the values of the accrued
derivative liabilities are shown in the accompanying statements of operations as
“gain (loss) on change in fair value of warrant and option liability” and “gain
(loss) on change in fair value of beneficial conversion
liability.”
16
Plan
of Operation
During
the next fiscal year we plan to continue marketing and selling our existing
ELIXIR water treatment system to potential domestic and international customers.
We believe that the operation of the unit at this facility will position us to
aggressively market the ELIXIR to public water utilities, private companies and
other potential customers. These demonstrations will serve as a sales
tool and a model for possible applications and installations. Once we obtain
sufficient financing, we plan to engage in substantial promotional activities in
connection with the operation of the unit, including media exposure and access
to other public agencies and potential private customers. If the unit continues
to operate successfully, we believe we can receive orders for operating units.
We
have demonstrated the unit at the Villa Park Dam to numerous prospective clients
over several years and are considering different alternative uses for this
unit.
We intend
to contract with outside manufacturers to begin production of the units. Once we
have obtained financing we will begin to recruit and hire employees to serve at
the facility. We anticipate that most of our capital needs will need to be
funded by equity financing until such time that we have received orders for, and
deposits with respect to, our products.
Restatement
of 2008 Financial Statements
Between
October 17, 2006 and February 27, 2007, the Company issued 25 Convertible Notes
1 for total proceeds to the Company of $750,000. Convertible Notes 1 could be
converted into shares of the Company’s common stock at a conversion price of
$0.05 per share. Convertible Notes 1 contained a provision that would
automatically adjust the conversion price if equity securities or instruments
convertible into equity securities were issued at a conversion price less than
$0.05.
On June
6, 2007, the Company issued 5 Convertible Notes 2 for total proceeds to the
Company of $86,000. No warrants were issued in connection with
Convertible Notes 2. Convertible Notes 2 mature on December 31, 2008, and are
convertible into common stock at $0.01 per share.
As a
result of the issuance of Convertible Notes 2, the conversion price for
Convertible Notes 1 was adjusted down from $0.05 to $0.01. The
decrease in the conversion price increased the potential dilutive shares from
15,000,000 to 75,000,000, and this subsequently increased the total outstanding
and potential dilutive shares over the authorized common share limit of
150,000,000. Because there were insufficient authorized shares to
fulfill all potential conversions, the Company should have classified all
potentially dilutive securities as derivative liabilities as of June 6,
2007. The Company researched its debt and equity instruments and
determined that the potentially dilutive securities were as
follows:
·
|
2001
Executive Officers Stock Option
Plan
|
·
|
Advisory
Board Compensation
|
·
|
Warrants
Related to 2004 Stock Purchase
Agreement
|
·
|
Convertible
Notes 1
|
·
|
Convertible
Notes 2
|
·
|
Subordinated
Convertible Notes 3
|
·
|
Warrants
related to Subordinated Convertible Notes
3
|
The
following adjustments were made to our financial statements for the periods
ended September 30, 2008:
17
As
Previously Stated September 30, 2008
|
Beneficial
Conversion Options
|
Warrants
and Options
|
As
Restated September 30, 2008
|
|||||||||||||
Balance
Sheet (as of September 30, 2008)
|
||||||||||||||||
Accrued
expenses
|
$ | 2,721,970 | $ | 1,590,874 | $ | - | $ | 4,312,844 | ||||||||
Warrant
and option liability
|
3,446,823 | - | 3,422,421 | 6,869,244 | ||||||||||||
Beneficial
conversion feature liability
|
26,000 | 8,855,272 | - | 8,881,272 | ||||||||||||
Additional
paid-in capital
|
12,688,495 | - | (1,847,488 | ) | 10,841,007 | |||||||||||
Deficit
accumulated during developmental stage
|
(21,893,656 | ) | (10,446,146 | ) | (1,574,933 | ) | (33,914,735 | ) | ||||||||
Statement
of Operations (for the year ended September 30, 2008)
|
||||||||||||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
$ | 4,748,929 | $ | - | $ | (832,889 | ) | $ | 3,916,040 | |||||||
Gain
(loss) on change in fair value of beneficial conversion
liability
|
1,404,811 | 20,339,955 | - | 21,744,766 | ||||||||||||
General
and administrative expenses
|
7,445,775 | - | 83,855 | 7,529,630 | ||||||||||||
Statement
of Operations (since inception)
|
||||||||||||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
$ | 5,218,240 | $ | - | $ | (973,727 | ) | $ | 4,244,513 | |||||||
Gain
on change in fair value of beneficial conversion liability
|
1,400,767 | 24,258,030 | - | 25,658,797 | ||||||||||||
General
and administrative expenses
|
20,775,280 | 3,787,032 | 83,855 | 24,646,167 | ||||||||||||
Financing
costs
|
(2,299,117 | ) | (30,536,702 | ) | (897,793 | ) | (33,733,612 | ) | ||||||||
Statement
of Cash Flows (for the year ended September 30, 2008)
|
||||||||||||||||
Net
loss
|
$ | (3,872,820 | ) | $ | 20,339,955 | $ | (916,744 | ) | $ | 15,550,391 | ||||||
(Gain)
loss on change in fair value of warrant and option
liability
|
(4,748,929 | ) | - | 832,889 | (3,916,040 | ) | ||||||||||
(Gain)
loss on change in fair value of beneficial conversion
liability
|
(1,404,812 | ) | (20,339,955 | ) | - | (21,744,767 | ) | |||||||||
Non-cash
compensation expense
|
- | - | 83,855 | 83,855 | ||||||||||||
Statement
of Cash Flows (since inception)
|
||||||||||||||||
Net
loss
|
$ | (21,893,656 | ) | $ | (10,065,704 | ) | $ | (1,955,375 | ) | $ | (33,914,735 | ) | ||||
(Gain)
loss on change in fair value of warrant and option
liability
|
(5,218,240 | ) | - | 973,727 | (4,244,513 | ) | ||||||||||
Gain
on change in fair value of beneficial conversion
liability
|
(1,400,768 | ) | (24,258,030 | ) | - | (25,658,798 | ) | |||||||||
Non cash compensation expense | - | 3,787,032 | 83,855 | 3,870,887 | ||||||||||||
Non cash financing costs | - | 30,536,702 | 897,793 | 31,434,495 |
Results
of Operations
Year
Ended September 30, 2009 Compared To Year Ended September 30, 2008
The
Company had no revenue for the fiscal years ended September 30, 2009 or
2008. The Company received an order and deposit for one water
treatment system during the 2008 fiscal year, revenue from this order has not
been recognized because the installation of the units was not completed as of
September 30, 2009.
The
Company incurred operating expenses of $2,526,243 during the fiscal year ended
September 30, 2009, a decrease of $6,089,590 as compared to $8,615,833 for the
fiscal year ended September 30, 2008. General and administrative
expenses were $1,736,359 for the period ended September 30, 2009, a decrease of
$5,793,271 over the prior period. The decrease in general and administrative
expenses resulted primarily from options and warrants issued to employees and
consultants which in fiscal 2008 represented a charge of approximately
$5,0000,000; however, in fiscal 2009, the charge was approximately $100,000.
Research and development expenses of $761,440 during the fiscal year ended
September 30, 2009, a decrease of $299,493, as compared to $1,060,933 for the
fiscal year ended September 30, 2008, also contributed to the decrease in
operating expenses.
Other income (expense) totaled $7,555,241 during the fiscal year ended September 30, 2009. This was a substantial decrease from the prior period where the Company reported income of $24,167,124. This difference is due mainly to to the decrease in the amount of $17,821,584 in the fair value of the option and warrant liability and beneficial conversion liability in fiscal 2009. The Company earned interest income of $3,962 during the fiscal year ended September 30, 2009, as compared to $7,830 during the fiscal year ended September 30, 2008. The decrease of $3,868 is due to reduced cash deposits. The Company incurred interest expense of $292,694 during the fiscal year ended September 30, 2009, a decrease of $829,494 as compared to $1,122,188 for the fiscal year ended September 30, 2008. The decrease in interest expense was due primarily to the conversion of certain debt securities to common stock, and the amortization of the beneficial conversion features discount and warrant discount of the convertible debt securities during the fiscal year ended September 30, 2008.
The
decrease in research and development expenses resulted primarily from a
reduction of personnel costs. We reduced the number of our employees
due to limited cash resources.
Other income (expense) totaled $7,555,241 during the fiscal year ended September 30, 2009. This was a substantial decrease from the prior period where the Company reported income of $24,167,124. This difference is due mainly to to the decrease in the amount of $17,821,584 in the fair value of the option and warrant liability and beneficial conversion liability in fiscal 2009. The Company earned interest income of $3,962 during the fiscal year ended September 30, 2009, as compared to $7,830 during the fiscal year ended September 30, 2008. The decrease of $3,868 is due to reduced cash deposits. The Company incurred interest expense of $292,694 during the fiscal year ended September 30, 2009, a decrease of $829,494 as compared to $1,122,188 for the fiscal year ended September 30, 2008. The decrease in interest expense was due primarily to the conversion of certain debt securities to common stock, and the amortization of the beneficial conversion features discount and warrant discount of the convertible debt securities during the fiscal year ended September 30, 2008.
During
the fiscal year ended September 30, 2008, the Company recorded a loss on
settlement of debt and loss on lease termination of $254,309 and $125,015,
respectively. There was a gain of $3,616 on settlements during the fiscal year
ended September 30, 2009.
18
Liquidity
and Capital Resources
The
Company had cash and cash equivalents of $22,982 and $1,220,588 at September 30,
2009 and 2008, respectively. The Company’s source of liquidity has been the sale
of its securities and deposits received from orders for one water treatment
system. The Company expects to receive additional orders for water treatment
systems but if it does not receive additional orders or if these orders do not
satisfy its capital needs, the Company expects to sell its securities or obtain
loans to meet its capital requirements. The Company has no binding
commitments for financing and, with the exception of the orders it received
during the 2008 fiscal year, no additional orders for the sale of water
treatment systems. There can be no assurance that sales of the
Company’s securities or of its water treatment systems, if such sales occur,
will provide sufficient capital for its operations or that the Company will not
encounter unforeseen difficulties that may deplete its capital resources more
rapidly than anticipated. As of September 30, 2009, a total of approximately
$2,235,000 in principal amount of certain promissory notes issued by the
Company, plus accrued interest, were due. The Company has not yet
paid the notes and no demand for payment has been made.
Operating
Activities
During
the fiscal year ended September 30, 2009, the Company used $1,852,060 of cash in
operating activities. Non-cash adjustments included $28,444 for
depreciation, $187,844 for employee stock-based compensation, $238,244 for
consultant stock-based compensation, $631,781 in loss on change in fair value of
warrant and option liability, $(8,471,003) in gain on gain on change in
fair value of beneficial conversion liability, $135,625 in non-cash based
financing costs, and $125,000 for the impairment of fixed assets. The
Company also recorded an increase of $1,069,460 in inventory. Cash provided by
operating activities included $475,954 in accounts payable, $510,038 in accrued
liabilities, and $360,000 in customer deposits.
Investing
Activities
During
the fiscal year ended September 30, 2009, the Company acquired property and
equipment totaling $5,546, as compared to $96,552 during the fiscal year ended
September 30, 2008.
Financing
Activities
Financing
activities provided $660,000 to the Company during the fiscal year ended
September 30, 2009. The Company received $390,000 in short-term notes payable
and $270,000 through proceeds from the sale of common stock.
Financing
activities provided $2,251,779 to the Company during the fiscal year ended
September 30, 2008. The Company received $1,425,000 in notes payable, and
$750,000 from the issuance of stock. The Company made payments of $19,260 to an
officer for a loan payable, $15,000 to a related party for loan payable, and
$27,336 on an equity line of credit.
As of
September 30, 2009, the Company had an accumulated deficit of $28,890,537.
Management anticipates that future operating results will continue to be subject
to many of the problems, expenses, delays and risks inherent in the
establishment of a developmental business enterprise, many of which the Company
cannot control.
Going
Concern Opinion
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company’s assets and the satisfaction of its liabilities in the
normal course of business. Through September 30, 2009, the Company has incurred
cumulative losses of $28,890,537 including net income for year ended September
30, 2009 of $5,024,198. As the Company has no cash flow from
operations, its ability to transition from a development stage company
to an operating company is entirely dependent upon obtaining adequate cash to
finance its overhead, research and development activities, and acquisition of
production equipment. It is unknown when, if ever, the Company will achieve a
level of revenues adequate to support its costs and expenses. In order for the
Company to meet its basic financial obligations, including rent, salaries, debt
service and operations, it plans to seek additional equity or debt financing.
Because of the Company’s history and current debt levels, there is considerable
doubt that the Company will be able to obtain financing. The Company’s ability
to meet its cash requirements for the next twelve months depends on its ability
to obtain such financing. Even if financing is obtained, any such financing will
likely involve additional fees and debt service requirements which may
significantly reduce the amount of cash we will have for our operations.
Accordingly, there is no assurance that the Company will be able to implement
its plans.
The Company expects to continue to incur substantial operating losses for the foreseeable future, and it cannot predict the extent of the future losses or when it may become profitable, if ever. The Company expects to incur increasing sales and marketing, research and development and general and administrative expenses. Also, the Company has a substantial amount of short-term debt, which will need to be repaid or refinanced, unless it is converted into equity. As a result, if the Company begins to generate revenues from operations, those revenues will need to be significant in order to cover current and anticipated expenses. These factors raise substantial doubt about the Company's ability to continue as a going concern unless it is able to obtain substantial additional financing in the short term and generate revenues over the long term. If the Company is unable to obtain financing, it would likely discontinue its operations.
As
mentioned in Notes 7 and 8, the Company has convertible notes and subordinated
notes payable that have matured. The Company is in the process of renegotiating
the terms of the notes with the note holders to extend the maturity date. If the
Company is unsuccessful in extending the maturity date, the Company may not be
able to continue as a going concern.
Contractual
Obligations
At
September 30, 2009, our significant contractual obligations, were as
follows:
Payments
due by Period
|
||||||||||||||||||||
Less
than
|
One
to
|
Three
to
|
More
Than
|
|||||||||||||||||
One
Year
|
Three
Years
|
Five
Years
|
Five
Years
|
Total
|
||||||||||||||||
Notes
payable, related parties
|
$ | 107,000 | $ | - | $ | - | $ | - | $ | 107,000 | ||||||||||
Short-term
promissory notes payable
|
390,000 | - | - | - | 390,000 | |||||||||||||||
Convertible
notes
|
2,220,686 | - | - | - | 2,220,686 | |||||||||||||||
Operating
lease obligations
|
108,660 | 93,550 | - | - | 202,210 | |||||||||||||||
Total
|
$ | 2,826,346 | $ | 93,550 | $ | - | $ | - | $ | 2,919,896 |
Off-Balance
Sheet Arrangements
Our
Company has no outstanding off-balance sheet
arrangements.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
As a
smaller reporting company we are not required to provide this
information.
19
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
SIONIX
CORPORATION
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Balance
Sheets as of September 30, 2009 and 2008
|
F-3
|
|||
Statements
of Operations for the years ended September 30, 2009 and September 30,
2008 and Cumulative from Inception (October 3, 1994) to September 30,
2009
|
F-4
|
|||
Statements
of Stockholders’ (Deficit) from Inception (October 3, 1994) to
September 30, 2009
|
F-5
|
|||
Statements
of Cash Flows for the years ended September 30, 2009 and September 30,
2008 and Cumulative From Inception (October 3, 1994) to September 30,
2009
|
F-7
|
|||
Notes
to Financial Statements
|
F-8
|
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Sionix
Corporation
We have
audited the accompanying balance sheets of Sionix Corporation (a development
stage entity) (a Nevada corporation) as of September 30, 2009 and 2008 and the
related statements of operations, stockholders' (deficit), and cash flows
for the years ended September 30, 2009 and 2008 and for the period from October
3, 1994 (inception) to September 30, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sionix Corporation as of September
30, 2009 and 2008 and the results of its operations and its cash flows for the
years ended September 30, 2009 and 2008 and for the period from October 3, 1994
(inception) to September 30, 2009, in conformity with accounting principles
generally accepted in the United States of America.
The
Company's financial statements are prepared using the 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. The Company has deficit accumulated from inception
amounting $28,890,537 at September 30, 2009 including a net income of $5,024,198
incurred in the year ended September 30, 2009. These factors as discussed in
Note 14 to the financial statements, raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 18, the financial statements for the year ended September 30, 2008 have been restated.
Kabani
& Company, Inc.
Certified
Public Accountants
Los
Angeles, California.
