UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-QSB**




Mark
                Onex
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the quarterly period ended June 30, 2008; oro
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the transition period from ________________ to
                ________________.Commission
                File No. 002-95626-D
              
              Sionix
                Corporation(Exact
                name of registrant as specified in charter)Nevada
            87-0428526(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification Number)2082
                Michelson Drive, Suite 306, Irvine, California 92612(Address
                of principal executive offices)(949)
                752-7980(Registrant’s
                telephone number, including area code)(Former
                name, former address and former fiscal year if changed since last
                report)Check
                whether the issuer (1) filed all reports required to be filed by
                Section
                13 or 15(d) of the Exchange Act during the past 12 months (or for
                such
                shorter period that the registrant was required to file such reports),
                and
                (2) has been subject to such filing requirements for the past 90
                days.xYesoNo
              
              Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).oYesxNo
              
              The
                number of shares of common stock outstanding at August 12, 2008 was
                121,479,647shares.
              
              Transitional
                Small Business Format (Check one) YesoNox





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          37




**Sionix
      Corporation - Form 10-QSB**


**Table
      of Contents**




**Part
                  I**Financial
                  InformationItem
                  1 Financial StatementsBalance
                  Sheet as of June 30, 2008 (Unaudited)
              3Statements
                  of Operations (Unaudited) for the three and nine months ended June
                  30,2008
                  and June 30, 2007 and from inception (October 3, 1994) to June
                  30,
                  2008
              4Statements
                  of Stockholders Equity (Deficit) for the period from inception
                  (October3,
                  1994) to June 30, 2008
              5Statements
                  of Cash Flows (unaudited) for the three and nine months ended June
                  30,2008
                  and June 30, 2007 and from inception (October 3, 1994) to June
                  30,
                  2008
              10Notes
                  to unaudited financial statements
              11Forward-Looking
                  Statements
              28**Part
                  II**Other
                  InformationItem
                  1 Legal Proceedings
              35Item
                  2 Unregistered Sales of Equity Securities and Use of
                  Proceeds
              35Item
                  3 Defaults upon Senior Securities
              35Item
                  4 Submission of Matters to a Vote of Security Holders
              35Item
                  5 Other Information
              36Item
                  6 Exhibits
              36**Part
                  III**Signatures
              
              37**Part
                  IV**Exhibit
                  - 31.1
              Certifications
                  required under Section 302 of the Sarbanes-Oxley Act of
                  2002**Part
                  V**Exhibit
                  - 31.2
              Certifications
                  required under Section 302 of the Sarbanes-Oxley Act of
                  2002**Part
                  VI**Exhibit
                  - 32
              Certifications
                  required under Section 906 of the Sarbanes-Oxley Act of
                  2002




Page
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          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Balance
      Sheet (Unaudited)**


**June
      30, 2008**


ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              996,360Other
                  current assets
              
              
              78,619TOTAL
                  CURRENT ASSETS
              
              
              1,074,979PROPERTY
                  AND EQUIPMENT, net
              
              
              16,361DEPOSITS
              
              
              4,600TOTAL
                  ASSETS
              
              $
              1,095,940LIABILITIES
                  AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              541,805Accrued
                  expenses
              
              
              2,429,688Customer
                  deposits
              
              
              900,000Liquidated
                  damages liability
              
              
              153,750Notes
                  payable to related parties
              
              
              124,000Convertible
                  notes, net
              
              
              1,109,11110%
                  subordinated note payable, net
              
              
              344,325Warrant
                  liability
              
              
              5,530,616Beneficial
                  conversion features liability
              
              
              215,071TOTAL
                  CURRENT LIABILITIES
              
              
              11,348,366STOCKHOLDERS'
                  DEFICITCommon
                  Stock, $0.001 par value; 150,000,000 shares authorized;121,479,647
                  shares issued; 120,997,747 outstanding
              
              
              120,997Additional
                  paid-in capital
              
              
              12,262,574Shares
                  to be issued
              
              
              463,900Deficit
                  accumulated during development stage
              
              
              (23,099,897
              )TOTAL
                  STOCKHOLDERS' DEFICIT
              
              
              (10,252,426
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              1,095,940




The
      accompanying notes form an integral part of these unaudited financial
      statements.




Page
          3 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Operations (Unaudited)**




For
                    the nine months ended June
                    30,
                
                Cummulative
                    fromInception
                  (October
                    3, 1994)For
                    the three months ended June
                    30,
                
                
                
                20072008
                
                2007
                
                2008
                
                (As
                    Restated)
                
                to
                    June 30, 2008Operating
                    expensesGeneral
                    and administrative
                
                $
                634,702
                
                $
                444,544
                
                $
                6,755,429
                
                $
                1,028,668
                
                $
                20,084,934Research
                    and development
                
                
                280,972
                
                
                
                
                
                846,904
                
                
                
                
                
                2,822,844Depreciation
                    and amortization
                
                
                8,157
                
                
                7,936
                
                
                24,472
                
                
                23,723
                
                
                556,577Total
                    operating expenses
                
                
                923,831
                
                
                452,480
                
                
                7,626,805
                
                
                1,052,391
                
                
                23,464,355Loss
                    from Operations
                
                
                (923,831
                )
                
                (452,480
                )
                
                (7,626,805
                )
                
                (1,052,391
                )
                
                (23,464,355
                )Other
                    income (expense)Interest
                    income
                
                
                1,564
                
                
                56
                
                
                2,843
                
                
                666
                
                
                61,386Interest
                    expense
                
                
                (313,696
                )
                
                (74,307
                )
                
                (977,912
                )
                
                (144,895
                )
                
                (2,154,841
                )Decrease
                    (increase) in warrant liability
                
                
                (2,210,711
                )
                
                
                
                
                2,702,841
                
                
                
                
                
                3,172,152Decrease
                    in beneficialconversion
                    features liability
                
                
                659,811
                
                
                
                
                
                1,215,740
                
                
                
                
                
                941,845Impairment
                    of intangibles
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,267,278
                )Inventory
                    obsolesence
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (365,078
                )Legal
                    settlement
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                344,949Loss
                    on settlement of debt
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (230,268
                )Miscellaneous
                
                
                4,151
                
                
                
                
                
                (125,015
                )
                
                
                
                
                (125,017
                )Total
                    Other Income (Expense)
                
                
                (1,858,881
                )
                
                (74,251
                )
                
                2,818,497
                
                
                (144,229
                )
                
                377,850Loss
                    before income taxes
                
                
                (2,782,712
                )
                
                (526,731
                )
                
                (4,808,308
                )
                
                (1,196,620
                )
                
                (23,086,505
                )Income
                    Taxes
                
                
                -
                
                
                900
                
                
                900
                
                
                900
                
                
                13,392Net
                    Loss
                
                $
                (2,782,712
                )
                $
                (527,631
                )
                $
                (4,809,208
                )
                $
                (1,197,520
                )
                $
                (23,099,897
                )Basic
                    and dilutive loss per share
                
                $
                (0.02
                )
                $
                (0.00
                )
                $
                (0.04
                )
                $
                (0.01
                )Basic
                    and diluted wightedaverage
                    nubmer of shares ofCommon
                    Stock outstanding*
                
                
                113,816,474
                
                
                106,431,387
                
                
                113,816,474
                
                
                105,901,243*
                    -
                    Weighted averag diluted number of share are the same as basic
                    weighted
                    average nuimber of sharesas
                    the effect is
                    anti-dilutive.




The
      accompanying notes form an integral part of these unaudited financial
      statements.




Page
          4 of
          37


**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Stockholders’ Equity (Deficit) (Unaudited)**


**For
      the Period from Inception (October 3, 1994) to June, 2008**




Deficit
              
              TotalCommon
                  Stock
              
              Additional
              
              Stock
              
              Deferred
              
              Stock
              
              Shares
              
              Unamortized
              
              Accumulated
              
              Stockholders'Number
              
              
              
              Paid-in
              
              to
                  be
              
              Warrant
              
              Subscription
              
              to
                  be
              
              Consulting
              
              from
              
              Equityof
                  Shares
              
              Amount
              
              Capital
              
              Issued
              
              Expense
              
              Receivable
              
              Cancelled
              
              Fees
              
              Inception
              
              (Deficit)Stock
                  issued for cashOctober
                  3, 1994
              