January
13, 2010
F-2
SIONIX
CORPORATION
|
||||||||
A
DEVELOPMENT STAGE COMPANY
|
||||||||
BALANCE
SHEETS
|
||||||||
As
of
September 30, |
As
of
September 30, |
|||||||
2009
|
2008
|
|||||||
ASSETS
|
(As
Restated)
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 22,982 | $ | 1,220,588 | ||||
Inventory
|
1,069,460 | - | ||||||
Other
current assets
|
195,698 | 138,895 | ||||||
TOTAL CURRENT ASSETS
|
1,288,140 | 1,359,483 | ||||||
PROPERTY
AND EQUIPMENT, net
|
64,203 | 87,101 | ||||||
DEPOSITS
|
28,495 | 33,095 | ||||||
TOTAL ASSETS
|
1,380,838 | 1,479,679 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts payable
|
$ | 611,693 | $ | 259,355 | ||||
Accrued
expenses
|
3,066,106 | 4,312,844 | ||||||
Customer deposits
|
1,620,000 | 1,260,000 | ||||||
Liquidated damages
liability
|
78,750 | 153,750 | ||||||
Notes
payable – related parties
|
107,000 | 114,000 | ||||||
Short-term promissory notes
payable
|
390,000 | - | ||||||
Convertible notes, net of debt
discounts of $0 and $2,890, respectively
|
1,738,194 | 2,041,443 | ||||||
10%
subordinated convertible notes, net of debt discounts of $0 and $24,204,
respectively
|
482,492 | 400,796 | ||||||
Warrant
and option liability
|
7,937,620 | 6,869,244 | ||||||
Beneficial conversion
liability
|
2,001,143 | 8,881,272 | ||||||
TOTAL CURRENT LIABILITIES
|
18,032,998 | 24,292,704 | ||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock (150,000,000 shares authorized; 148,795,946 shares issued and
148,314,046 outstanding at September 30, 2009,
and 134,756,213 shares issued and 134,274,313 outstanding at September 30,
2008, Par Value $.001)
|
148,313 | 134,274 | ||||||
Additional paid-in
capital
|
12,089,664 | 10,841,007 | ||||||
Shares
to be issued
|
400 | 126,429 | ||||||
Deficit
accumulated during development stage
|
(28,890,537 | ) | (33,914,735 | ) | ||||
TOTAL STOCKHOLDERS' DEFICIT
|
(16,652,160 | ) | (22,813,025 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
$ | 1,380,838 | $ | 1,479,679 |
The
accompanying notes form an integral part of these financial
statements
F-3
SIONIX
CORPORATION
|
||||||||||||
A
DEVELOPMENT STAGE COMPANY
|
||||||||||||
STATEMENTS
OF OPERATIONS
|
||||||||||||
Cumulative
from
|
||||||||||||
For
the Years
|
Inception
|
|||||||||||
Ended
September 30,
|
(October
3, 1994) to
|
|||||||||||
2009
|
2008
|
September
30, 2009
|
||||||||||
(As
Restated)
|
||||||||||||
Revenues
|
$ | - | $ | - | $ | - | ||||||
Operating
expenses
|
||||||||||||
General
and administrative
|
1,736,359 | 7,529,630 | 26,382,526 | |||||||||
Research and
development
|
761,440 | 1,060,933 | 3,798,313 | |||||||||
Depreciation and
amortization
|
28,444 | 25,270 | 585,819 | |||||||||
Total
operating expenses
|
2,526,243 | 8,615,833 | 30,766,658 | |||||||||
Loss from operations
|
(2,526,243 | ) | (8,615,833 | ) | (30,766,658 | ) | ||||||
Other
income (expense)
|
||||||||||||
Interest income
|
3,962 | 7,830 | 70,335 | |||||||||
Interest expense and financing
costs
|
(292,694 | ) | (1,122,188 | ) | (34,026,306 | ) | ||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
(631,781 | ) | 3,916,040 | 3,612,732 | ||||||||
Gain on
change in fair value of beneficial conversion liability
|
8,471,003 | 21,744,766 | 34,129,800 | |||||||||
Impairment of
intangibles
|
- | - | (1,267,278 | ) | ||||||||
Inventory
obsolescence
|
- | - | (365,078 | ) | ||||||||
Legal
settlement
|
1,135 | - | 346,084 | |||||||||
Gain
(loss) on settlement of debt
|
3,616 | (254,309 | ) | (480,961 | ) | |||||||
Loss on
lease termination
|
- | (125,015 | ) | (125,015 | ) | |||||||
Total other income (expense)
|
7,555,241 | 24,167,124 | 1,894,313 | |||||||||
Income
(loss) before income taxes
|
5,028,998 | 15,551,291 | (28,872,345 | ) | ||||||||
Income
taxes
|
4,800 | 900 | 18,192 | |||||||||
Net
income (loss)
|
$ | 5,024,198 | $ | 15,550,391 | $ | (28,890,537 | ) | |||||
Basic
income per share
|
$ | 0.04 | $ | 0.14 | ||||||||
Dilutive
income per share
|
$ | 0.04 | $ | 0.14 | ||||||||
Basic
weighted average number of
|
||||||||||||
shares of common stock outstanding
|
140,156,647 | 112,419,861 | ||||||||||
Dilutive
weighted average number of
|
||||||||||||
shares of common stock outstanding
|
140,156,647 | 112,419,861 |
|
The
accompanying notes form an integral part of these financial
statements.
F-4
SIONIX
CORPORATION
|
||||||||||||||||||||||||||||||||||||
A
DEVELOPMENT STAGE COMPANY
|
||||||||||||||||||||||||||||||||||||
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||||||||||||||||||||||||||
FOR
THE PERIOD FROM OCTOBER 3, 1994 (INCEPTION) TO SEPTEMBER 30,
2009
|
||||||||||||||||||||||||||||||||||||
Deficit
|
Total
|
|||||||||||||||||||||||||||||||||||
Common
Stock
|
Additional
|
Shares
|
Stock
|
Shares
|
Unamortized
|
Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||||
Number
|
Paid-in
|
to
be
|
Subscription
|
to
be
|
Consulting
|
from
|
Equity
|
|||||||||||||||||||||||||||||
of
Shares
|
Amount
|
Capital
|
Issued
|
Receivable
|
Cancelled
|
Fees
|
Inception
|
(Deficit)
|
||||||||||||||||||||||||||||
Stock
issued for cash, October 3, 1994
|
10,000 | $ | 10 | $ | 90 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 100 | |||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,521 | ) | (1,521 | ) | |||||||||||||||||||||||||
Balance
at December 31, 1994
|
10,000 | 10 | 90 | - | - | - | - | (1,521 | ) | (1,421 | ) | |||||||||||||||||||||||||
Shares
issued for assignment rights
|
1,990,000 | 1,990 | (1,990 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Shares
issued for services
|
572,473 | 572 | 135,046 | - | - | - | - | - | 135,618 | |||||||||||||||||||||||||||
Shares
issued for debt
|
1,038,640 | 1,038 | 1,164,915 | - | - | - | - | - | 1,165,953 | |||||||||||||||||||||||||||
Shares
issued for cash
|
232,557 | 233 | 1,119,027 | - | - | - | - | - | 1,119,260 | |||||||||||||||||||||||||||
Shares
issued for subscription receivable
|
414,200 | 414 | 1,652,658 | - | (1,656,800 | ) | - | - | - | (3,728 | ) | |||||||||||||||||||||||||
Shares
issued for productions costs
|
112,500 | 113 | 674,887 | - | (675,000 | ) | - | - | - | - | ||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (914,279 | ) | (914,279 | ) | |||||||||||||||||||||||||
Balance
at December 31, 1995
|
4,370,370 | 4,370 | 4,744,633 | - | (2,331,800 | ) | - | - | (915,800 | ) | 1,501,403 | |||||||||||||||||||||||||
Shares
issued for reorganization
|
18,632,612 | 18,633 | (58,033 | ) | - | - | - | - | - | (39,400 | ) | |||||||||||||||||||||||||
Shares
issued for cash
|
572,407 | 573 | 571,834 | - | - | - | - | - | 572,407 | |||||||||||||||||||||||||||
Shares
issued for services
|
24,307 | 24 | 24,283 | - | - | - | - | - | 24,307 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (922,717 | ) | (922,717 | ) | |||||||||||||||||||||||||
Balance
at September 30, 1996
|
23,599,696 | 23,600 | 5,282,717 | - | (2,331,800 | ) | - | - | (1,838,517 | ) | 1,136,000 | |||||||||||||||||||||||||
Shares
issued for cash
|
722,733 | 723 | 365,857 | - | - | - | - | - | 366,580 | |||||||||||||||||||||||||||
Shares
issued for services
|
274,299 | 274 | 54,586 | - | - | - | - | - | 54,860 | |||||||||||||||||||||||||||
Cancellation
of shares
|
(542,138 | ) | (542 | ) | (674,458 | ) | - | 675,000 | - | - | - | - | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (858,915 | ) | (858,915 | ) | |||||||||||||||||||||||||
Balance
at September 30, 1997
|
24,054,590 | 24,055 | 5,028,702 | - | (1,656,800 | ) | - | - | (2,697,432 | ) | 698,525 | |||||||||||||||||||||||||
Shares
issued for cash
|
2,810,000 | 2,810 | 278,190 | - | - | - | - | - | 281,000 | |||||||||||||||||||||||||||
Shares
issued for services
|
895,455 | 895 | 88,651 | - | - | - | - | - | 89,546 | |||||||||||||||||||||||||||
Shares
issued for compensation
|
2,200,000 | 2,200 | 217,800 | - | - | - | - | - | 220,000 | |||||||||||||||||||||||||||
Cancellation
of shares
|
(2,538,170 | ) | (2,538 | ) | (1,534,262 | ) | - | 1,656,800 | - | - | - | 120,000 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,898,376 | ) | (1,898,376 | ) | |||||||||||||||||||||||||
Balance
at September 30, 1998
|
27,421,875 | 27,422 | 4,079,081 | - | - | - | - | (4,595,808 | ) | (489,305 | ) | |||||||||||||||||||||||||
Shares
issued for compensation
|
3,847,742 | 3,847 | 389,078 | - | - | - | - | - | 392,925 | |||||||||||||||||||||||||||
Shares
issued for services
|
705,746 | 706 | 215,329 | - | - | - | - | - | 216,035 | |||||||||||||||||||||||||||
Shares
issued for cash
|
9,383,000 | 9,383 | 928,917 | - | - | - | - | - | 938,300 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,158,755 | ) | (1,158,755 | ) | |||||||||||||||||||||||||
Balance
at September 30, 1999
|
41,358,363 | 41,358 | 5,612,405 | - | - | - | - | (5,754,563 | ) | (100,800 | ) | |||||||||||||||||||||||||
Shares
issued for cash
|
10,303,500 | 10,304 | 1,020,046 | - | - | - | - | - | 1,030,350 | |||||||||||||||||||||||||||
Shares
issued for compensation
|
1,517,615 | 1,518 | 1,218,598 | - | - | - | - | - | 1,220,116 | |||||||||||||||||||||||||||
Shares
issued for services
|
986,844 | 986 | 253,301 | - | - | - | - | - | 254,287 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (2,414,188 | ) | (2,414,188 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2000
|
54,166,322 | 54,166 | 8,104,350 | - | - | - | - | (8,168,751 | ) | (10,235 | ) | |||||||||||||||||||||||||
Shares
issued for services
|
2,517,376 | 2,517 | 530,368 | - | - | - | (141,318 | ) | - | 391,567 | ||||||||||||||||||||||||||
Shares
issued for cash
|
6,005,000 | 6,005 | 594,495 | - | - | - | - | - | 600,500 | |||||||||||||||||||||||||||
Shares
to be issued for cash (100,000 shares)
|
- | - | - | 10,000 | - | - | - | - | 10,000 | |||||||||||||||||||||||||||
Shares
to be issued for debt (639,509 shares)
|
- | - | - | 103,295 | - | - | - | - | 103,295 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,353,429 | ) | (1,353,429 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2001
|
62,688,698 | 62,688 | 9,229,213 | 113,295 | - | - | (141,318 | ) | (9,522,180 | ) | (258,302 | ) | ||||||||||||||||||||||||
Shares
issued for services
|
1,111,710 | 1,112 | 361,603 | - | - | - | 54,400 | - | 417,115 | |||||||||||||||||||||||||||
Shares
issued as a contribution
|
100,000 | 100 | 11,200 | - | - | - | - | - | 11,300 | |||||||||||||||||||||||||||
Shares
issued for compensation
|
18,838 | 19 | 2,897 | - | - | - | - | - | 2,916 | |||||||||||||||||||||||||||
Shares
issued for cash
|
16,815,357 | 16,815 | 1,560,782 | (10,000 | ) | - | - | - | - | 1,567,597 | ||||||||||||||||||||||||||
Shares
issued for debt
|
1,339,509 | 1,340 | 208,639 | (103,295 | ) | - | - | - | - | 106,684 | ||||||||||||||||||||||||||
Shares
to be issued related to equity
|
||||||||||||||||||||||||||||||||||||
financing
(967,742 shares)
|
- | - | (300,000 | ) | 300,000 | - | - | - | - | - | ||||||||||||||||||||||||||
Cancellation
of shares
|
(7,533,701 | ) | (7,534 | ) | - | - | - | - | - | - | (7,534 | ) | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,243,309 | ) | (1,243,309 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2002
|
74,540,411 | 74,540 | 11,074,334 | 300,000 | - | - | (86,918 | ) | (10,765,489 | ) | 596,467 | |||||||||||||||||||||||||
Shares
issued for services
|
2,467,742 | 2,468 | 651,757 | (300,000 | ) | - | - | - | - | 354,225 | ||||||||||||||||||||||||||
Shares
issued for capital equity line
|
8,154,317 | 8,154 | 891,846 | - | - | - | - | - | 900,000 | |||||||||||||||||||||||||||
Amortization
of consulting fees
|
- | - | - | - | - | - | 86,918 | - | 86,918 | |||||||||||||||||||||||||||
Cancellation
of shares
|
(50,000 | ) | (50 | ) | 50 | - | - | - | - | - | - | |||||||||||||||||||||||||
Shares
to be cancelled (7,349,204 shares)
|
- | - | 7,349 | - | - | (7,349 | ) | - | - | - | ||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,721,991 | ) | (1,721,991 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2003
|
85,112,470 | 85,112 | 12,625,336 | - | - | (7,349 | ) | - | (12,487,480 | ) | 215,619 | |||||||||||||||||||||||||
Shares
issued for capital equity line
|
19,179,016 | 19,179 | 447,706 | - | - | - | - | - | 466,885 | |||||||||||||||||||||||||||
Shares
issued for services
|
5,100,004 | 5,100 | 196,997 | - | - | - | (13,075 | ) | - | 189,022 | ||||||||||||||||||||||||||
Share
to be issued for cash (963,336 shares)
|
- | - | - | 28,900 | - | - | - | - | 28,900 | |||||||||||||||||||||||||||
Shares
to be issued for debt (500,000 shares)
|
- | - | - | 15,000 | - | - | - | - | 15,000 | |||||||||||||||||||||||||||
Cancellation
of shares
|
(7,349,204 | ) | (7,349 | ) | - | - | - | 7,349 | - | - | - | |||||||||||||||||||||||||
Issuance
of warrants related to 2004 stock purchase
|
- | - | 24,366 | - | - | - | - | - | 24,366 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,593,135 | ) | (1,593,135 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2004
|
102,042,286 | 102,042 | 13,294,405 | 43,900 | - | - | (13,075 | ) | (14,080,615 | ) | (653,343 | ) |
The
accompanying notes form an integral part of these financial
statements.
F-5
SIONIX
CORPORATION
|
||||||||||||||||||||||||||||||||||||
A
DEVELOPMENT STAGE COMPANY
|
||||||||||||||||||||||||||||||||||||
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
|
||||||||||||||||||||||||||||||||||||
FOR
THE PERIOD FROM OCTOBER 3, 1994 (INCEPTION) TO SEPTEMBER 30,
2009
|
||||||||||||||||||||||||||||||||||||
Deficit
|
Total
|
|||||||||||||||||||||||||||||||||||
Common
Stock
|
Additional
|
Shares
|
Stock
|
Shares
|
Unamortized
|
Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||||
Number
|
Paid-in
|
to
be
|
Subscription
|
to
be
|
Consulting
|
from
|
Equity
|
|||||||||||||||||||||||||||||
of
Shares
|
Amount
|
Capital
|
Issued
|
Receivable
|
Cancelled
|
Fees
|
Inception
|
(Deficit)
|
||||||||||||||||||||||||||||
Amortization
of consulting fees
|
- | - | - | - | - | - | 13,075 | - | 13,075 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (722,676 | ) | (722,676 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2005
|
102,042,286 | 102,042 | 13,294,405 | 43,900 | - | - | - | (14,803,291 | ) | (1,362,944 | ) | |||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,049,319 | ) | (1,049,319 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2006
|
102,042,286 | 102,042 | 13,294,405 | 43,900 | - | - | - | (15,852,610 | ) | (2,412,263 | ) | |||||||||||||||||||||||||
Stock
issued for consulting
|
4,592,915 | 4,593 | 80,336 | - | - | - | - | - | 84,929 | |||||||||||||||||||||||||||
Reclassification
to warrant and option liability
|
- | - | (2,277,013 | ) | - | - | - | - | - | (2,277,013 | ) | |||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (33,612,516 | ) | (33,612,516 | ) | |||||||||||||||||||||||||
Balance
at September 30, 2007, restated
|
106,635,201 | 106,635 | 11,097,728 | 43,900 | - | - | - | (49,465,126 | ) | (38,216,863 | ) | |||||||||||||||||||||||||
Conversion
of note payable into common stock
|
17,149,359 | 17,149 | 886,633 | - | - | - | - | - | 903,782 | |||||||||||||||||||||||||||
Common
stock issued for services
|
1,539,750 | 1,540 | 254,330 | - | - | - | - | - | 255,870 | |||||||||||||||||||||||||||
Common
stock issued for cash
|
8,950,003 | 8,950 | 784,550 | (43,500 | ) | - | - | - | - | 750,000 | ||||||||||||||||||||||||||
Common
stock to be issued for cash
|
- | - | - | 126,029 | - | - | - | - | 126,029 | |||||||||||||||||||||||||||
Issuance
of warrants with stock
|
- | - | (2,182,234 | ) | - | - | - | - | - | (2,182,234 | ) | |||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | - | 15,550,391 | 15,550,391 | |||||||||||||||||||||||||||
Balance
at September 30, 2008, restated
|
134,274,313 | 134,274 | 10,841,007 | 126,429 | - | - | - | (33,914,735 | ) | (22,813,025 | ) | |||||||||||||||||||||||||
Conversion
of note payable into common stock
|
7,819,419 | 7,819 | 473,023 | - | - | - | - | - | 480,842 | |||||||||||||||||||||||||||
Common
stock issued for services
|
1,200,139 | 1,200 | 225,029 | (126,029 | ) | - | - | - | - | 100,200 | ||||||||||||||||||||||||||
Common
stock issued for property and equipment
|
833,333 | 833 | 124,167 | - | - | - | - | - | 125,000 | |||||||||||||||||||||||||||
Common
stock issued for cash and debt settlement
|
500,000 | 500 | 29,500 | - | - | - | - | - | 30,000 | |||||||||||||||||||||||||||
Common
stock issued for stock warrant exercises
|
2,886,842 | 2,887 | 262,113 | - | - | - | - | - | 265,000 | |||||||||||||||||||||||||||
Common
stock issued related to short-term notes
|
800,000 | 800 | 134,825 | - | - | - | - | - | 135,625 | |||||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | - |
5,024,198
|
5,024,198
|
|||||||||||||||||||||||||||
Balance
at September 30, 2009
|
148,314,046 | $ | 148,313 | $ | 12,089,664 | $ | 400 | $ | - | $ | - | $ | - |
$ 28,890,537
|
$
16,652,160
|
The
accompanying notes form an integral part of these financial
statements.
F-6
SIONIX
CORPORATION
|
||||||||||||
A
DEVELOPMENT STAGE COMPANY
|
||||||||||||
STATEMENTS
OF CASH FLOWS
|
||||||||||||
Cumulative
|
||||||||||||
from
|
||||||||||||
For
the Year
|
Inception
|
|||||||||||
Ended
September 30,
|
(October
3, 1994) to
|
|||||||||||
2009
|
2008
|
September
30, 2009
|
||||||||||
(As
Restated)
|
(As
Restated)
|
|||||||||||
OPERATING
ACTIVITIES:
|
||||||||||||
Net
income (loss)
|
$ | 5,024,198 | $ | 15,550,391 | $ | (28,890,537 | ) | |||||
Adjustments
to reconcile net Income (loss) to net cash used in
|
||||||||||||
operating
activities:
|
||||||||||||
Depreciation
|
28,444 | 25,270 | 672,736 | |||||||||
Amortization
of beneficial conversion features discount and
|
||||||||||||
warrant
discount
|
27,094 | 1,164,321 | 2,074,433 | |||||||||
Stock
based compensation expense - employee
|
187,444 | 1,842,945 | 3,866,746 | |||||||||
Stock
based compensation expense - consultant
|
238,244 | 3,685,722 | 6,512,757 | |||||||||
(Gain)
loss on change in fair value of warrant and option
liability
|
631,781 | (3,916,040 | ) | (3,612,732 | ) | |||||||
(Gain)
loss on change in fair value of beneficial conversion
liability
|
(8,471,003 | ) | (21,744,767 | ) | (34,129,802 | ) | ||||||
Non-cash
compensation costs
|
- | 83,855 | 3,870,887 | |||||||||
Non-cash
financing costs
|
135,625 | - | 31,570,120 | |||||||||
Impairment
of property and equipment
|
125,000 | - | 125,000 | |||||||||
Impairment
of assets
|
- | - | 514,755 | |||||||||
Write-down
of obsolete assets
|
- | - | 38,862 | |||||||||
Impairment
of intangible assets
|
- | - | 1,117,601 | |||||||||
(Gain)
loss on settlement of debt
|
(3,616 | ) | 254,309 | 480,961 | ||||||||
Loss
on termination of lease
|
125,015 | 125,015 | ||||||||||
Write-off
of beneficial conversion features
|
- | (576,000 | ) | (576,000 | ) | |||||||
Stock
issued for services and rent
|
- | 114,850 | 114,850 | |||||||||
Other
|
- | - | (799,044 | ) | ||||||||
(Increase)
decrease in assets:
|
||||||||||||
Inventory
|
(1,069,460 | ) | - | (1,069,460 | ) | |||||||
Other
current assets
|
(56,803 | ) | (137,545 | ) | (195,698 | ) | ||||||
Other
assets
|
4,600 | (28,495 | ) | (128,495 | ) | |||||||
Increase
(decrease) in liabilities:
|
||||||||||||
Accounts
payable
|
475,954 | 258,119 | 891,473 | |||||||||
Accrued
expenses
|
510,038 | 730,900 | 3,370,079 | |||||||||
Customer
deposits
|
360,000 | 1,260,000 | 1,620,000 | |||||||||
Net
cash used in operating activities
|
(1,852,060 | ) | (1,307,150 | ) | (12,435,493 | ) | ||||||
INVESTING
ACTIVITIES:
|
||||||||||||
Acquisition
of property and equipment
|
(5,546 | ) | (96,552 | ) | (473,553 | ) | ||||||
Acquisition
of patents
|
- | - | (154,061 | ) | ||||||||
Net
cash used in investing activities
|
(5,546 | ) | (96,552 | ) | (627,614 | ) | ||||||
FINANACING
ACTIVITIES:
|
||||||||||||
Accrual
of liquidated damages
|
- | 138,375 | 153,750 | |||||||||
Payment
on notes payable to officer
|
- | (19,260 | ) | (218,502 | ) | |||||||
Proceeds
from notes payable, related party
|
- | - | 457,433 | |||||||||
Payments
on notes payable to related party
|
- | (15,000 | ) | (15,000 | ) | |||||||
Receipt
from (payments to) equity line of credit
|
- | (27,336 | ) | 428,664 | ||||||||
Receipt
of proceeds from short term notes
|
390,000 | - | 390,000 | |||||||||
Proceeds
from convertible notes payable
|
- | 1,425,000 | 2,861,000 | |||||||||
Proceeds
from 10% subordinated notes payable
|
- | - | 425,000 | |||||||||
Issuance
of common stock
|
270,000 | 750,000 | 8,603,344 | |||||||||
Receipt
of cash for stock to be issued
|
- | - | 400 | |||||||||
Net
cash provided by financing activities
|
660,000 | 2,251,779 | 13,086,089 | |||||||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(1,197,606 | ) | 848,077 | 22,982 | ||||||||
CASH
AND CASH EQUIVALENTS, BEGINNING
|
1,220,588 | 372,511 | - | |||||||||
CASH
AND CASH EQUIVALENTS, ENDING
|
$ | 22,982 | $ | 1,220,588 | $ | 22,982 | ||||||
SUPPLEMENTAL
INFORMATION:
|
||||||||||||
Cash
and cash equivalents paid for interest
|
$ | - | $ | - | $ | - | ||||||
Cash
and cash equivalents paid for taxes
|
$ | - | $ | - | $ | - |
F-7
SIONIX
CORPORATION
|
|||||
A
DEVELOPMENT STAGE COMPANY
NOTES TO
FINANCIALS
|
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Sionix
Corporation (the "Company") was incorporated in Utah in 1985. The
Company was formed to design, develop, and market automatic water filtration
systems primarily for small water districts.
The
Company completed its reincorporation as a Nevada corporation effective July 1,
2003. The reincorporation was completed pursuant to an Agreement and Plan of
Merger between Sionix Corporation, a Utah corporation ("Sionix Utah") and its
wholly-owned Nevada subsidiary, Sionix Corporation ("Sionix Nevada"). Under the
merger agreement, Sionix Utah merged with and into Sionix Nevada, and each share
of Sionix Utah’s common stock was automatically converted into one share of
common stock, par value $0.001 per share, of Sionix Nevada. The merger was
effected by the filing of Articles of Merger, along with the Agreement and Plan
of Merger, with the Secretary of State of Nevada.
The
Company is a development stage company as defined by Financial Accounting
Standards Board Accounting Standards Codification (“ASC”) Topic 915, “Accounting and Reporting by
Development Stage Enterprises”. The Company is in the development stage
and its efforts have been principally devoted to research and development,
organizational activities, and raising capital. All losses accumulated since
inception have been considered as part of the Company’s development stage
activities.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States (“GAAP”) requires management to make
certain 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. Significant estimates include collectability of accounts
receivable, accounts payable, sales returns and recoverability of long-term
assets.
Cash and Cash
Equivalents
Cash and
cash equivalents represent cash and short-term highly liquid investments with
original maturities of three months or less.
Inventory
Inventory
is stated at the lower of cost or market, with costs generally determined on a
first-in first-out basis. Management utilizes specific product identification,
historical product demand, and comparison of inventory costs to market value as
the basis for determining excess or obsolete inventory
reserve. Changes in market conditions, lower than expected customer
demand, or changes in technology or features are also considered by management
in determining whether an allowance for obsolete inventory is
required. As of September 30, 2009, the Company believes that no
reserve is required. Inventory at September 30, 2009 was $1,069,460 and
consisted of work in process.
Property
and equipment is stated at cost. The cost of additions and improvements are
capitalized while maintenance and repairs are expensed as incurred. Depreciation
of property and equipment is provided on a straight-line basis over the
estimated useful lives of the assets.
Property
and equipment are being depreciated and amortized on the straight-line basis
over the following estimated useful lives:
Years
|
||||
Machinery
and equipment
|
5 | |||
Furniture
and fixtures
|
3-5 | |||
Leasehold
improvements
|
3 |
Accrued Derivative
Liabilities
The
Company applies Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) Topic 815, “Derivatives and Hedging,” which provides a
two-step model to determine whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for equity
treatment. However, liability accounting is triggered as there were insufficient
shares to fulfill all potential conversions. The Company determines which
instruments or embedded features require liability accounting and records the
fair values as an accrued derivative liability. The changes in the values of the
accrued derivative liabilities are shown in the accompanying statements of
operations as “gain (loss) on change in fair value of warrant and option
liability” and “gain (loss) on change in fair value of beneficial conversion
liability.”
F-8
Fair Value
Measurements
For
certain of the Company’s financial instruments, including cash and cash
equivalents, accounts payable, accrued liabilities and short-term debt, the
carrying amounts approximate fair value due to their short
maturities. In addition, the Company has short-term debt with
investors. The carrying amounts of the short-term liabilities approximate their
fair value based on current rates for instruments with similar
characteristics.
ASC Topic
820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair
value of financial instruments held by the Company. ASC Topic 825, “Financial
Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure
requirements for fair value measures. The carrying amounts reported
in the balance sheets for receivables and current liabilities each qualify as
financial instruments and are a reasonable estimate of their fair values because
of the short period of time between the origination of such instruments and
their expected realization and their current market rate of interest. The three
levels of valuation hierarchy are defined as follows:
·
|
Level
1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active
markets.
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC
Topic 815.
The
Company’s warrant and option liability is carried at fair value totaling
$7,937,620 and $6,869,244, as of September 30, 2009 and 2008,
respectively. The Company’s beneficial conversion liability is
carried at fair value totaling $2,001,143 and $8,881,272 as of September 30,
2009 and 2008, respectively. The Company used Level 2 inputs for its
valuation methodology for the warrant liability, conversion option liability and
option liability as their fair values were determined by using the Black-Scholes
option pricing model based on various assumptions.
Fair
Value as
of
September
30, 2009
|
Fair
Value Measurements at September
30, 2009 Using
Fair Value Hierarchy
|
|||||||||
Liabilities
|
Level 1
|
Level 2
|
Level 3
|
|||||||
Warrant
and option liability
|
$ | 7,937,620 | $ | 7,937,620 | ||||||
Conversion
option liability
|
2,001,143 | 2,001,143 | ||||||||
Total
accrued derivative liabilities
|
$ | 9,938,763 | $ | 9,938,763 |
Fair
Value as of
September
30, 2008
|
Fair
Value Measurements at September 30, 2008 Using Fair Value
Hierarchy
|
|||||||||
Liabilities
|
Level
1
|
Level
2
|
Level
3
|
|||||||
Warrant
and option liability
|
$
|
6,869,244
|
$
|
6,869,244
|
||||||
Conversion
option liability
|
8,881,272
|
8,881,272
|
||||||||
Total
accrued derivative liabilities
|
$
|
15,750,516
|
$
|
15,750,516
|
The
Company recognized a loss on change in fair value of warrant and option
liability of $631,781 for the year ended September 30, 2009 and a gain on change
in fair value of warrant and option liability of $3,916,040 for the year ended
September 30, 2008. The Company recognized a gain on change in fair
value of beneficial conversion liability of $8,471,003 and $21,744,766 for the
years ended September 30, 2009 and 2008, respectively.
The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the balance sheets at fair value in accordance with
ASC Topic 825.
Advertising
The cost
of advertising is expensed as incurred, and included in general and
administrative expenses. There were no advertising costs for the year ended
September 30, 2009. Total advertising costs were $105 for the year ended
September 30, 2008.
Revenue
Recognition
F-9
Revenues
from products sales are recorded when all four of the following criteria are
met: (i) persuasive evidence of an arrangement exists; (ii) delivery has
occurred or services have been rendered; (iii) the Company's price to the buyer
is fixed or determinable; and (iv) collectability is reasonably assured. The
Company's policy is to report its sales levels on a net revenue basis, with net
revenues being computed by deducting from gross revenues the amount of actual
sales returns and the amount of reserves established for anticipated sales
returns.
The
Company's policy for shipping and handling costs, billed to customers, is to
include it in revenue in accordance with ASC Topic 605, “Revenue Recognition,”
which requires that all shipping and handling billed to customers should be
recorded as revenue. Accordingly, the Company records its shipping and handling
amounts within net sales and operating expenses.
The
Company has not earned any revenue since its inception to the date of this
report.
Research and
Development
The cost
of research and development is expensed as incurred. Total research and
development costs were $761,440 and $1,060,933 for the years ended September 30,
2009 and 2008, respectively.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes.” ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of, the
deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Under ASC
740, a tax position is recognized as a benefit only if it is “more likely than
not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption had no effect on the Company’s financial
statements.
Stock Based
Compensation
The
Company records stock-based compensation in accordance with ASC Topic 718,
“Compensation - Stock Compensation.” ASC 718 requires companies to
measure compensation cost for stock-based employee compensation at fair value at
the grant date and recognize the expense over the employee’s requisite service
period. Under ASC 718, the Company’s volatility is based on the historical
volatility of the Company’s stock or the expected volatility of similar
companies. The expected life assumption is primarily based on historical
exercise patterns and employee post-vesting termination behavior. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
The
Company uses the Black-Scholes option-pricing model which was developed for use
in estimating the fair value of options. Option-pricing models require the input
of highly complex and subjective variables including the expected life of
options granted and the Company’s expected stock price volatility over a period
equal to or greater than the expected life of the options. Because changes in
the subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the
Black-Scholes option-pricing model may not provide an accurate measure of the
fair value of the Company’s employee stock options. Although the fair value of
employee stock options is determined in accordance with ASC 718 using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
Earnings Per
Share
Earnings
per share is calculated in accordance with the ASC Topic 260, “Earnings Per
Share.” Basic net loss per share is computed by dividing the net loss
available to common stock holders by the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options and warrants were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. During the years ended September 30, 2009 and September 30, 2008,
the Company had net income; however, the net income was due to the change in the
fair value of the warrant and option liability and in the change in the fair
value of the beneficial conversion liability. If these securities had been
converted at the beginning of the period, then the Company would have realized a
loss for the year ended September 30, 2009 and September 30, 2008. As
such, these securities are determined to be anti-dilutive and the number of
shares used to determine the basic and dilutive earnings per share is the
same.
F-10
During
the year ended September 30, 2009, the Company had deposits in financial
institutions over the federally insured limits of $100,000. The Company does not
believe there is any credit risk related to these deposits due to the financial
condition of the financial institution.
Reclassifications
Certain
items in the prior financial statements have been reclassified to conform to the
current period’s presentation. These reclassifications had no effect on the
previously reported net income.
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at:
|
September
30,
|
September 30,
|
||||||
|
2009
|
2008
|
||||||
Machinery
and equipment
|
$
|
271,972
|
$
|
266,425
|
||||
Furniture
and fixtures
|
41,176
|
41,176
|
||||||
Leasehold
improvement
|
1,695
|
1,695
|
||||||
TOTAL
|
314,843
|
309,296
|
||||||
Less
accumulated depreciation
|
(250,640
|
)
|
(222,195
|
)
|
||||
Property
and equipment, net
|
$
|
64,203
|
$
|
87,101
|
Depreciation
expenses for the years ended September 30, 2009 and 2008 were $28,444 and
$25,270, respectively.
NOTE
4 - ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
September 30,
|
September 30,
|
||||||
|
2009
|
2008
|
||||||
Accrued
salaries
|
$
|
1,652,174
|
$
|
1,493,444
|
||||
Advisory
board compensation
|
576,000
|
576,000
|
||||||
Auto
allowance accruals
|
104,785
|
94,408
|
||||||
Interest
payable
|
407,005
|
272,016
|
||||||
Fair
value of stock to be issued
|
-
|
1,590,874
|
||||||
Other
accruals
|
326,142
|
286,102
|
||||||
TOTAL
ACCRUED EXPENSES
|
$
|
3,066,106
|
$
|
4,312,844
|
F-11
NOTE
5 - CUSTOMER DEPOSITS
In May
2008, the Company received an order for a water filtration system, which
required a deposit. The Company has not recognized the revenue related to the
water filtration system. As of September 30, 2009 and 2008 customer deposits
were $1,620,000 and $1,260,000, respectively.
NOTE
6 - NOTES PAYABLE – RELATED PARTIES
The
Company has received advances in the form of unsecured promissory notes from
stockholders in order to pay on-going operating expenses. These notes bear
interest at rates up to 13% and are due on demand. As of September 30, 2009 and
2008, notes payable amounted to $107,000 and $114,000, respectively.
Accrued interest on the notes amounted to $84,016 and $74,482 at September
30, 2009 and 2008, respectively, and is included in accrued expenses. Interest
expenses on these notes for the years ended September 30, 2009 and 2008 were
$11,349 and $12,718, respectively.
NOTE
7 - SHORT-TERM PROMISSORY NOTES
From June
5 to June 26, 2009, the Company borrowed a total of $240,000 in principal amount
from Steel Pier Capital Advisors and Steel Pier Capital Fund, LP. The
loans are evidenced by four promissory notes (the “Notes”) with principal
amounts ranging from $40,000 to $75,000. As consideration for the loans, the
Company issued a total of 500,000 shares of common stock to Steel Pier Capital
Fund, LP. The Company determined the fair value of the 500,000 shares
of common stock to be $80,625 based on the trading price of the stock, and
recorded the $80,625 as interest and financing costs in the accompanying
statement of operations. The Notes accrue interest at the rate of 10%
per annum until the principal amount and all accrued interest is
repaid. There is no prepayment penalty associated with the
Notes.
The Notes
mature upon the earlier of: (i) two business days after the receipt of funds
from Mourant Cayman Corporate Services LTD or any other financing or investment
source to the Company; (ii) two business days after receiving funds from
Innovative Water Equipment, Inc.; or (iii) July 7, 2009.
Upon an
event of default, the holder of a Note may accelerate the Note and declare all
amounts due under the Note to be due and payable. An event of default
is defined as (i) any failure to pay any amount of principal or interest when
due; (ii) commencement of a voluntary bankruptcy proceeding, consent to relief
in any involuntary bankruptcy proceeding, consent to the appointment of a
receiver or similar official, or making a general assignment for the benefit of
its creditors; or (iii) entrance into an order or decree under bankruptcy law
that (a) is for relief in any involuntary case or proceeding, (b) appoints a
custodian for any substantial assets or property, or (c) orders the winding up
or liquidation of the Company.
On July
15, 2009 and August 11, 2009, the Company borrowed a total of $150,000 from
Trillium Partner LP and MKM Capital. The loans are evidenced by two promissory
notes and mature 90 days from the date of the notes. As consideration for the
loans, the Company issued a total of 300,000 shares of common
stock. The Company determined the fair value of the 300,000 shares of
common stock to be $55,000 based on the trading price of the stock, and
recorded the $55,000 as interest and financing costs in the accompanying
statement of operations. These notes accrue interest at the rate of
10% per annum until the principal amount and all accrued interest is
repaid. There is no prepayment penalty associated with the
notes.
As of
September 30, 2009, the outstanding principal balance of the short-term
promissory notes was $390,000. Accrued interest on the notes amounted to
$9,106 at September 30, 2009, and is included in accrued expenses. Interest
expense on these notes for the year ended September 30, 2009 was
$9,106.