              
              10,000
              
              $
              10
              
              $
              90
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              100Net
                  loss from October 3,1994,
                  to December 31, 1994
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,521
              )
              
              (1,521
              )Balance
                  at December 31, 1994
              
              
              10,000
              
              
              10
              
              
              90
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              -
              
              
              (1,521
              )
              
              (1,421
              )Shares
                  issued forassignment
                  rights
              
              
              1,990,000
              
              
              1,990
              
              
              (1,990
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Shares
                  issued for services
              
              
              572,473
              
              
              572
              
              
              135,046
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              135,618Shares
                  issued for debt
              
              
              1,038,640
              
              
              1,038
              
              
              1,164,915
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,165,953Shares
                  issued for cash
              
              
              232,557
              
              
              233
              
              
              1,119,027
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,119,260Shares
                  issued forsubscription
                  receivable
              
              
              414,200
              
              
              414
              
              
              1,652,658
              
              
              
              
              
              
              
              
              (1,656,800
              )
              
              
              
              
              
              
              
              
              (3,728
              )Shares
                  issued forproductions
                  costs
              
              
              112,500
              
              
              113
              
              
              674,887
              
              
              
              
              
              
              
              
              (675,000
              )
              
              
              
              
              
              
              
              
              -Net
                  loss for the year endedDecember
                  31, 1995
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (914,279
              )
              
              (914,279
              )Balance
                  at December 31, 1995
              
              
              4,370,370
              
              
              4,370
              
              
              4,744,633
              
              
              -
              
              
              -
              
              
              (2,331,800
              )
              -
              
              -
              
              
              (915,800
              )
              
              1,501,403Shares
                  issued for reorganization
              
              
              18,632,612
              
              
              18,633
              
              
              (58,033
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (39,400
              )Shares
                  issued for cash
              
              
              572,407
              
              
              573
              
              
              571,834
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              572,407Shares
                  issued for services
              
              
              24,307
              
              
              24
              
              
              24,283
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              24,307Net
                  loss for the year endedSeptember
                  30, 1996
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (922,717
              )
              
              (922,717
              )Balance
                  at September 30, 1996
              
              
              23,599,696
              
              
              23,600
              
              
              5,282,717
              
              
              -
              
              
              -
              
              
              (2,331,800
              )
              -
              
              -
              
              
              (1,838,517
              )
              
              1,136,000Shares
                  issued for cash
              
              
              722,733
              
              
              723
              
              
              365,857
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              366,580Shares
                  issued for services
              
              
              274,299
              
              
              274
              
              
              54,586
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              54,860Cancellation
                  of shares
              
              
              (542,138
              )
              
              (542
              )
              
              (674,458
              )
              
              
              
              
              
              
              
              675,000
              
              
              
              
              
              
              
              
              
              -Net
                  loss for the year endedSeptember
                  30, 1997
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (858,915
              )
              
              (858,915
              )Balance
                  at September 30, 1997
              
              
              24,054,590
              
              
              24,055
              
              
              5,028,702
              
              
              -
              
              
              -
              
              
              (1,656,800
              )
              -
              
              -
              
              
              (2,697,432
              )
              
              698,525Shares
                  issued for cash
              
              
              2,810,000
              
              
              2,810
              
              
              278,190
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              281,000Shares
                  issued for services
              
              
              895,455
              
              
              895
              
              
              88,651
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              89,546Shares
                  issued for compensation
              
              
              2,200,000
              
              
              2,200
              
              
              217,800
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              220,000Cancellation
                  of shares
              
              
              (2,538,170
              )
              
              (2,538
              )
              
              (1,534,262
              )
              
              
              
              
              
              
              
              1,656,800
              
              
              
              
              
              
              
              
              
              120,000Net
                  loss for the year endedSeptember
                  30, 1998
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              392,925Shares
                  issued for services
              
              
              705,746
              
              
              706
              
              
              215,329
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              216,035Shares
                  issued for cash
              
              
              9,383,000
              
              
              9,383
              
              
              928,917
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              938,300Net
                  loss for the year endedSeptember
                  30, 1999
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,030,350Shares
                  issued for compensation
              
              
              1,517,615
              
              
              1,518
              
              
              1,218,598
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,220,116Shares
                  issued for services
              
              
              986,844
              
              
              986
              
              
              253,301
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              254,287Net
                  loss for the year endedSeptember
                  30, 2000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,414,188
              )
              
              (2,414,188
              )




The
        accompanying notes form an integral part of these unaudited financial
        statements.




Page
          5 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Stockholders’ Equity (Deficit) (Unaudited) - Continued**


**For
      the Period from Inception (October 3, 1994) to June 30,
      2008**




Deficit
              
              
              TotalCommon
                  Stock
              
              
              Additional
              
              
              Stock
              
              
              Deferred
              
              
              Stock
              
              
              Shares
              
              
              Unamortized
              
              
              Accumulated
              
              
              Stockholders'Number
              
              
              
              
              
              Paid-in
              
              
              to
                  be
              
              
              Warrant
              
              
              Subscription
              
              
              to
                  be
              
              
              Consulting
              
              
              from
              
              
              Equityof
                  Shares
              
              
              Amount
              
              
              Capital
              
              
              Issued
              
              
              Expense
              
              
              Receivable
              
              
              Cancelled
              
              
              Fees
              
              
              Inception
              
              
              (Deficit)Balance
                  at September 30, 2000
              
              
              54,166,322
              
              
              54,166
              
              
              8,104,350
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,168,751
              )
              
              (10,235
              )Shares
                  issued for servicesand
                  prepaid expenses
              
              
              2,517,376
              
              
              2,517
              
              
              530,368
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (141,318
              )
              
              
              
              
              391,567Shares
                  issued for cash
              
              
              6,005,000
              
              
              6,005
              
              
              594,495
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              600,500Shares
                  to be issued for cash(100,000
                  shares)
              
              
              
              
              
              
              
              
              
              
              
              10,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,000Shares
                  to be issued fordebt
                  (639,509 shares)
              
              
              
              
              
              
              
              
              
              
              
              103,295
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              103,295Net
                  loss for the year endedSeptember
                  30, 2001
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (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 servicesand
                  prepaid expenses
              
              
              1,111,710
              
              
              1,112
              
              
              361,603
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              54,400
              
              
              
              
              
              417,115Shares
                  issued as a contribution
              
              
              100,000
              
              
              100
              
              
              11,200
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,300Shares
                  issued forcompensation
              
              
              18,838
              
              
              19
              
              
              2,897
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,916Shares
                  issued for cash
              
              
              16,815,357
              
              
              16,815
              
              
              1,560,782
              
              
              (10,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,567,597Shares
                  issued for debt
              
              
              1,339,509
              
              
              1,340
              
              
              208,639
              
              
              (103,295
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              106,684Shares
                  to be issued forservices
                  related to raisingequity
                  (967,742 shares)
              
              
              
              
              
              
              
              
              (300,000
              )
              
              300,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Cancellation
                  of shares
              
              
              (7,533,701
              )
              
              (7,534
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (7,534
              )Net
                  loss for the year endedSeptember
                  30, 2002
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (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
              )
              
              596,467Shares
                  issued for servicesand
                  prepaid expenses
              
              
              2,467,742
              
              
              2,468
              
              
              651,757
              
              
              (300,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              354,225Shares
                  issued for capitalequity
                  line
              
              
              8,154,317
              
              
              8,154
              
              
              891,846
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              900,000Amortization
                  of consulting   fees
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              86,918
              
              
              
              
              
              86,918Cancellation
                  of shares
              
              
              (50,000
              )
              
              (50
              )
              
              50
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Shares
                  to be cancelled(7,349,204
                  shares)
              
              
              
              
              
              
              
              
              7,349
              
              
              
              
              
              
              
              
              
              
              
              (7,349
              )
              
              
              
              
              
              
              
              -Net
                  loss for the year endedSeptember
                  30, 2003
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,721,991
              )
              
              (1,721,991
              )Balance
                  at September 30, 2003
              
              
              85,112,470
              
              
              85,112
              
              
              12,625,336
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,349
              )
              
              -
              
              
              (12,487,480
              )
              