NOTE 8 - CONVERTIBLE NOTES
Convertible Notes
1
Between
October 2006 and February 2007, the Company completed an offering of $750,000 in
principal amount of convertible notes, which bear interest at 10% per annum and
mature at the earlier of (i) 18 months from the date of issuance (ii) an event
of default or (iii) the closing of any equity related financing by the Company
in which the gross proceeds are a minimum of $2,500,000. These notes are
convertible into shares of the Company’s common stock at $0.05 per share or
shares of any equity security issued by the Company at a conversion price equal
to the price at which such security is sold to any other party. In the event
that a registration statement covering the underlying shares was not declared
effective within 180 days after the closing, the conversion price was to be
reduced by $0.0025 per share for each 30 day period that the effectiveness of
the registration statement was delayed but in no case could the conversion price
to be reduced below $0.04 per share. As of September 30, 2009 the conversion
price was $0.04 per share.
The fair
value of the embedded beneficial conversion features was $750,000 at the date of
issuance using the Black-Sholes valuation model with the following
assumptions: risk free rate of return ranging from 2.02% to 5.09%; volatility
ranging from 268% to 275%; dividend yield of 0%; and expected term of 1.5
years.
F-12
Based on
the calculation of the fair value of the embedded beneficial conversion feature,
the Company allocated $750,000 to the beneficial conversion feature and the
beneficial conversion feature discount, and none to the convertible note at the
date of issuance. The embedded beneficial conversion feature discount is
amortized to interest expense over the term of the note, which is $41,667 per
month.
During
the year ended September 30, 2009, $45,139 of principal and $5,158 of interest
has been converted into 1,535,728 shares of common stock.
As of
September 30, 2009 and 2008, the outstanding principal amount of the convertible
notes was $488,194 and $533,333, respectively. Accrued interest on the
notes amounted to $107,177 and $75,224 at September 30, 2009 and 2008,
respectively, and is included in accrued expenses. There was no
unamortized embedded beneficial conversion feature discount as of September 30,
2009 and 2008.
For the
years ended September 30, 2009 and 2008, interest expense was $52,482 and
$69,702, respectively, and amortization expense for the embedded beneficial
conversion feature discount for the years ended September 30, 2009 and 2008 was
$0 and $290,566, respectively, which was included in interest expense in
the other income (expense) section of the statement of operations.
As of
September 30, 2009, these notes remain past due as they matured per the terms of
the original notes agreements.
Convertible Notes
2
On June
6, 2007, the Company completed an offering of $86,000 in principal amount of
convertible notes, which bear interest at 10% per annum and are due and payable
upon the earlier of (i) the occurrence of an Event of Default or (ii) the
Maturity Date, which is defined as any business day that is not sooner than
December 31, 2008, as the holder of the notes may specify in written notice
delivered to the Company not less than 30 days prior to such specified date.
These notes are convertible into shares of the Company’s common stock at $0.01
per share or shares of any equity security issued by the Company at a conversion
price equal to the price at which such security is sold to any other party.
There are no registration rights associated with these notes.
The fair
value of the embedded beneficial conversion features was $86,000 at the date of
issuance using the Black Sholes valuation model with the following assumptions:
risk free rate of return of 4.96%; volatility of 259.58%; dividend yield of 0%
and an expected term of 1.5 years.
Based on
the calculation of the fair value of the embedded beneficial conversion feature,
the Company allocated $86,000 to the beneficial conversion feature and the
beneficial conversion feature discount, and none to the convertible note. The
embedded beneficial conversion feature discount is amortized to interest expense
over the term of the note, which is $4,778 per month.
During
the years ended September 30, 2009 and 2008, the investors converted $26,000
principal plus accrued interest into 3,094,000 shares of common stock and
$60,000 principal plus accrued interest into 6,711,800 shares of common stock,
respectively.
As of
September 30, 2009, there was no outstanding principal of the convertible notes
and there was no unamortized embedded beneficial conversion feature
discount. As of September 30, 2008, the outstanding principal was $26,000
and the unamortized embedded conversion discount was $2,890.
For the
years ended September 30, 2009 and 2008, interest expense was $1,445 and
$8,084, respectively, and amortization expense for the embedded beneficial
conversion feature discount for the years ended September 30, 2009 and 2008 was
$2,890 and $64,000, respectively, which was included in interest expense in
the other income (expense) section of the statement of
income.
Convertible Notes 3
On July
17, 2007, the Company completed an offering of $1,025,000 in principal amount of
Subordinated Convertible Debentures to a group of institutional and accredited
investors, which bear interest at the rate of 8% per annum, and mature 12 months
from the date of issuance. Convertible Notes 3 are convertible into shares of
the Company’s common stock at an initial conversion rate of $0.22 per share,
subject to anti-dilution adjustments. As part of the above offering the Company
issued warrants to purchase 2,329,546 shares of common stock at an initial
exercise price of $0.50 per share. An amendment dated March 13, 2008 reduces the
conversion rate of the notes to $0.15 per share and the exercise price of the
warrants to $0.30 per share.
Under the
terms of a Registration Rights Agreement signed in conjunction with this
offering, the Company is required to file a registration statement under the
Securities Act of 1933 in order to register the resale of the shares of common
stock issuable upon conversion of the Convertible Notes 3 and the warrant
shares (collectively, the "Registrable Securities"). If the Company did not file
a registration statement with respect to the Registrable Securities within 45
days following the closing of the offering, or if the registration statement was
not declared effective by the Securities and Exchange Commission within 90 days,
then the Company was required to pay to each purchaser damages equal to 1.5% of
the purchase price paid by the purchaser for Convertible Notes 3 for each 30 day
period that followed these deadlines. The aggregate amount of damages payable by
the Company is limited to 15% of the purchase price. The Company had until
August 31, 2007 to file the registration statement and
has accrued $78,750 of expenses as liquidated damages. For the year
ended September 30, 2009, $75,000 of the liquidating damages were converted into
937,500 shares of common stock. No derivative liability is recorded as the
amount of liquidated damage is fixed with a maximum ceiling.
F-13
During
the year ended September 30, 2009, $235,000 of principal and $49,579 of interest
has been converted into 3,189,691 shares of common stock.
As of
September 30, 2009 and 2008, the outstanding principal amount of the convertible
notes was $250,000 and $485,000, respectively. Accrued interest on the notes
amounted to $44,460 and $67,417, respectively, for September 30, 2009 and 2008.
There was no unamortized warrant discount or embedded beneficial conversion
feature discount as of September 30, 2009 and 2008.
For the
years ended September 30, 2009 and 2008, interest expense was $26,622 and
$68,097, respectively. Amortization expense for the warrant discount and
amortization expense for the beneficial conversion feature discount as of
September 30, 2008 was $305,228 and $396,543, respectively, which was included
in interest expense in the other income (expense) section of the statement of
operations. There was no amortization expense for the warrant discount and no
amortization expense for the beneficial conversion feature discount for the year
ended September 30, 2009.
As of
September 30, 2009, these notes remain past due as they matured per the terms of
the original notes agreements.
12% SUBORDINATED CONVERTIBLE NOTES
On July
29, 2008, the Company completed an offering of $1,000,000 in principal amount of
Subordinated Debentures to a group of institutional and accredited investors.
The 12% Subordinated Convertible Notes mature on July 29, 2009 or
sooner if declared due and payable by the holder upon the occurrence of an event
of default, and bear interest at the rate of 12% per annum. The Debentures
will be convertible into common stock at a conversion price of $0.25 per share
(the “Conversion Price”) from and after such time as the authorized common stock
is increased in accordance with applicable federal and state laws. In the event
of an offering of common stock, or securities convertible into common stock, at
a price, conversion price or exercise price less than the conversion price (a
“dilutive issuance”), then the conversion price of any then outstanding
subordinated convertible notes will be reduced to equal such lower price, except
in connection with certain exempt issuances. In an event of default,
the conversion price will be reduced to $0.15 per share. As part of the above
offering, the Company issued warrants to purchase 3,333,333 shares of common
stock, which expire five years from the date of grant, are exercisable at an
exercise price of $0.30 per share from and after such time as the authorized
common stock is increased in accordance with applicable federal and state laws,
and may be exercised on a cashless basis at the election of the
holder. In the event of a dilutive issuance, the exercise price of
the warrants will be reduced to equal the price of the securities issued in the
dilutive issuance, except in connection with certain exempt
issuances.
The
requirement to increase the number of authorized shares of common stock is a
condition that has not occurred, and is not certain to occur. Therefore, the
Company has not recognized the related beneficial conversion feature or the
warrants related to these notes. If and when this condition does occur, the
Company will recognize the beneficial conversion feature and warrants at fair
value on the date the number of authorized shares is increased. The note will be
converted into 4,000,000 shares of common stock at a conversion price of $0.25
per share. These shares were excluded from the earnings per share calculation,
as the effect of dilutive securities is anti-dilutive.
Calico
Capital Management, LLC acted as a financial advisor for the Company and
received a fee of $40,000. LBS Financial Services, LLC acted as an agent for the
Company in arranging the transaction and received a fee of $120,000. The Company
recorded these fees as an expense during the period.
As of
September 30, 2009 and 2008, the principal outstanding totaled
$1,000,000.
Accrued interest
on the notes amounted to $120,000 and $21,041 at September 30, 2009 and 2008,
respectively, and is included in accrued expenses. For the years ended September
30, 2009 and 2008, interest expense was $120,000 and $21,041,
respectively.
These
notes matured during July 2009. Subsequent to September 30, 2009, the notes were
amended on October 22, 2009 to extend the maturity date of the notes to April
29, 2010.
NOTE 9 - 10% SUBORDINATED DEBENTURES
In
January 2008, the Company completed an offering of $425,000 in principal amount
of Subordinated Debentures to a group of institutional and accredited investors.
The Subordinated Debentures matured on December 31, 2008, and bear interest
at the rate of 10% per annum. As part of the above offering, the Company
issued warrants to purchase 850,000 shares of common stock, which expire six
years from the date of grant.
On May
22, 2009, the Company entered into an amendment, exchange and waiver agreement
with each holder of the subordinated debentures. The terms of the agreement
included the waiver of any claim for default under Section 3.01(a) under the
original debentures, an exchange of the original debenture for a new debenture
equal to the outstanding principal and accrued interest through May 22, 2009,
and the amendment of the exercise price of all outstanding warrants from $0.40
to $0.175.
As of
September 30, 2009 and 2008, the principal outstanding totaled $482,493 and
$425,000, respectively, and there was no unamortized warrant
discount.
For the
years ended September 30, 2009 and 2008, interest expense was $44,596 and
$30,362, respectively, and amortization expense for the warrant discount was
$24,204 and $72,610, respectively, which was included in interest expense in the
other income (expense) section of the statement of operations.
These
notes mature on December 31, 2009. Subsequent to December 31, 2009, these notes
remain outstanding. The Company is seeking to renegotiate the terms of these
notes. The Company has not received any demand for payment on these
notes.
F-14
NOTE 10 - WARRANT AND OPTION LIABILITY
The
Company determined that liability accounting was triggered for the following
warrants and options as there were insufficient shares to fulfill all potential
conversions. The changes in the values of the warrant and option liability are
shown in the accompanying statements of operations as “gain (loss) on change in
fair value of warrant and option liability.”
2001 Executive Officers
Stock Option Plan
In
October 2000, the Company amended its employment agreements with its executive
officers. In conjunction with the amendments, the Company adopted the 2001
Executive Officers Stock Option Plan. The plan has reserved 7,576,680 shares of
common stock and has issued options for the purchase of 7,034,140.
The fair
value of the options was $825,905 as of September 30, 2009, calculated using the
Black Sholes valuation model with the following assumptions: risk free rate of
return of 0.95%; volatility of 156%; dividend yield of 0%; and expected term of
1.55 years.
Warrants Related to
Convertible Notes 3
On July
17, 2007 the Company completed an offering of $1,025,000 of Convertible Notes 3
to a group of institutional and accredited investors, which included warrants to
purchase 2,795,454 shares of common stock (2,329,546 shares of common stock to
holders of the Convertible Notes 3 and 465,908 shares of common stock as a
placement fee) at an exercise price of $0.50 per share. An amendment dated March
13, 2008 reduces the exercise price of the warrants to $0.30 per
share.
The fair
value of the warrants was $554,249 ($430,189 attributable to the holders of the
Convertible Notes 3 and $124,060 attributable to the placement fee) at the date
of issuance calculated using the Black Sholes valuation model with the following
assumptions: risk free rate of return of 4.96% to 5.02%; volatility ranging from
219.89% to 226.04%; dividend yield of 0% and expected term of 5
years.
The
fair value of the warrants was $353,574 as of September 30, 2009, calculated
using the Black Sholes valuation model with the following assumptions: risk free
rate of return of 1.45%; volatility of 155%; dividend yield of 0%; and expected
terms of ranging from 2.73 to 1.55 years.
Warrant
Issued to Legal Counsel
On
October 25, 2007, the Company entered into an agreement with its legal counsel
to issue 150,000 shares of common stock and five year warrants to purchase up to
150,000 shares of common stock at an exercise price of $0.25 per share for
services.
The fair
value of the warrant was $32,394 at the date of issuance and was calculated
using the Black Sholes valuation model with the following assumptions: risk free
interest rate of 3.93%, volatility of 116.99%, dividend yield of 0%; and
expected term of 5 years.
Warrants
Issued to Advisory Board Members
On
December 13, 2007, the Company’s Board of Directors approved the issuance of
five year warrants to the Company’s four advisory board members to purchase a
total of 8,640,000 shares of the Company’s common stock at an exercise price of
$0.25 per share.
The fair
value of the warrants was $1,557,705 at the date of issuance and was calculated
using the Black Sholes option valuation model with the following assumptions:
risk free interest rate of 3.22%, expected volatility of 99.86%, dividend yields
of 0%; and expected term of 5 years.
The fair
value of the warrants was $1,344,127 as of September 30, 2009, using the Black
Sholes valuation model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and expected terms
ranging from 3.21 to 3.98 years.
Option
Issued to Director
F-15
On
December 13, 2007, the Company’s Board of Directors approved the issuance of a
five year option to a Company director to purchase a total of 1,000,000 shares
of the Company’s common stock at an exercise price of $0.25 per
share.
The fair
value of the option was $171,520 at the date of issuance and was calculated
using the Black Sholes option valuation model with the following assumptions:
risk free interest rate of 3.22%; expected volatility of 99.86%; dividend yield
of 0%; and expected term of 5 years.
The fair
value of the option was $155,570 as of September 30, 2009, using the Black
Sholes model with the following assumptions: risk free rate of return of
1.45%; volatility of 201%; dividend yield of 0%; and expected term of 3.21
years.
On
December 13, 2007, the Company’s Board of Directors approved the issuance to the
Chief Financial Officer of a five year option to purchase a total of 1,000,000
shares of the Company’s common stock at an exercise price of $0.25 per
share.
The fair
value of the option was $171,520 at the date of issuance and was calculated
using the Black Sholes option valuation model with the following assumptions:
risk free interest rate of 3.22%, expected volatility of 99.86%, dividend yield
of 0% and expected term of 5 years.
The fair
value of the option was $155,570 as of September 30, 2009, using the Black
Sholes model with the following assumptions: risk free rate of return of
1.45%; volatility of 201%; dividend yield of 0%; and expected term of 3.21
years.
Option
Issued to Former Chief Executive Officer
On
December 19, 2007, the Company entered into a one year Employment Agreement with
Richard H. Papalian pursuant to which Mr. Papalian had been appointed as the
Company’s Chief Executive Officer. As compensation for his services, the Company
granted Mr. Papalian a five year option to purchase up to 8,539,312 shares of
the Company’s common stock at an exercise price of $0.25 per share. As per the
terms of the stock option agreement, the right to purchase 340,000 shares of
common stock is not exercisable until the notes dated June 6, 2007 (Convertible
Notes 2 as discussed in Note 8 above) are eligible for conversion into
shares of common stock. These options were not issued from the 2001 Executive
Officers Stock Option Plan. On August 14, 2008, Mr. Papalian resigned as
the Company’s Chief Executive Officer.
The fair
value of the option was $1,448,321 at the date of issuance, which was calculated
using the Black-Scholes model with the following assumptions: risk free
rate of return of 3.26%; volatility of 98.01%; dividend yield of 0%; and
expected term of 5 years.
The fair
value of the vested option was $456,801 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and expected term
of 3.22 years.
Warrant
Issued to Consultant
On
December 19, 2007, the Company entered into a one year Consulting Agreement with
Mark Maron pursuant to which Mr. Maron has been appointed as Special Adviser to
the Company. As compensation for his services, the Company granted Mr. Maron a
five year warrant to purchase up to 8,539,312 shares of the Company’s common
stock at an exercise price of $0.25 per share. As per the terms of the warrant
agreement, the right to purchase 340,000 shares of common stock is not
exercisable until the notes dated June 6, 2007 (Convertible Notes 2 as discussed
in Note 8 above) are eligible for conversion into shares of common
stock. The warrant was not issued from the 2001 Executive
Officers Stock Option Plan.
The fair
value of the warrant was $1,329,718 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and expected term
of 3.22 years.
Warrants
Related to 10% Subordinated Debentures
In
January 2008, the Company completed an offering of $425,000 in principal amount
of Subordinated Debentures to a group of institutional and accredited
investors. As part of the above offering, the Company issued warrants to
purchase 850,000 shares of common stock at an exercise price of $0.40 per
share.
F-16
The fair
value of the warrants was $96,814 at the date of issuance, which was
calculated using the Black-Scholes valuation model, using the following
assumptions: risk free rate of return ranging from 2.64% to 3.26%, volatility
ranging from 97.08% to 98.27%, dividend yield of 0%; and expected term of 6
years.
On May
22, 2009, the Company entered into an amendment, exchange and waiver agreement
with the holders of the warrants. Terms of the agreement included an amendment
of the exercise price to $0.175 per share.
The fair
value of the warrants was determined to be $142,046 as of September 30, 2009,
using the Black-Scholes model with the following assumptions: risk free
rate of return of 2.31%; volatility of 230%; dividend yield of 0%; and expected
term of 4.25 years.
Warrants
Related to $750,000 Stock Issuance
On May
28, 2008 the Company completed an offering of units consisting of common stock
and warrants to purchase shares of its common stock to a group of institutional
and accredited investors. The Company raised a total of $750,000
through this offering. The Company issued warrants to
purchase 15,000,000 shares of common stock at an exercise price of
$0.10 per share. The warrants expire three years from the date of
issuance.
The fair
value of the warrants was $483,476 at the date of issuance, which was calculated
using the Black-Scholes valuation model, using the following assumptions: risk
free rate of return ranging from 1.32% to 2.17%; volatility ranging from 72.4%
to 77.86%; dividend yield of 0%; and expected term of 3 years.