              215,619Shares
                  issued for capitalequity
                  line
              
              
              19,179,016
              
              
              19,179
              
              
              447,706
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              466,885Shares
                  issued for services
              
              
              5,100,004
              
              
              5,100
              
              
              196,997
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (13,075
              )
              
              
              
              
              189,022Share
                  to be issued for cash(963,336
                  shares)
              
              
              
              
              
              
              
              
              
              
              
              28,900
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              28,900Shares
                  to be issued for debt(500,000
                  shares)
              
              
              
              
              
              
              
              
              
              
              
              15,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,000Cancellation
                  of shares
              
              
              (7,349,204
              )
              
              (7,349
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,349
              
              
              
              
              
              
              
              
              -Net
                  loss for the year endedSeptember
                  30, 2004
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,568,770
              )
              
              (1,568,770
              )




The
      accompanying notes form an integral part of these unaudited financial
      statements.




Page
          6 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Stockholders’ Equity (Deficit) (Unaudited) - Continued**


**For
      the Period from Inception (October 3, 1994) to June 30,
      2008**


Deficit
              
              TotalCommon
                  Stock
              
              Additional
              
              Stock
              
              Deferred
              
              Stock
              
              Shares
              
              Unamortized
              
              Accumulated
              
              Stockholders'Number
              
              
              
              Paid-in
              
              to
                  be
              
              Warrant
              
              Subscription
              
              to
                  be
              
              Consulting
              
              from
              
              Equityof
                  Shares
              
              Amount
              
              Capital
              
              Issued
              
              Expense
              
              Receivable
              
              Cancelled
              
              Fees
              
              Inception
              
              (Deficit)Balance
                  at September 30, 2004
              
              
              102,042,286
              
              
              102,042
              
              
              13,270,039
              
              
              43,900
              
              
              
              
              
              -
              
              
              -
              
              
              (13,075
              )
              
              (14,056,250
              )
              
              (653,344
              )Amortization
                  of consulting fees
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,075
              
              
              
              
              
              13,075Net
                  loss for the year endedSeptember
                  30, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (467,916
              )
              
              (467,916
              )Balance
                  at September 30, 2005
              
              
              102,042,286
              
              
              102,042
              
              
              13,270,039
              
              
              43,900
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,524,166
              )
              
              (1,108,185
              )Net
                  loss for the year endedSeptember
                  30, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (870,887
              )
              
              (870,887
              )Balance
                  at September 30, 2006
              
              
              102,042,286
              
              
              102,042
              
              
              13,270,039
              
              
              43,900
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (15,395,053
              )
              
              (1,979,072
              )Shares
                  issued for services
              
              
              4,592,915
              
              
              4,593
              
              
              80,336
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              84,929Warrants
                  issued onconvertible
                  notes
              
              
              
              
              
              
              
              
              340,583
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              340,583Beneficial
                  conversionfeatures
              
              
              
              
              
              
              
              
              1,021,569
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,021,569Net
                  loss for the year endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,001,094
              )
              
              (2,001,094
              )Balance
                  at December 31, 2007(As
                  Previoualy Stated)
              
              
              106,635,201
              
              
              106,635
              
              
              14,712,527
              
              
              43,900
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (17,300,147
              )
              
              (2,437,085
              )Reclassification
                  of 2001Executive
                  Option Planas
                  of July 17, 2007
              
              
              
              
              
              
              
              
              (2,271,879
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,271,879
              )Decrease
                  in fair value ofoptions
                  related to 2001Executive
                  Option Planfor
                  the year endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              344,965
              
              
              344,965Advisory
                  boardcompensation
                  earnedprior
                  to October 1, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (480,000
              )
              
              (480,000
              )Increase
                  in fair value ofbeneficial
                  conversionfeatures
                  liability related toadvisory
                  boardcompensation
                  prior toOctober
                  1, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (269,851
              )
              
              (269,851
              )Amortization
                  of beneficialconversion
                  featuresliability
                  discount related toadvisory
                  boardcompensation
                  prior toOctober
                  1, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (49,192
              )
              
              (49,192
              )Advisory
                  boardcompensation
                  earnedfor
                  the year endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (96,000
              )
              
              (96,000
              )




The
      accompanying notes form an integral part of these unaudited financial
      statements.