The fair
value of the warrants was $1,511,238 as of September 30, 2009, using the
Black-Scholes valuation model with the following assumptions: risk free
rate of return ranging from 0.40% to 0.95%; volatility of 156%; dividend yield
of 0%; and expected terms ranging from of 1.45 to 1.65 years.
Warrant
Issued to Legal Counsel
On June
24, 2008, the Company entered into an agreement with its legal counsel to issue
600,139 shares of common stock and a six year warrant to purchase up to 400,000
shares of common stock at an exercise price of $0.15 per share for services
previously rendered.
The fair
value of the warrant was $60,645 at the date of issuance and was calculated
using the Black-Scholes valuation model with the following assumptions: risk
free interest rate of 2.36%, expected volatility of 74.90%, dividend yields of
0% and expected term of 6 years.
The fair
value of the warrant was determined to be $67,259 as of September 30, 2009,
using the Black-Scholes valuation model with the following assumptions:
risk free rate of return of 2.31%; volatility of 230%; dividend yield of 0%; and
expected term of 4.73 years.
Warrant
Issued to Director (John Pavia)
On July
11, 2008, the Company’s Board of Directors approved the issuance of a five year
warrant to a director to purchase a total of 500,000 shares of the Company’s
common stock at an exercise price of $0.25 per share.
The fair
value of the warrant was $51,582 at the date of issuance and was calculated
using the Black-Scholes valuation model with the following assumptions: risk
free interest rate of 2.30%, expected volatility of 71.69%, dividend yield of 0%
and expected term of 5 years.
The fair
value of the warrant was $79,938 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and an expected term
of 3.78 years.
Warrant
Issued to Director (Marcus Woods)
On July
11, 2008, the Company’s Board of Directors approved the issuance of a five year
warrant to a director to purchase a total of 500,000 shares of the Company’s
common stock at an exercise price of $0.25 per share.
The fair
value of the warrant was $51,582 at the date of issuance and was calculated
using the Black-Scholes valuation model with the following assumptions: risk
free interest rate of 2.30%, expected volatility of 71.69%, dividend yield of 0%
and expected term of 5 years.
F-17
The fair
value of the warrant was $79,938 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and an expected term
of 3.78 years.
Warrant
Issued to Legal Counsel
On July
22, 2008, the Company entered into an agreement with its legal counsel to issue
641,000 shares of common stock and a six year warrant to purchase up to 641,000
shares of common stock at an exercise price of $0.15 per share for services
previously rendered.
The fair
value of the warrant was $82,779 at the date of issuance and was calculated
using the Black-Scholes valuation model with the following assumptions: risk
free interest rate of 2.27%; expected volatility of 70.18%; dividend yield of
0%; and expected term of 6 years.
The fair
value of the warrant was $104,026 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
1.45%; volatility of 201%; dividend yield of 0%; and expected term of 3.81
years.
Warrant
Issued to Advisory Board Member
On
September 23, 2008, the Company issued a five year warrant to a member of the
Company’s advisory board to purchase 1,500,000 shares of the Company’s common
stock at an exercise price of $0.25 per share.
The fair
value of the warrant was $144,641 at the date of issuance and was calculated
using the Black-Scholes valuation model with the following assumptions: risk
free interest rate of 2.01%; expected volatility of 78.92%; dividend yield of
0%; and expected term of 5 years.
The fair
value of the warrant was $241,575 as of September 30, 2009, using the
Black-Scholes model with the following assumptions: risk free rate of
return of 1.45%; volatility of 201%; dividend yield of 0%; and expected term
of 3.98 years.
Option
Issued to Former Chief Executive Officer
On
November 11, 2008 the Company’s Board of Directors approved the issuance to the
Chief Executive Officer of a five year option to purchase a total of 3,500,000
shares of the Company’s common stock at an exercise price of $0.15 per
share.
The fair
value of the option was $238,244 at the date of issuance, which was calculated
using the Black-Scholes valuation model with the following assumptions:
risk free rate of return of 1.16%; volatility of 89.31%; dividend yield of 0%;
and expected term of 5 years.
The fair
value of the option was $584,768 as of September 30, 2009, using the
Black-Scholes valuation model with the following assumptions: risk free
rate of return of 2.31%; volatility of 230%; dividend yield of 0%; and expected
term of 4.14 years.
Option
Issued to Director (Rodney Anderson)
On March
30, 2009 the Company issued an option to a director to purchase a total of
1,380,114 shares of the Company’s common stock at an exercise price of $0.15 per
share. The right to purchase 690,057 shares of common stock vested on the date
of grant and the right to purchase 172,514 shares of common stock vests on June
30, September 30, December 31, 2009 and March 31, 2010,
respectively.
The fair
value of the vested option was $41,847 at the date of issuance, which was
calculated using the Black-Scholes valuation model with the following
assumptions: risk free rate of return of 0.58%; volatility of 109.22%; dividend
yield of 0%; and expected term of 5 years.
The fair
value of the vested options was $173,671 as of September 30, 2009, using the
Black-Scholes valuation model with the following assumptions: risk free
rate of return of 2.31%; volatility of 230%; dividend yield of 0%; and expected
term of 4.50 years.
Option
Issued to interim Chief Financial Officer (Robert Hasson)
On March
30, 2009 the Company issued an option to the interim Chief Financial Officer to
purchase a total of 958,412 shares of the Company’s common stock at an exercise
price of $0.15 per share. The right to purchase 479,206 shares of common stock
vested on the date of grant and the right to purchase 119,802 shares of common
stock vests on June 30, September 30, December 31, 2009 and March 31, 2010,
respectively.
F-18
The fair
value of the vested option was $29,060 at the date of issuance, which was
calculated using the Black-Scholes valuation model with the following
assumptions: risk free rate of return of 0.58%; volatility of 109.22%; dividend
yield of 0%; and an expected term of 5 years.
The fair
value of the vested options was $120,605 as of September 30, 2009, using the
Black Sholes valuation model with the following assumptions: risk free rate
of return of 2.31%; volatility of 230%; dividend yield of 0%; and expected term
of 4.50 years.
Option
Issued to Employee
On March
30, 2009 the Company issued an option to an employee to purchase a total of
1,495,124 shares of the Company’s common stock at an exercise price of $0.15 per
share. The right to purchase 747,562 shares of common stock vested on the date
of grant and the right to purchase 186,891 shares of common stock vests on June
30, September 30, December 31, 2009 and March 31, 2010,
respectively.
The fair
value of the vested options was $45,334 at the date of issuance, which was
calculated using the Black-Scholes valuation model with the following
assumptions: risk free rate of return of 0.58%; volatility of 109.22%; dividend
yield of 0%; and expected term of 5 years.
The fair
value of the vested options was $188,144 as of September 30, 2009, using the
Black-Scholes valuation model with the following assumptions: risk free
rate of return of 2.31%; volatility of 230%; dividend yield of 0%; and expected
term of 4.50 years.
NOTE
11 - BENEFICIAL CONVERSION FEATURES LIABILITY
Between
October 17, 2006 and February 27, 2007, the Company issued 25 secured
convertible promissory notes for total proceeds to the Company of $750,000
(“Convertible Notes 1”). Convertible Notes 1 could be converted into shares of
the Company’s common stock at a conversion price of $0.05 per share. Convertible
Notes 1 contained a provision that would automatically adjust the conversion
price if equity securities or instruments convertible into equity securities
were issued at a conversion price of less than $0.05.
On June
6, 2007, the Company issued 5 convertible promissory notes for a total of
$86,000 (“Convertible Notes 2”). No warrants were issued in
connection with Convertible Notes 2. Convertible Notes 2 mature on December 31,
2008 and are convertible into common stock at $0.01 per share.
As a
result of the issuance of Convertible Notes 2, the conversion price for
Convertible Notes 1 was adjusted down from $0.05 to $0.01. The
decrease in the conversion price increased the potential dilutive shares from
15,000,000 to 75,000,000, and this subsequently increased the total outstanding
and potential dilutive shares over the authorized common share limit of
150,000,000. Because there were insufficient authorized shares to
fulfill all potential conversions, the Company classified all embedded
conversion options as liabilities.
On June
6, 2007, the outstanding principal and interest balance of Convertible Note 1
was approximately $791,000, which was convertible into 79,066,096 shares of
common stock at a conversion price of $0.01. The Company determined
the fair value of the beneficial conversion option to be $27,056,815 using the
Black-Scholes model with the following assumptions:
·
|
risk
free rate of return of 4.99%;
|
·
|
volatility
of 277%;
|
·
|
dividend
yield of 0%; and
|
·
|
expected
term between 1.04 and 1.23 years.
|
On June
6, 2007, the outstanding principal and interest balance of Convertible Note 2
was $86,000, which was convertible into 8,600,000 shares of common stock at a
conversion price of $0.01. The Company determined the fair value of
the beneficial conversion option to be $2,982,368 using the Black-Scholes model
with the following assumptions:
·
|
risk
free rate of return of 4.99%;
|
·
|
volatility
of 277%;
|
·
|
dividend
yield of 0%; and
|
·
|
expected
term of 1.57 years.
|
Between
June 21, 2007 and July 17, 2007, the Company issued 11 secured convertible
promissory notes (“Convertible Notes 3”) for total proceeds to the Company of
$1,025,000. Convertible Notes 3 could be converted into shares of the Company’s
common stock at a conversion price of $0.22 per share, which was subsequently
amended to $0.19 per share.
At the
date of issuance, the Company determined the fair value of the beneficial
conversion option to be $1,116,031 using the Black-Scholes model with the
following assumptions:
·
|
risk
free rate of return between 4.96% and
5.00%;
|
·
|
volatility
between 196% and 198%;
|
·
|
dividend
yield of 0%; and
|
·
|
expected
term of 1 year.
|
As of
September 30, 2009, the Company had approximately $894,000 in convertible notes
that could be converted into 16,315,982 shares of common stock. The
Company determined the fair value of the beneficial conversion option to be
$2,001,143 using the Black-Scholes model with the following
assumptions:
F-19
risk free
rate of return between 0.14%;
·
|
volatility
of 132%;
|
·
|
dividend
yield of 0%; and
|
·
|
expected
term of 0.25 years.
|
NOTE
12 - STOCKHOLDERS’ EQUITY
COMMON
STOCK
The
Company has 150,000,000 authorized shares of common stock, par value $0.001 per
share. As of September 30, 2009 and September 30, 2008, the Company
had 148,795,946 and 134,756,213 shares of common stock issued, respectively. As
of September 30, 2009 and 2008, there were 481,900 shares of common stock
subject to cancellation. Subsequent to cancellation, the total issued and
outstanding shares of common stock would be 148,314,046 and 134,274,313,
respectively.
During
the year ended September 30, 2009, the Company issued the following shares of
common stock:
·
|
7,819,419
shares for the payment of $306,139 of debt, $71,303 of accrued interest,
$28,400 of late fees and penalties and $75,000 of liquidated damages at
conversion prices between $0.04 and
$0.15;
|
·
|
500,000
shares for the settlement of outstanding debt due to a related party of
$7,000 in principal and accrued interest of $1,816 and the receipt of
$5,000 in cash that resulted in a loss on debt settlement of
$16,184;
|
·
|
833,333
shares of common stock for $125,000 of machinery and equipment from RJ
Metal, Inc.;
|
·
|
1,200,139
shares to legal counsel, with a fair value of $226,229 at the date of
issuance, for services having a value of
$180,014;
|
·
|
800,000
shares as additional consideration in connection with short-term
promissory notes totaling $390,000 from Steel Pier Capital Advisors,
Steel Pier Capital Fund LP, Trillium Partner LP, and MKM Capital;
and
|
·
|
2,886,842
shares for warrant exercises at $0.10 per share for total proceeds of
$265,000.
|
The
Company has not issued 13,333 shares of common stock representing $400 to
certain investors pursuant to the terms of an offering undertaken by the Company
in 2004. The investment was made and funds deposited into the Company’s bank
accounts between February 9, 2004, and August 25, 2004. The
investment has been recorded on the Company’s balance sheet in the Stockholders’
Deficit section as “Shares to be Issued.”
Stock
Options
A summary
of the Company’s option activity is listed below:
Weighted
|
||||||||||||
Weighted
|
Average
|
|||||||||||
Average
|
Aggregate
|
Remaining
|
||||||||||
Number
|
Exercise
|
Intrinsic
|
Contractual
|
|||||||||
of
Options
|
Price
|
Value
|
Life
|
|||||||||
Outstanding
at October 1, 2007
|
7,034,160 | $ | 0.15 | |||||||||
Granted
|
10,539,312 | 0.25 | ||||||||||
Expired
|
- | - | ||||||||||
Forfeited
|
(5,605,786 | ) | (0.25 | ) | ||||||||
Exercised
|
- | - | ||||||||||
Outstanding
at September 30, 2008
|
11,967,686 | 0.19 | ||||||||||
Granted
|
7,333,650 | 0.15 | ||||||||||
Expired
|
- | - | ||||||||||
Forfeited
|
- | - | ||||||||||
Exercised
|
- | - | ||||||||||
Outstanding
at September 30, 2009
|
19,301,336 | $ | 0.18 | $ |
287,356
|
3.02
|
||||||
Exercisable
at September 30, 2009
|
18,342,901 | $ | 0.18 | $ |
268,187
|
2.95
|
F-20
Options
outstanding as of September 30, 2009:
Weighted
|
Weighted
|
|||||||||||||||||
Average
|
Average
|
|||||||||||||||||
Remaining
|
Remaining
|
|||||||||||||||||
Exercise
|
Options
|
Contractual
|
Options
|
Contractual
|
||||||||||||||
Price
|
Outstanding
|
Life
|
Exercisable
|
Life
|
||||||||||||||
$ | 0.15 | 14,367,790 | 2.96 | 13,409,375 | 2.85 | |||||||||||||
$ | 0.25 | 4,933,526 | 3.21 | 4,933,526 | 3.21 | |||||||||||||
19,301,316 | 3.02 | 18,342,901 | 2.95 |
During
the year ended September 30, 2009, the Company granted 7,333,650 options with a
weighted average grant-date fair value of $0.10. The weighted average
grant-date fair value for the options granted on June 11, 2007 and May 15, 2008,
were $0.13 and $0.48, respectively. The fair value of these options was
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
·
|
risk
free rate of return between 1.72% and
2.51%;
|
·
|
volatility
between 247% and 262%;
|
·
|
dividend
yield of 0%; and
|
·
|
expected
term of 5 years.
|
Stock
Warrants
A summary
of the Company’s warrant activity is listed below:
Weighted
|
||||||||
Average
|
||||||||
Exercise
|
Number
|
|||||||
Price
|
of
Warrants
|
|||||||
Outstanding
at October 1, 2007
|
$ | 0.50 | 2,795,454 | |||||
Granted
|
0.20 | 40,053,645 | ||||||
Expired
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Exercised
|
- | - | ||||||
Outstanding
at September 30, 2008
|
$ | 0.20 | 42,849,099 | |||||
Granted
|
- | - | ||||||
Expired
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Exercised
|
0.10 | (3,150,000 | ) | |||||
Outstanding
at September 30, 2009
|
$ | 0.18 | 39,699,099 | |||||
Exercisable
at September 30, 2009
|
$ | 0.20 | 36,365,766 |
F-21
NOTE 13 – INCOME TAXES
The gross
deferred tax asset balance as of September 30, 2009 is approximately
$9,516,000. A 100% valuation allowance has been established against
the deferred tax assets, as the utilization of the loss carry forward cannot
reasonably be assured. Components of the deferred tax assets are
limited to the Company’s net operating loss carryforwards, and are presented as
follows at September 30:
2009
|
2008
|
|||||||
Deferred
tax assets (liabilities):
|
||||||||
Net
operating loss carryforwards
|
$ | 9,516,000 | $ | 8,347,000 | ||||
Deferred
tax assets, net
|
9,516,000 | 8,347,000 | ||||||
Valuation
allowance
|
(9,516,000 | ) | (8,347,000 | ) | ||||
Net
deferred tax assets
|
$ | - | $ | - |
Differences
between the benefit from income taxes and income taxes at the statutory federal
income tax rate are as follows for years ended September 30:
2009
|
2008
|
|||||||||||||||
Amount
|
Rate
|
Amount
|
Rate
|
|||||||||||||
Tax
expense (credit) at statutory rate-federal
|
$ | 1,708,000 | 34 | % | $ | 5,287,000 | 34 | % | ||||||||
State
tax expense net of federal tax
|
301,000 | 6 | % | 933,000 | 6 | % | ||||||||||
Change
in warrant and option liability
|
253,000 | 5 | % | (1,566,000 | ) | (10 | )% | |||||||||
Change
in beneficial conversion liability
|
(3,388,000 | ) | (67 | )% | (8,698,000 | ) | (56 | )% | ||||||||
Other
|
(43,000 | ) | (1 | )% | 437,000 | 3 | % | |||||||||
Net
operating loss carry forward
|
1,169,000 | 23 | % | 3,607,000 | 23 | % | ||||||||||
Tax
expense at actual rate
|
$ | - | - | % | $ | - | - | % |
F-22
NOTE
14 - GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company’s assets and the satisfaction of its liabilities in the
normal course of business. Through September 30, 2009, the Company has incurred
cumulative losses of $28,890,537 including net income for year ended September
30, 2009 of $5,024,198. As the Company has no cash flow from
operations, its ability to transition from a development stage company
to an operating company is entirely dependent upon obtaining adequate cash to
finance its overhead, research and development activities, and acquisition of
production equipment. It is unknown when, if ever, the Company will achieve a
level of revenues adequate to support its costs and expenses. In order for the
Company to meet its basic financial obligations, including rent, salaries, debt
service and operations, it plans to seek additional equity or debt financing.
Because of the Company’s history and current debt levels, there is considerable
doubt that the Company will be able to obtain financing. The Company’s ability
to meet its cash requirements for the next twelve months depends on its ability
to obtain such financing. Even if financing is obtained, any such financing will
likely involve additional fees and debt service requirements which may
significantly reduce the amount of cash we will have for our operations.
Accordingly, there is no assurance that the Company will be able to implement
its plans.
As
mentioned in Notes 7 and 8, the Company has convertible notes and subordinated
notes payable that have matured. The Company is in the process of renegotiating
the terms of the notes with the note holders to extend the maturity date. If the
Company is unsuccessful in extending the maturity date, the Company may not be
able to continue as a going concern. The Company is continuing its efforts to
obtain customers for its ELIXIR product, expanding its sales efforts worldwide
as well as expanding the industries it targets for possible customers. The
Company also has future plans for additional products, and revisions to its
current products. In support of this the Company plans to hire additional
personnel who have the industry experience and the training so that they can be
immediately effective in the building of the Company. The Company is also
considering alternatives related to its manufacturing capabilities and believes
that it can effectively outsource most if not all of its production to contract
manufacturers. This would reduce costs and improve the quality of its products.
It is also continuing to seek additional investment capital in the form of debt
or equity to sustain continued operations, and considering certain changes to
its capital structure to become more attractive to potential investors and
business partners. Last, to manage these activities the Company has hired new
senior management who have the manufacturing, finance and public company
experience necessary to manage the Company.
NOTE 15 - COMMITMENTS
Operating
Lease
As of
August 1, 2008, we entered into a 36 month lease for an industrial site
consisting of approximately 12,000 square feet of administrative offices and a
manufacturing facility. Monthly lease payments for the period from
August 1, 2008 through July 31, 2009 are $8,650 plus common area maintenance
charges; monthly lease payments for the period from August 1, 2009 through July
31, 2010 are $8,995 plus common area maintenance charges and monthly lease
payments for the period from August 1, 2010 through July 31, 2011 are $9,355
plus common area maintenance charges. The lease agreement includes an
option to extend the lease for an additional 36 months. If the option is
exercised, monthly payments over the three year term would be $9,730 plus common
area maintenance charges from August 1, 2011 through July 31, 2012, $10,118 plus
common area maintenance charges from August 1, 2012 through July 31, 2012, and
$10,523 plus common area maintenance charges from August 1, 2013 through July
31, 2014. The future aggregate minimum annual lease payments arising from
this lease agreement are as follows.
For
the Fiscal Year Ended September 30,
|
||||
$ |
108,660
|
|||
2011
|
93,550
|
Total
rent expense under this operating lease was approximately $117,360 and $18,470
for the year ended September 30, 2009 and 2008, respectively.
Issuance of Shares of Common
Stock for Services
On June
10, 2009, the Company entered into an agreement to convert $120,000 of
outstanding legal fees for a total of 600,000 shares of common stock. However,
if the average closing price of the Common Stock is $0.15 or less for the 10
trading days preceding December 10, 2009, the Company is required to issue an
additional 200,000 shares of common stock.
F-23
NOTE
16 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental
information of Non-Cash Financial and Investing Activities.
The
Company issued 7,819,419 shares of common stock for the payment of $306,139 of
debt, $71,303 of accrued interest, $28,400 of late fees and penalties and
$75,000 of liquidated damages at conversion prices between $0.04 and
$0.15.
The
Company issued 500,000 shares for the settlement of outstanding debt due to a
related party of $7,000 in principal and accrued interest of $1,816 and also
received $5,000 in cash that resulted in a loss on debt settlement of
$16,184.
The
Company issued 833,333 shares of common stock for the purchase of machinery and
equipment from RJ Metal, Inc. having a value of $125,000.
The
Company issued 1,200,139 shares of common stock for legal services having a
value of $180,014. The fair value of the common stock on the date of
issuance was $226,229.
NOTE 17 - RELATED PARTY TRANSACTION
On
October 14, 2008, the Company entered into an agreement to purchase machinery
and equipment with a fair value of $125,000 from RJ Metal, Inc. The Company
issued 833,333 shares of common stock for payment of the purchase of machinery
and equipment. The purchase qualified as a related party transaction as the
Company’s Chief Executive Officer and director, is also a director, officer and
significant stockholder of RJ Metal, Inc.
NOTE
18 - RESTATEMENT
Between
October 17, 2006 and February 27, 2007, the Company issued 25 Convertible Notes
1 for total proceeds to the Company of $750,000. Convertible Notes 1 could be
converted into shares of the Company’s common stock at a conversion price of
$0.05 per share. Convertible Notes 1 contained a provision that would
automatically adjust the conversion price if equity securities or instruments
convertible into equity securities were issued at a conversion price less than
$0.05.
On June
6, 2007, the Company issued 5 Convertible Notes 2 for total proceeds to the
Company of $86,000. No warrants were issued in connection with
Convertible Notes 2. Convertible Notes 2 mature on December 31, 2008, and are
convertible into common stock at $0.01 per share.
As a result of the issuance of Convertible Notes 2, the conversion price for Convertible Notes 1 was adjusted down from $0.05 to $0.01. The decrease in the conversion price increased the potential dilutive shares from 15,000,000 to 75,000,000, and this subsequently increased the total outstanding and potential dilutive shares over the authorized common share limit of 150,000,000. Because there were insufficient authorized shares to fulfill all potential conversions, the Company should have classified all potentially dilutive securities as derivative liabilities as of June 6, 2007. The Company researched its debt and equity instruments and determined that the potentially dilutive securities were as follows:
·
|
2001
Executive Officers Stock Option
Plan
|
·
|
Advisory
Board Compensation
|
·
|
Warrants
Related to 2004 Stock Purchase
Agreement
|
·
|
Convertible
Notes 1
|
·
|
Convertible
Notes 2
|
·
|
Subordinated
Convertible Notes 3
|
·
|
Warrants
related to Subordinated Convertible Notes
3
|
The
following adjustments were made to our financial statements for the periods
ended September 30, 2008:
F-24
As
Previously Stated September 30, 2008
|
Beneficial
Conversion Options
|
Warrants
and Options
|
As
Restated September 30, 2008
|
|||||||||||||
Balance
Sheet (as of September 30, 2008)
|
||||||||||||||||
Accrued
expenses
|
$ | 2,721,970 | $ | 1,590,874 | $ | - | $ | 4,312,844 | ||||||||
Warrant
and option liability
|
3,446,823 | - | 3,422,421 | 6,869,244 | ||||||||||||
Beneficial
conversion feature liability
|
26,000 | 8,855,272 | - | 8,881,272 | ||||||||||||
Additional
paid-in capital
|
12,688,495 | - | (1,847,488 | ) | 10,841,007 | |||||||||||
Deficit
accumulated during developmental stage
|
(21,893,656 | ) | (10,446,146 | ) | (1,574,933 | ) | (33,914,735 | ) | ||||||||
Statement
of Operations (for the year ended September 30, 2008)
|
||||||||||||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
$ | 4,748,929 | $ | - | $ | (832,889 | ) | $ | 3,916,040 | |||||||
Gain
(loss) on change in fair value of beneficial conversion
liability
|
1,404,811 | 20,339,955 | - | 21,744,766 | ||||||||||||
General
and administrative expenses
|
7,445,775 | - | 83,855 | 7,529,630 | ||||||||||||
Statement
of Operations (since inception)
|
||||||||||||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
$ | 5,218,240 | $ | - | $ | (973,727 | ) | $ | 4,244,513 | |||||||
Gain
on change in fair value of beneficial conversion liability
|
1,400,767 | 24,258,030 | - | 25,658,797 | ||||||||||||
General
and administrative expenses
|
20,775,280 | 3,787,032 | 83,855 | 24,646,167 | ||||||||||||
Financing
costs
|
(2,299,117 | ) | (30,536,702 | ) | (897,793 | ) | (33,733,612 | ) | ||||||||
Statement
of Cash Flows (for the year ended September 30, 2008)
|
||||||||||||||||
Net
loss
|
$ | (3,872,820 | ) | $ | 20,339,955 | $ | (916,744 | ) | $ | 15,550,391 | ||||||
Gain
(loss) on change in fair value of warrant and option
liability
|
(4,748,929 | ) | - | 832,889 | (3,916,040 | ) | ||||||||||
Gain
(loss) on change in fair value of beneficial conversion
liability
|
(1,404,812 | ) | (20,339,955 | ) | - | (21,744,767 | ) | |||||||||
Non-cash
compensation expense
|
- | - | 83,855 | 83,855 | ||||||||||||
Statement
of Cash Flows (since inception)
|
||||||||||||||||
Net
loss
|
$ | (21,893,656 | ) | $ | (10,065,704 | ) | $ | (1,955,375 | ) | $ | (33,914,735 | ) | ||||
(Gain)
loss on change in fair value of warrant and option
liability
|
(5,218,240 | ) | - | 973,727 | (4,244,513 | ) | ||||||||||
Gain on
changes in fair value of beneficial conversion
liability
|
(1,400,768 | ) | (24,258,030 | ) | - | (25,658,798 | ) | |||||||||
Non cash compensation expense | - | 3,787,032 | 83,855 | 3,870,887 | ||||||||||||
Non cash financing cost | - | 30,536,702 | 897,793 | 31,434,495 |
NOTE
19 - SUBSEQUENT EVENTS
The
Company considered all subsequent events through January 12, 2010.
On
December 24, 2009, the Company sold and issued in a private placement (the
“December 2009 Private Placement”) $250,000 in aggregate principal amount of its
10% Convertible Debentures (each, a “Debenture”, collectively, the “Debentures”)
along with warrants to purchase an aggregate of 1,250,000 shares of the
Company’s common stock (the “Warrants”).
The
Debentures will be convertible into common stock of the Company at a conversion
price of $0.15 per share (the “Conversion Price”) from and after such time as
the Company increases its authorized common stock in accordance with applicable
federal securities laws, which the Company plans to do as soon as commercially
and legally practicable. Each Debenture has a maturity date one year from its
date of issuance and all outstanding principal and accrued interest of each
Debenture will be due and payable on such date unless sooner declared due and
payable by the holder upon the occurrence of an event of default. The Debentures
accrue interest at the rate of 10% per year.
The
Warrants will be exercisable at an exercise price of $0.25 per share from and
after such time as the Company increases its authorized common stock. The
Warrants have a term of five (5) years and may be exercised on a cashless basis
at the election of the holder. In the event of a Dilutive Issuance, the exercise
price of the Warrants will be reduced to equal the price of the securities
issued in the Dilutive Issuance, except in connection with certain exempt
issuances.
The
Private Placement was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder, inasmuch as the securities were issued to accredited investors only
without any form of general solicitation or general advertising.
F-25
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM
9A (T). CONTROLS AND PROCEDURES
Regulations
under the Securities Exchange Act of 1934 require public companies to maintain
“disclosure controls and procedures,” which are defined to mean a company’s
controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and
forms.
We
conducted an evaluation, with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of September 30, 2009, our
disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses described below.
A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies that result in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Management has identified the following
three material weaknesses in our disclosure controls and
procedures:
1. We
do not have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over
financial reporting is a requirement of Section 404 of the Sarbanes-Oxley
Act. Management evaluated the impact of our failure to have written
documentation of our internal controls and procedures on our assessment of our
disclosure controls and procedures and has concluded that the control deficiency
that resulted represented a material weakness.
2. We
do not have sufficient segregation of duties within accounting functions, which
is a basic internal control. Due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of
transactions, the custody of assets and the recording of transactions should be
performed by separate individuals. Management evaluated the impact of
our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
3. We
do not have review and supervision procedures for financial reporting functions.
The review and supervision function of internal control relates to the accuracy
of financial information reported. The failure to review and supervise could
allow the reporting of inaccurate or incomplete financial information. Due to
our size and nature, review and supervision may not always be possible or
economically possible. Management evaluated the impact of our
significant number of audit adjustments and has concluded that the control
deficiency that resulted represented a material weakness.
To
address these material weaknesses, management performed additional analyses and
other procedures to ensure that the financial statements included herein fairly
present, in all material respects, our financial position, results of operations
and cash flows for the periods presented.
Remediation
of Material Weaknesses
We have
retained the services of personnel with experience in financial reporting to
assist us with the process of implementing internal controls to remediate these
material weaknesses. Written documentation of the internal controls of financial
reporting will be prepared after our material weaknesses have been eliminated
and our disclosure controls and procedures are effective.
We
anticipate that our internal controls will be implemented, tested, deficiencies
remediated and documented by June 30, 2010.
Report
on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, a company's principal executive and principal financial officers
and effected by a company's board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America
and includes those policies and procedures that:
20
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the company;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into
the process safeguards to reduce, though not eliminate, this risk.
As of
September 30, 2009 management assessed the effectiveness of our internal control
over financial reporting based on the criteria for effective internal control
over financial reporting established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this report,
such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described
below. This was due to deficiencies that existed in the design or
operation of our internal controls over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses.
The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of written documentation of internal
control policies and procedures; (2) inadequate segregation of duties consistent
with control objectives; and (3) lack of review and supervision over period end
financial disclosure and reporting processes. The aforementioned
material weaknesses were identified by our Chief Executive Officer and our Chief
Financial Officer in connection with the review of our financial statements as
of September 30, 2009.
Management
believes that the lack of documentation of internal controls did not have an
effect on our financial results. However, management believes that
the lack of segregation of duties, and a lack of review and supervision of
reporting could result in a material misstatement in our financial statements in
future periods.
This
annual report does not include an attestation report of the Corporation's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to temporary rules of
the SEC that permit the Corporation to provide only the management's report in
this annual report.
Changes
in Internal Control over Financial Reporting
During
the quarter ended September 30, 2009, the Company has retained a consultant and
hired personnel with financial reporting expertise to oversee and prepare the
Company’s financial reporting. The changes made by these individuals to our
internal control over financial reporting included the following:
·
|
Timely
filing of reporting information.
|
·
|
Review
of financial reporting information by personnel with sufficient
experience.
|
·
|
Proper
application of generally accepted accounting
principles.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
21
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Set forth
below is certain information regarding our directors, executive officers and key
personnel. There are no family relationships among our executive
officers and directors. A director holds office until the annual
shareholder meeting for the year in which his term expires and until his
successor is elected and qualified.
Name
|
Age
|
Position
|
Director Since
|
||||
James
R. Currier
|
63 |
Chief
Executive Officer and Chairman
|
December,
2009
|
||||
David
R. Wells
|
47 |
President,
Chief Financial Officer and Director
|
December,
2009
|
||||
Rodney
Anderson
|
82 |
Director
|
January,
2001
|
||||
John
Pavia
|
46 |
Director
|
July,
2008
|
||||
James
Alexander
|
70 |
Director
|
March,
2009
|
||||
Frank
Power
|
59 |
Director
|
March,
2009
|
James R.
Currier. James R. Currier is the Chairman of the board of
directors and Chief Executive Officer of Sionix Corporation. From July 2007
Mr. Currier has been the managing partner of a private company with
interests in a bio-mass conversion technology involving the mechanical
disaggregation of certain bio-wastes into energy and thermal feedstock, edible
fiber, pure hydrogen, C5 sugars, and other recoverable elements contained in
bio-wastes of high cellulosic and starch content (principally sugar cane
bagasse). From January 2004 to December 2005 he was a founder and CFO
of Fireaway LLC, a manufacturer of fire protection, suppression, and
extinguishing systems using a revolutionary method of interrupting the chemical
chain reaction inherent to fire without eliminating oxygen, heat, or the fuel
elements of the fire triangle. In both positions, Currier was responsible for
the acquisition and licensing of highly proprietary non-American based
technologies and securing start-up financing. During the period from
January 2006 to July 2007, Mr. Currier was retired.
Mr. Currier
earned a BA in Political Science and Economics from Western Illinois University
in 1973.
David R.
Wells. David R. Wells is the President and Chief Financial
Officer of Sionix Corporation and he serves on the board of directors. Prior to
joining the Company, from December 2005 to September 2009 he was the
CFO of Voyant International Corporation. Prior to joining Voyant, from
July 2003 to October 2005 he served as VP Finance for PowerHouse
Technologies Group, Inc. (now Migo Software, Inc.). Mr. Wells possesses
over 20 years experience in finance, operations and administrative positions.
While mainly focused on technology companies, he has also worked in supply-chain
management, manufacturing and the professional services industry. He has
experience working with auditors and regulatory agencies to rapidly address
non-conforming situations and assisting companies who desire to increase their
internal controls.
Mr. Wells
earned a BA in Finance and Entrepreneurship from Seattle Pacific University, and
holds an MBA from Pepperdine University.
Rodney
Anderson. From 1982 to 2007, Mr. Anderson was president and a
principal shareholder of RJ Metal, Inc., a
manufacturer of hardware supplying the U.S. defense industry and
Sionix. At RJ Metal, Inc., Mr.
Anderson was responsible for accounting and financial reporting functions, in
addition to his executive duties. He has served on our Board of
Directors since 2001 and he was appointed as our interim Chief Executive
Officer on October 15, 2008 and served through December 31, 2009.
John Pavia. Mr.
Pavia joined our board in July 2008. He is the founding partner and
Executive Managing Director of Siena Lane Partners, LLC, an advisory group that
assists small and medium sized companies with devising and implementing growth
strategies. He has served in this role since October
2006. Mr. Pavia also serves as general counsel to several companies
including IPT, LLC, a national facilities management company, BeenVerified, LLC
and OneWayLimo.com, Inc., and he sits on the board of directors of RedRoller
Holdings, Inc., a publicly traded company. From 2002 to 2006, Mr.
Pavia served as vice president, deputy general counsel and assistant secretary
of RR Donnelley & Sons after joining the management team that took control
of Moore Corporation Ltd. in late 2000. Mr. Pavia still serves as a
consultant to the chief executive officer of RR Donnelley & Sons providing
advice and assistance on federal government affairs. Mr. Pavia
attended American University School of Law and later clerked for U.S. District
Judge Robert Zampano. He served as an Assistant District Attorney in
Brooklyn from 1992 to 1995 and later became a partner at the law firm of Levy
& Droney, where he worked from 1995 to 1999. Mr. Pavia has been
associated with Quinnipiac University School of Law since 1990 as an adjunct
professor.
JamesAlexander. Mr.
Alexander joined our board in March 2009. From January 1993 to the present, Mr.
Alexander has been the General Manager of Alexander Energy, a Nevada general
partnership. Alexander Energy engages in the purchase and management
of oil and gas resources, including exploration and production. Mr.
Alexander received a Bachelor of Business Administration from the University of
Oklahoma.
Frank Power. Mr.
Power joined our board in March 2009. Mr. Power is a 28-year veteran of the
aerospace industry. He has served in a number of executive positions
with Sonfarrel Inc. beginning in 1981. His background covers
manufacturing management, operations, sales, and marketing. He has
managed millions of dollars in defense contracts with all of the Tier 1 defense
contractors in the United States. He is a Lean expert, Six Sigma, and
an expert in continuous improvement methodology.
22
None of our
directors or executive officers has, during the past five years,
·
|
had
any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer, either at the time of
the bankruptcy or within two years prior to that
time,
|
·
|
been
convicted in a criminal proceeding and none of our directors or executive
officers is subject to a pending criminal
proceeding,
|
·
|
been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, futures, commodities or
banking activities, or
|
·
|
been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Director
Compensation
The
following table sets forth certain information concerning compensation granted
to our directors during the 2008 and 2009 fiscal year. No options
were exercised by our directors during the last fiscal year.
Name
|
Year
|
Fees Earned
or Paid in
Cash
|
Stock
Awards
|
Warrant/
Option
Awards
|
Non-Equity
Incentive Plan
Compensation
|
Non-Qualified
Deferred
Compensation
|
Other
|
Total
|
|||||||||||||||||||||
James
R. Currier
|
2009
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
(1)
|
||||||||||||||||||||
David
R. Wells
|
2009
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
(1)
|
||||||||||||||||||||
Rodney
Anderson
|
2009
2008
|
-
-
|
-
-
|
41,847
171,520
|
-
-
|
-
-
|
-
-
|
41,847
171,520
|
(2)
(3)
|
||||||||||||||||||||
John
Pavia
|
2009
2008
|
-
-
|
-
-
|
51,582
|
-
-
|
-
-
|
-
-
|
51,582
|
(4)
|
||||||||||||||||||||
James
Alexander
|
2009
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
|||||||||||||||||||||
Frank
Power
|
2009
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
(1) Mr.
Currier and Mr. Wells do not receive compensation for participation on the board
of directors. Both were appointed to the board of directors on December 16,
2009.
(2) The
value of this award was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 0.58%, expected
volatility of 109.22%, dividend yields of 0% and expected term of 5
years.
(3) The
value of this award was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 3.22%, expected
volatility of 99.86%, dividend yields of 0% and expected term of 5
years.
(4) The
value of this award was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 2.30%, expected
volatility of 71.69%, dividend yields of 0% and expected term of 5
years.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder require our officers and directors, and persons who own more than 10%
of our common stock, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish us with
copies. To our knowledge, based solely upon review of the copies of
such reports received or written representations from the reporting persons, we
believe that during the 2009 fiscal year our directors, executive officers and
persons who own more than 10% of our common stock complied with all Section
16(a) filing requirements with the exception of the following:
Name
and Title
|
Form
|
Transactions
|
|||
John
Pavia, director
|
4 |
On
July 13, 2009 Mr. Pavia filed a late form 4 disclosing the purchase of
50,000 shares of common stock on June 24, 2009.
|
|||
James
W. Alexander, director
|
3 |
Mr.
Alexander was appointed as a director on March 3, 2009, but failed to file
a form 3 disclosing his ownership of 500,000 shares of our common stock
and a warrant to purchase 1,000,000 shares of our common
stock.
|
|||
4 |
On
March 25, 2009 Mr. Alexander filed a late form 4 disclosing the purchase
of 101,666 shares of common stock on various
dates.
|
||||
4 |
On
July 1, 2009 Mr. Alexander filed a late form 4 disclosing the purchase of
100,000 shares of common stock on June 24, 2009.
|
||||
Robert
Hasson, former Chief Financial Officer
|
3 |
Mr.
Hasson was appointed as our Chief Financial Officer on March 11, 2009, but
failed to file a form 3.
|
|||
4 |
Mr.
Hasson failed to file a form 4 disclosing the grant of an option on March
30, 2009 to purchase 958,412 shares of common
stock.
|
||||
Frank
Power, director
|
3 |
Mr.
Power was appointed as a director on March 24, 2009, but failed to file a
form 3.
|
Code
of Ethics
The
Company had not adopted a code of ethics as of September 30,
2009. The Company expects that a code of ethics will be adopted
during the 2010 fiscal year.
Corporate
Governance
Our board
of directors does not have an audit committee, a compensation committee or a
nominating committee.
We have
not adopted any procedures by which our security holders may recommend nominees
to our board of directors and that has not changed during this fiscal
year.
With the
exception of David R. Wells, none of the members of our board of directors could
qualify as an “audit committee financial expert”, as defined by Item 407 of
Regulation S-K promulgated under the Securities Act of 1933 and the Securities
Exchange Act of 1934. We do not have an audit committee. Mr. Wells is not an
independent director since he is our President and Chief Financial
Officer.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table and discussion sets forth information with respect to all
compensation awarded to, earned by or paid to our chief executive officer and up
to four of our executive officers whose annual salary and bonus exceeded
$100,000 during our last two completed fiscal years (collectively referred to in
this discussion as the “named executive officers”). Robert McCray
resigned as our chief financial officer on March 24, 2008, Richard Papalian
resigned as our Chief Executive Officer on August 14, 2008 and subsequent to the
2008 fiscal year, on October 15, 2008, Marcus Woods separated from service as
chief financial officer.
Principal
Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Warrant/Option
Awards
|
Non-Equity
Incentive Plan
Compensation
|
Non-Qualified
Deferred
Compensation
|
Other
|
Total
|
||||||||||||||||||||||||
James J. Houtz, | 2009 | $ | 37,500 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,325 | $ | 43,825 | (1)(2) | |||||||||||||||
Former Chief Executive Officer President | 2008 | $ | 186,242 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 22,641 | $ | 208,883 | (2)(3) | |||||||||||||||
Rodney
Anderson,
|
2009
|
$
|
64,458
|
$
|
-
|
$
|
179,415
|
$
|
62,771
|
$
|
-
|
$
|
-
|
$
|
554
|
$
|
307,197
|
(2)(4)(4a)(4b)(4c)
|
|||||||||||||||
Former
Interim Chief Executive Officer,
|
2008 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
and Chief Financial Officer and President | |||||||||||||||||||||||||||||||||
Robert
Hasson,
|
2009
|
$
|
69,416
|
$
|
-
|
$
|
124,594
|
$
|
43,591
|
$
|
-
|
$
|
-
|
$
|
7,161
|
$
|
244,761
|
(4b)(4c)(5)(5a)(5b)
|
|||||||||||||||
Interim Chief Financial Officer | 2008 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Robert
McCray
|
2009
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
22,641
|
$
|
208,883
|
|
|||||||||||||||
former Chief Financial Officer | 2008 | $ | 26,400 | $ | - | $ | - | $ | 171,520 | $ | - | $ | - | $ | - | $ | 197,920 | (6)(6a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Richard
Papalian,
|
2009 | $ | - | $ | - | $ | - | $ | 238,244 | $ | - | $ | - | $ | - | $ | 238,244 | (7) | |||||||||||||||
Former
Chief Executive Officer
|
2008
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
1,448,321
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
1,448,321
|
(8)
|
|||||||||||||||
Marcus
Woods,
|
2009
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
|
|||||||||||||||
Former Chief Financial Officer | 2008 | $ | 35,000 | $ | - | $ | - | $ | 51,582 | $ | - | $ | - | $ | - | $ | 86,582 | (9)(10) |
23
(1) James
Houtz was terminated as Chief Executive Officer and President on February 26,
2009. There were salary payments subsequent to the resignation.
(2) Other
compensation is for automobile allowance.
(3) This
amount was accrued but has not been paid.
(4)
Rodney Anderson was Interim Chief Financial Officer from October 15, 2008 to
February 26, 2009. He was appointed as Interim Chief Executive Officer effective
February 26, 2009. These salary payments are subsequent to his
appointment
(4a)
Salary includes accrued wages of $2,500.
(4b) The
value of the stock options vested.
(4c) The
value of common stock granted on October 14, 2008.
(5)
Robert Hasson was appointed as Interim Chief Financial Officer on March 11,
2009.
(5a)
Salary includes accrued wages of $2,693.
(5b)
Other compensation is for medical reimbursement.
(6) The
value of the option was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 3.22%;
expected volatility of 99.86%; dividend yields of 0%; and expected term of 5
years.
(6a)
Robert McCray resigned as Chief Financial Officer on March 24, 2008. There were
salary payments subsequent to the resignation.
(7)
Richard Papalian was issued options on November 11, 2008 to purcahse 3,500,000
shares of common stock on November 11, 2008. The value of the option was
computed using the Black Scholes Option Pricing Model using the following
assumptions: risk free interest rate of 1.16%; expected volatility of
89.31%; dividend yields of 0%; and expected term of 5 years.
(8) The
value of the option was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 3.26%;
expected volatility of 98.01%; dividend yields of 0%; and expected term of 5
years. On November 11, 2008 we entered into an agreement with Mr. Papalian as
part of his separation from service. Pursuant to the agreement, he
agreed to forfeit 5,605,786 option shares.
(9)
Marcus Woods was Chief Financial Officer from August 2008 to September
2008.
(10) The
value of the option was computed using the Black Scholes Option Pricing Model
using the following assumptions: risk free interest rate of 2.30%;
expected volatility of 71.69%; dividend yields of 0%; and expected term of 5
years.
We have
had limited cash resources to pay the full salaries to our executive officers as
they have come due. On occasion, in lieu of cash, we have paid our
executive officers with awards of stock options. For example, during
the 2008 fiscal year we granted an option to purchase 8,539,312 shares of our
common stock to Richard Papalian in lieu of cash salary. During 2009, we paid
$61,958 in salary to Mr. Anderson and accrued $2,500.
When we
are able to do so, our plan is to implement a compensation program consisting of
base salary, bonuses and awards of stock options or, restricted
stock. We believe that a combination of cash, options for the
purchase of common stock, or grants of restricted stock will allow us to attract
and retain the services of the individuals who will help us achieve our business
objectives, thereby increasing value for our shareholders. We grant
options or restricted stock because we believe that share ownership by our
employees is an effective method to deliver superior stockholder returns by
increasing the alignment between the interests of our employees and our
shareholders. No employee is required to own common stock in our
company.
In
setting the compensation for our officers, we look primarily at the person’s
responsibilities, at salaries paid to others in businesses comparable to ours,
at the person’s experience and at our ability to replace the
individual. We expect the salaries of our executive officers to
remain relatively constant unless the person’s responsibilities are materially
changed. During the 2008 and 2009 fiscal years, we have accrued
salaries for our executive officers. It is not likely that we will be
able to pay these salaries until we begin to generate cash from sales of our
products or we arrange financing that will permit us to pay some or all of the
amounts outstanding.
We also
expect that we may pay bonuses in the future to reward exceptional performance,
either by the individual or by the Company.
The
following table sets forth certain information concerning stock option awards
granted to our executive officers as of September 30, 2009. No
options were exercised by our executive officers during the last fiscal
year.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION
AWARDS
|
|||||||||||||||||||||||||||||||||
Equity
Incentive
|
|||||||||||||||||||||||||||||||||
Equity
Incentive
|
Equity
Incentive
|
Plan
Awards:
|
|||||||||||||||||||||||||||||||
Plan
Awards:
|
Plan
Awards:
|
Market
or Payout
|
|||||||||||||||||||||||||||||||
Number
of
|
Number
of
|
Market
Value of
|
Number
of Unearned
|
Value
of Unearned
|
|||||||||||||||||||||||||||||
Securities
|
Shares
or Units
|
Shares
or Units
|
Shares,
Units or
|
Shares,
Units or
|
|||||||||||||||||||||||||||||
Number
of Securities Underlying
|
Underlying
|
Option
|
Option
|
of
Stock that
|
of
Stock that
|
Other
Rights
|
Other
Rights
|
||||||||||||||||||||||||||
Unexercised
Options
|
Unexercised
|
Exercise
|
Expiration
|
Have
Not
|
Have
Not
|
That
Have
|
That
Have
|
||||||||||||||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
Unearned
Options
|
Price
|
Date
|
Vested
|
Vested
|
Not
Vested
|
Not
Vested
|
||||||||||||||||||||||||
Rodney
Anderson
|
1,000,000 | - | - | 0.25 |
12/12/2012
|
- | - | - | - | ||||||||||||||||||||||||
Rodney
Anderson
|
1,380,114 | - | - | 0.15 |
3/29/2014
|
- | - | - | - | ||||||||||||||||||||||||
Robert
Hasson
|
958,412 | - | - | 0.15 |
3/29/2014
|
- | - | - | - |
Employment
Agreements
On
September 30, 2003 we entered into an employment agreement with James J.
Houtz. The term of the agreement began on October 1, 2003 and
continued until September 30, 2008. At the maturity date the Company
determined it was unwilling to renew the employment agreement with Mr. Houtz and
the relationship terminated. Pursuant to the terms of the agreement, Mr. Houtz
provided services as president and chief executive officer. For his
services, Mr. Houtz was initially paid $11,407.78 per month until October 1,
2004, when his compensation was increased by 8% per year. Mr. Houtz
initially received an automobile allowance of $1,288.65 per month, which is
increased by 10% each year. We also agreed to provide life insurance
to Mr. Houtz in the face amount of $500,000 and disability insurance that would
provide disability benefits to Mr. Houtz in an amount equal to one-half of his
base salary until he reached 65 years of age. We could terminate the
agreement immediately for cause, or upon 30 days written notice. The
agreement could terminate automatically upon mutual agreement of the parties, at
the election of either party upon the bankruptcy or insolvency of either party,
upon Mr. Houtz’s death or, at the election of either party, upon Mr. Houtz’s
disability, if such disability lasts for a period of at least 6
months.
For
information relating to the employment and other agreements we entered into with
Mr. Papalian, please see the section of this report titled “Certain
Relationships and Related Transactions and Director
Independence”.
24
On
December 16, 2009 we entered into employment agreements with James R. Currier to
become our Chief Executive Officer and with David R. Wells to become our
President and Chief Financial Officer. We have agreed to pay to each of Mr.
Currier and Mr. Wells a salary of $180,000 per year. Each of Mr.
Currier and Mr. Wells will be eligible to receive a performance bonus of up to
50% of their annual compensation, which, if earned, will be paid one-half in
cash and one-half in shares of the Company’s common stock. The
performance bonus will be paid upon the executive’s achieving certain objectives
during the 2010 fiscal year. We also have granted to each executive
an option to purchase 400,000 shares of our common stock at a price of $0.15 per
share, and for the first year will grant an additional option to purchase
400,000 shares of our common stock at the beginning of each fiscal quarter at a
price equal to the trailing VWAP of our common stock as quoted on the OTCBB, but
in any event no less than $0.15 per share.
Each
executive is also entitled to participate in benefit programs offered to other
executives of Sionix, including, life, health, dental, accident, disability, or
other insurance programs; pension, profit-sharing, 401(k), savings, or other
retirement programs, although we are not obligated to adopt or maintain any
particular benefit program.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following table sets forth, as of January 6, 2010, information regarding the
beneficial ownership of our common stock with respect to each of our executive
officers, each of our directors, each person known by us to own beneficially
more than 5% of the common stock, and all of our directors and executive
officers as a group. Beneficial ownership is determined under the
rules of the Securities and Exchange Commission and generally includes voting or
investment power over securities. Each individual or entity named has
sole investment and voting power with respect to the shares of common stock
indicated as beneficially owned by them, subject to community property laws,
where applicable, except where otherwise noted.
25
Shares of
common stock subject to options or warrants that are currently exercisable or
exercisable within 60 days of January 6, 2010 are considered outstanding and
beneficially owned by the person holding the options or warrants for the purpose
of computing the percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.
Title
of Class of
Security
|
Name
and Address (1)
|
Number of
Shares of
Common
Stock
Beneficially
Owned
|
Percentage
of
Common
Stock
|
|||||||
Common
Stock
|
James
J. Houtz, former CEO, President and Director
|
6,250,167
|
(2)
|
4.20
|
%
|
|||||
Common
Stock
|
Rodney
Anderson, Director and former Interim CEO
|
1,300,000
|
(3)
|
0.87
|
%
|
|||||
Common
Stock
|
Robert
Hasson, former Interim CFO
|
958,412
|
(4)
|
0.64
|
%
|
|||||
Common
Stock
|
David
R. Wells, President, CFO and Director
|
800,000
|
(5)
|
0.54
|
%
|
|||||
Common
Stock
|
James
R. Currier, Chairman and Chief Executive Officer
|
800,000
|
(5)
|
0.54
|
%
|
|||||
Common
Stock
|
Marcus
Woods, former Director
|
500,000
|
(6)
|
0.34
|
%
|
|||||
Common
Stock
|
John
Pavia, Director
|
500,000
|
(6)
|
0.34
|
%
|
(1) The
address for each of our officers and directors is 2801 Ocean Park Blvd., Suite
339, Santa Monica, California 90405.
(2)
Includes 79,167 shares of common stock and an option granted on April 20, 2001,
to purchase 6,171,000 shares of common stock at $0.15 per share from the 2001
executive officers stock option plan, which expires on April 19,
2011.
(3)
Includes 300,000 shares of common stock and an option granted on December 13,
2007, to purchase 1,000,000 shares of common stock at $0.25 per share, which
expires on December 12, 2012.
(4)
Consists of an option granted on March 31, 2009 to purchase 958,412 shares of
common stock at $0.15 per share, which expires on March 30, 2013.
(5)
Consists of an option grant as a result of employment contract dated December
16, 2009.
(6)
Consists of an option granted on July 11, 2008, to purchase 500,000 shares of
common stock at $0.25 per share, which expires on July 10, 2012.
For
information relating to securities authorized for issuance under our equity
compensation plans, please see Part II, Item 5 of this report.
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Using the
definition of “independent” set forth in Section 803A of the Rules of NYSE
Alternext US, we have determined that 3 of our directors, John Pavia, James
Alexander and Frank Power, are independent.
On
November 7, 2007 we entered into a Stock Exchange Agreement with Rodney L.
Anderson, Joey M. Anderson and Robert A. Hasson, the sole shareholders of RJ Metal, Inc.
(collectively referred to in this discussion as the “RJ Metal Holders”).
Pursuant to the Stock Exchange Agreement, we were to acquire from the RJ Metal
Holders all of the issued and outstanding shares of RJ Metal, Inc. in
exchange for issuing to the RJ Metal Holders a total of 3,400,000 shares of our
common stock (the “Transaction”). Rodney Anderson is a significant
shareholder of RJ
Metal, Inc. and one of our directors. The Transaction was not
consummated and on March 14, 2008 our board of directors approved, and we
entered into with RJ Metal Holders, a Termination Agreement. Pursuant to the
Termination Agreement, the Share Exchange Agreement was terminated and the
parties released each other and each of their officers, employees, principals
and agents from any and all claims or demands incidental to the Share Exchange
Agreement and the Transaction.
On
October 8, 2008 we issued a Notice of Grant of Stock Option and a Stock Option
Agreement to Mr. David Ross, a former director. The stock option was
authorized by the board of directors on December 13, 2007. The option
permits Mr. Ross to purchase 2,880,000 shares of our common stock at an exercise
price of $0.25 per shares. The option was fully vested on the date of
grant and has a term of 5 years. Pursuant to the stock option
agreement, Mr. Ross agreed not to sell any shares of common stock acquired upon
exercise of his option prior to December 13, 2008. On December 13,
2007, the fair value of the option was $519,235 at the date of grant and was
calculated using the Black Sholes option valuation model with the following
assumptions: risk free interest rate of 3.22%, expected volatility of 99.86%,
dividend yields of 0% and expected term of 5 years.
On
October 14, 2008, we entered into an agreement with RJ Metal, Inc., a
company controlled by one of our directors, Rodney Anderson, to purchase
equipment valued at $125,000 in consideration of an aggregate of 833,334 shares
of our common stock. Mr. Anderson received 300,000 of the shares
issued. The market value of our common stock on October 14, 2008 was
$0.13 per share.
26
On November
11, 2008, we entered into a Termination, Separation and Release Agreement (the
“Separation Agreement”) with Richard H. Papalian, our former chief executive
officer, pursuant to which we and Mr. Papalian mutually agreed to terminate Mr.
Papalian’s Employment Agreement dated December 19, 2007, and agreed that such
termination would be deemed neither a termination by us for “Cause” nor a
termination by Mr. Papalian for “Good Reason”, as those terms are defined in the
Employment Agreement, and agreed to a mutual general release of any claims
arising from Mr. Papalian’s service as an officer and director. Mr.
Papalian agreed to forfeit all unvested stock options granted to him pursuant to
the Notice of Grant of Stock Option dated December 19, 2007, leaving him with a
vested option to purchase 2,933,526 shares of our common stock at an exercise
price $0.25 per share, after giving effect to anti-dilution adjustments to which
Mr. Papalian was entitled pursuant to his Stock Option Agreement dated December
19, 2007. In addition, we agreed to grant Mr. Papalian a fully vested
5-year option to purchase 3,500,000 shares of our common stock at an exercise
price of $0.15 per share in consideration of Mr. Papalian’s acceptance of the
Separation Agreement. The fair value of the option on November 11, 2008 was
$238,244 at the date of grant and was calculated using the Black Sholes option
valuation model with the following assumptions: risk free interest rate of
1.16%, expected volatility of 89.31%, dividend yields of 0% and expected term of
5 years.
On
February 21, 2008, we entered into a one year Consulting Agreement with Dr. John
H. Foster, Ph.D., who was the chairman of our board of directors on that
date. Pursuant to the Consulting Agreement, Dr. Foster will (i)
actively assist in the testing and demonstration of our water purification
product on site at the Villa Park Dam in Irvine, California; (ii) attend
technical meetings, demonstrations and trade shows in support of our business;
(iii) prepare grant applications and white papers as technological and
scientific results are confirmed; and (iv) act in our best interests and aid in
our day-to-day operations for a minimum of 5 days per month, after which we will
pay Dr. Foster an hourly rate of $250 per hour. The term of the
Consulting Agreement is from January 1, 2008 until January 1, 2009 (the
“Term”).
As
compensation for the services, we agreed to pay Dr. Foster:
(i) so
long as we raise at least $250,000 in gross proceeds from an equity financing or
series of equity financings occurring on or after December 31, 2007 and before
the end of the Term, for services performed from January 1 until June 1, 2008,
$10,000 per month payable on the first day of each month during such period;
and
(ii) so
long as we raise at least $500,000 in gross proceeds (including the $250,000
referred to above) from an equity financing or series of equity financings
occurring on or after December 31, 2007 and before the end of the Term: (i) a
one time payment of $30,000 for services performed from October 1, 2007 through
December 31, 2007, and (ii) for services performed from July 1 until December
31, 2008, $10,000 per month payable on the first day of each month during such
period.
In
addition, in consideration of Dr. Foster’s efforts in bringing about a
definitive licensing, manufacturing, distribution, purchase order or
substantially similar agreement between us and Primon, an Ireland based company
in the business of water purification, or any of its affiliates, during the Term
or within six months thereafter, Dr. Foster will receive, regardless of the
termination of the Consulting Agreement, 2.5% of the royalty payments or other
amounts received by us from Primon pursuant to the agreement, until Dr. Foster
has received $2,500,000 in such commissions, after which we will have no further
obligation to pay such commissions.
Pursuant
to the Consulting Agreement, we also agreed to carry forward the debt incurred
to Dr. Foster in the amount of $144,000 for services rendered during the time
Dr. Foster served as a member of our board of advisors, which will be payable at
the earlier of September 30, 2010 or the date on which we show on our balance
sheet as filed with the Securities and Exchange Commission at least $1.5 million
in working capital and the closing price of our common stock has been at least
$1.25 for at least 15 consecutive trading days. This obligation will
survive the termination of the Consulting Agreement.
In
addition, on February 21, 2008, pursuant to a Notice of Grant of Stock Option
and a Stock Option Agreement (the “Option Agreement”), we granted to Dr. Foster
a 5-year fully vested option to purchase 2,880,000 shares of our common stock at
an exercise price of $0.25 per share. The option may be exercised on
a cashless basis. Pursuant to the Option Agreement, Dr. Foster agreed
not to sell any shares of common stock acquired upon exercise of his option
prior to December 13, 2008, which is the one year anniversary of the date the
option was authorized by our board of directors. On December 13,
2007, the date of authorization by the board of directors, the fair value of the
option was $519,235 at the date of grant and was calculated using the Black
Sholes option valuation model with the following assumptions: risk free interest
rate of 3.22%, expected volatility of 99.86%, dividend yields of 0% and expected
term of 5 years.
Dr.
Foster resigned from our board of directors on October 15, 2008.
On
February 21, 2008, we entered into a one year Consulting Agreement with Dr. W.
Richard Laton who was, at the time, a member of our board of
directors. Pursuant to the Consulting Agreement, Dr. Laton will (i)
actively assist in the testing and demonstration of our water purification
product on site at the Villa Park Dam in Irvine, California; (ii) attend
technical meetings, demonstrations and trade shows in support of the
Registrant’s business; (iii) prepare grant applications and white papers as
technological and scientific results are confirmed; and (iv) act in our best
interests and aid in our day-to-day operations for a minimum of 5 days per
month, after which we will pay Dr. Laton an hourly rate of $250 per
hour. The term of the Consulting Agreement is from January 1, 2008
until January 1, 2009 (the “Term”).
27
As
compensation for the services, we agreed to pay Dr. Laton:
(i) so
long as we raise at least $250,000 in gross proceeds from an equity financing or
series of equity financings occurring on or after December 31, 2007 and before
the end of the Term, for services performed from January 1 until June 1, 2008,
$10,000 per month payable on the first day of each month during such period;
and
(ii) so
long as we raise at least $500,000 in gross proceeds (including the $250,000
referred to above) from an equity financing or series of equity financings
occurring on or after December 31, 2007 and before the end of the Term: (i) a
one time payment of $30,000 for services performed from October 1, 2007 through
December 31, 2007, and (ii) for services performed from July 1 until December
31, 2008, $10,000 per month payable on the first day of each month during such
period.
In
addition, in consideration of Dr. Laton’s efforts in bringing about the Primon
Agreement during the Term or within six months thereafter, Dr. Laton will
receive, regardless of the termination of the Consulting Agreement, 5% of the
royalty payments or other amounts received by us from Primon pursuant to the
agreement, until Dr. Laton has received $5,000,000 in such commissions, after
which we will have no further obligation to pay such commissions.
Pursuant
to the Consulting Agreement, we also agreed to carry forward the debt incurred
to Dr. Laton in the amount of $144,000 for services rendered during the time Dr.
Laton served as a member of our board of advisors, which will be payable at the
earlier of September 30, 2010 or the date on which we show on our balance sheet
as filed with the Securities and Exchange Commission at least $1.5 million in
working capital and the closing price of our common stock has been at least
$1.25 for at least 15 consecutive trading days. This obligation will
survive the termination of the Consulting Agreement.
In
addition, on February 21, 2008, pursuant to a Notice of Grant of Stock Option
and a Stock Option Agreement (the “Option Agreement”), we granted to Dr. Laton a
5-year fully vested option to purchase 2,880,000 shares of our common stock at
an exercise price of $0.25 per share. The option may be exercised on
a cashless basis. Pursuant to the Option Agreement, Dr. Laton agreed
not to sell any shares of common stock acquired upon exercise of his option
prior to December 13, 2008, which is the one year anniversary of the date the
option was authorized by our board of directors. On
December 13, 2007, the date of authorization by the board of directors, the fair
value of the option was $519,235 at the date of grant and was calculated using
the Black Sholes option valuation model with the following assumptions: risk
free interest rate of 3.22%, expected volatility of 99.86%, dividend yields of
0% and expected term of 5 years.
Dr. Laton
resigned from our board of directors on July 16, 2008.
On
December 19, 2007, we entered into a one year Employment Agreement with Richard
H. Papalian pursuant to which Mr. Papalian was appointed as our chief executive
officer and was elected to fill a vacancy on our board of
directors. Mr. Papalian did not receive a cash salary or any fringe
benefits under the Employment Agreement. Instead, pursuant to a
Notice of Grant of Stock Option and a Stock Option Agreement dated December 19,
2007, we granted Mr. Papalian a five year option to purchase up to 8,539,312
shares of our common stock at an exercise price of $0.25 per share, which
represented 5% of the outstanding shares of our common stock on a fully diluted
basis. The option was subject to the following vesting conditions:
(i) 30% of the option vested upon the grant date; (ii) 20% of the option was to
vest when our market capitalization exceeded $50 million for fifteen consecutive
trading days; (iii) 30% of the option was to vest when our market capitalization
exceeded $75 million for fifteen consecutive trading days; and (iv) 20% of the
option was to vest when our market capitalization exceeded $100 million for
fifteen consecutive trading days.
We also
entered into an Indemnification Agreement with Mr. Papalian on December 19,
2007. The Indemnification Agreement provides for indemnification of
Mr. Papalian to the extent he becomes a party or is threatened to be made a
party to any legal proceeding by reason of his status as our officer or
director, against any expenses incurred as a result of such proceeding, as and
when such expenses are incurred. Before any claim for indemnification
is approved by us, we will determine by any of the methods set forth in the
Nevada Revised Statutes that Mr. Papalian has met the applicable standards of
conduct which make it permissible to indemnify him.
28
Mr.
Papalian resigned as our chief executive officer on August 14, 2008 and as a
member of our board of directors on November 11, 2008.
On
December 16, 2009 we entered into employment agreements with James R. Currier to
become our Chief Executive Officer and with David R. Wells to become our
President and Chief Financial Officer. We have agreed to pay to each of Mr.
Currier and Mr. Wells a salary of $180,000 per year. Each of Mr.
Currier and Mr. Wells will be eligible to receive a performance bonus of up to
50% of their annual compensation, which, if earned, will be paid one-half in
cash and one-half in shares of the Company’s common stock. The
performance bonus will be paid upon the executive’s achieving certain objectives
during the 2010 fiscal year. We also have granted to each executive
an option to purchase 400,000 shares of our common stock at a price of $0.15 per
share, and for the first year will grant an additional option to purchase
400,000 shares of our common stock at the beginning of each fiscal quarter at a
price equal to the trailing VWAP of our common stock as quoted on the OTCBB, but
in any event no less than $0.15 per share.
Each
executive is also entitled to participate in benefit programs offered to other
executives of Sionix, including, life, health, dental, accident, disability, or
other insurance programs; pension, profit-sharing, 401(k), savings, or other
retirement programs, although we are not obligated to adopt or maintain any
particular benefit program.
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES.
|
2009
|
2008
|
|||||||
Fee
Category:
|
||||||||
Audit
fees
|
$
|
114,000
|
$
|
53,000
|
||||
Tax
fees
|
7,000
|
-
|
||||||
All
other fees
|
-
|
-
|
||||||
$
|
121,000
|
$
|
53,000
|
The
following is a summary of the fees billed to us by Kabani & Company, Inc.
and Windes & McClaughry Accountancy Corporation for professional services
rendered for the fiscal years ended September 30, 2009 and 2008:
Audit
Fees consists of fees billed for professional services rendered for the audit of
our financial statements and review of the interim financial statements included
in quarterly reports and services that are normally provided by Kabani &
Company, Inc. in connection with our statutory and regulatory filings or
engagements.
Audit-Related
Fees consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements and are not reported under “Audit Fees”.
Tax Fees
consists of fees billed for professional services for tax compliance, tax advice
and tax planning.
All Other
Fees consists of fees for products and services other than the services reported
above.
We do not
have an audit committee. Our board of directors pre-approves all
audit and permissible non-audit services provided by the independent
auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval would
generally be provided for up to one year and any pre-approval would be detailed
as to the particular service or category of services, and would be subject to a
specific budget. The independent auditors and management are required
to periodically report to the board of directors regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed. The board of
directors may also pre-approve particular services on a case-by-case
basis.
29
ITEM
15.
|
EXHIBITS.
|
The
following exhibits are filed herewith or incorporated by reference:
No.
|
Description
|
3.1 |
Amended
and Restated Articles of Incorporation (1)
|
|||
3.2 |
Amended
and Restated Bylaws (1)
|
|||
10.1
|
Form
of Securities Purchase Agreement, dated as of June 18, 2007, between the
registrant and certain investors (2)
|
|||
10.2
|
Form
of Convertible Debenture, dated as of June 18, 2007, issued by the
registrant to certain investors. (2)
|
|||
10.3
|
Form
of Registration Rights Agreement, dated as of June 18, 2007, between the
registrant and certain investors (2).
|
|||
10.4
|
Form
of Warrant, dated as of June 18, 2007, issued by the registrant to certain
investors. (2)
|
|||
10.5
|
Termination
Agreement dated March 14, 2008 between the registrant and the shareholders
of RJ Metals, Inc. (4)*
|
|||
10.6
|
Indemnification
Agreement between the registration and Richard H. Papalian
(3)*
|
|||
10.7
|
Notice
of Grant of Stock Option to David Ross (5)*
|
|||
10.8
|
Stock
Option Agreement between the registrant and David Ross
(5)*
|
|||
10.9
|
Notice
of Grant of Stock Option to Rodney Anderson (5)*
|
|||
10.10
|
Stock
Option Agreement between the registrant and Rodney Anderson
(5)*
|
|||
10.11
|
Form
of Securities Purchase Agreement for 12% Convertible Debentures
(6)
|
|||
10.12
|
Sionix
Corporation 12% Convertible Debenture due July 29, 2009
(6)
|
|||
10.13
|
Form
of Common Stock Purchase Warrant dated July 29, 2008
(6)
|
|||
10.14
|
Form
of Unit Offering Securities Purchase Agreement (7)
|
|||
10.15
|
Form
of Common Stock Purchase Warrant (7)
|
|||
10.16
|
Amended
and Restated Promissory Notes with Calico Capital Management LLC, BRAX
Capital LLC and Gene Salkin (8)
|
|||
10.17
|
Second
Amended and Restated Convertible Promissory Notes dated March 17, 2008
with Calico Capital Management LLC, BRAX Capital LLC and Gene Salkin
(9)
|
|||
10.18
|
Form
of Securities Purchase Agreement for 10% Debentures
(10)
|
|||
10.19
|
Form
of Subordinated 10% Debenture (10)
|
|||
10.20
|
Form
of Common Stock Purchase Warrant (10)
|
|||
10.21
|
Consulting
Agreement dated February 21, 2008 between the registrant and John H.
Foster, Ph.D. (13)*
|
|||
10.22
|
Notice
of Grant of Stock Option to John H. Foster (11)*
|
|||
10.23
|
Stock
Option Agreement between the registrant and Dr. John H. Foster
(11)*
|
|||
10.24
|
Consulting
Agreement dated February 21, 2008 between the registrant and Dr. W.
Richard Laton (11)*
|
|||
10.25
|
Notice
of Grant of Stock Option (11)
|
|||
10.26
|
Stock
Option Agreement between the registrant and Dr. W. Richard Laton
(11)*
|
|||
10.27
|
Letter
Agreement dated October 14, 2008 between the registrant and RJ Metals Inc.
(5)*
|
|||
10.28
|
Waiver
and Amendment Agreement dated August 13, 2009 between the registrant and
all current and past holders of Secured Convertible Promissory Notes
issued by the registrant (12)
|
|||
10.29
|
Waiver,
Consent and Securities Modification Agreement dated October 22, 2009 by
and among the registrant and investors who hold debentures and warrants
issued by the registrant (13)
|
|||
10.30
|
Employment
Agreement dated December 16, 2009 between the registrant and James R.
Currier*
|
|||
10.31
|
Employment
Agreement dated December 16, 2009 between the registrant and David R.
Wells*
|
|||
10.32
|
Form of Securities Purchase Agreement for December 2009 10% Debentures | |||
10.33
|
Form
of Subordinated 10% Debenture
|
|||
10.34
|
Form
of Common Stock Purchase Warrant
|
|||
31.1 |
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|||
31.2 |
Certification
of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
32.1 |
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|||
32.2 |
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
30
* Denotes
a contract with management.
(1)
Incorporated by reference from registrant’s Current Report on Form 8-K, file no.
002-95626-D, filed with the Commission on July 15, 2003, and incorporated herein
by reference.
(2)
Incorporated by reference from registrant's Current Report on Form 8-K, file no.
002-95626-D , filed with the Commission on August 14, 2007, and incorporated
herein by reference.
(3)
Incorporated by reference from registrant’s Current Report on Form 8-K, file no.
002-95626-D, filed with the Commission on December 20, 2007, and incorporated
herein by reference.
(4)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on March 17, 2008, and incorporated
herein by reference.
(5)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on October 23, 2008, and incorporated
herein by reference.
(6)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on July 30, 2008, and incorporated
herein by reference.
(7)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on May 29, 2008, and incorporated
herein by reference.
(8)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on January 28, 2008, and incorporated
herein by reference.
(9)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on March 24, 2008, and incorporated
herein by reference.
(10)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on March 3, 2008, and incorporated
herein by reference.
(11)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on February 25, 2008, and
incorporated herein by reference.
(12)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on August 18, 2009, and incorporated
herein by reference.
(13)
Incorporated by reference from the registrant’s Current Report on Form 8-K, file
no. 002-95626-D, filed with the Commission on November 12, 2009, and
incorporated herein by reference.
31
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIONIX, INC.
January
13, 2010
|
By:
|
/s/ James R. Currier | |
James R. Currier | |||
Chief Executive Officer | |||
January
13, 2010
|
By:
|
/s/ David R. Wells | |
David R. Wells | |||
President and Chief Financial Officer | |||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated
Signature
|
Title
|
Date
|
||
/s/
James R. Currier
|
Chief
Executive Officer and Chairman
|
January
13, 2010
|
||
James
R. Currier
|
||||
/s/
David R. Wells
|
President,
Chief Financial Officer and Director
|
January
13, 2010
|
||
David
R. Wells
|
||||
/s/
Rodney Anderson
|
Director
|
January
13, 2010
|
||
Rodney
Anderson
|
/s/
James Alexander
|
Director
|
January
13, 2010
|
||
James
Alexander
|
||||
/s/
Frank Power
|
Director
|
January
13, 2010
|
||
Frank
Power
|
||||