Page
          7 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Stockholders’ Equity (Deficit) (Unaudited) - Continued**


**For
      the Period from Inception (October 3, 1994) to June 30,
      2008**


Deficit
              
              TotalCommon
                  Stock
              
              Additional
              
              Stock
              
              Deferred
              
              Stock
              
              Shares
              
              Unamortized
              
              Accumulated
              
              Stockholders'Number
              
              
              
              Paid-in
              
              to
                  be
              
              Warrant
              
              Subscription
              
              to
                  be
              
              Consulting
              
              from
              
              Equityof
                  Shares
              
              Amount
              
              Capital
              
              Issued
              
              Expense
              
              Receivable
              
              Cancelled
              
              Fees
              
              Inception
              
              (Deficit)Advisory
                  boardcompensation
                  earnedfor
                  the year endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (96,000
              )
              
              (96,000
              )Increase
                  in fair value ofbeneficial
                  conversionfeatures
                  liability related toadvisory
                  boardcompensation
                  for the yearended
                  September 30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,044
              )
              
              (4,044
              )Amortization
                  of beneficialconversion
                  features liabilitydiscount
                  related to advisoryboard
                  compensationfor
                  the year endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (57,354
              )
              
              (57,354
              )Issuance
                  of warrants relatedto
                  2004 stock purchaseagreement
                  at the date ofissuance
              
              
              
              
              
              
              
              
              24,366
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (24,366
              )
              
              -Reclassification
                  of warrantsrelated
                  to 2004 stockpurchase
                  agreementas
                  of July 17, 2007
              
              
              
              
              
              
              
              
              (70,029
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (70,029
              )Decrease
                  in fair value ofwarrants
                  related to 2004stock
                  purchase agreementas
                  of September 30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              70,029
              
              
              70,029Decrease
                  in fair value ofwarrants
                  for servicesas
                  of September 30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,762
              
              
              30,762Reclassification
                  of beneficialconversion
                  featuresliability
                  related to convertiblebridge
                  notes at the date ofissuance
              
              
              
              
              
              
              
              
              (1,021,569
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,021,569
              )Amortization
                  of beneficialconversion
                  features liabilitydiscount
                  related to convertiblebridge
                  notes for the yearended
                  September 30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (336,129
              )
              
              (336,129
              )




The
      accompanying notes form an integral part of these unaudited financial
      statements.




Page
          8 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Stockholders’ Equity (Deficit) (Unaudited) - Continued**


**For
      the Period from Inception (October 3, 1994) to June 30,
      2008**


Common
                  Stock
              
              Additional
              
              Stock
              
              Deferred
              
              Stock
              
              Shares
              
              Unamortized
              
              Accumulated
              
              Stockholders'Number
              
              
              
              Paid-in
              
              to
                  be
              
              Warrant
              
              Subscription
              
              to
                  be
              
              Consulting
              
              from
              
              Equityof
                  Shares
              
              Amount
              
              Capital
              
              Issued
              
              Expense
              
              Receivable
              
              Cancelled
              
              Fees
              
              Inception
              
              (Deficit)Reclassification
                  of warrantsrelated
                  to $1,025,000 ofconvertible
                  bridge notesat
                  the date of issuance
              
              
              
              
              
              
              
              
              (340,583
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (340,583
              )Increase
                  in fair value ofwarrants
                  related toplacement
                  fee at the dateof
                  issuance
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (87,736
              )
              
              (87,736
              )Amortization
                  of warrantdiscount
                  related to$1,025,000
                  of convertiblebridge
                  notes for the yearended
                  September 30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (55,179
              )
              
              (55,179
              )Decrease
                  in fair value ofwarrants
                  related to$1,025,000
                  of convertiblebridge
                  notes for theyear
                  endedSeptember
                  30, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              54,315
              
              
              54,315Balance
                  at September 30, 2007(As
                  restated)
              
              
              106,635,201
              
              
              106,635
              
              
              11,032,833
              
              
              43,900
              
              
              
              
              
              
              
              
              
              
              
              
              (18,290,689
              )
              
              (7,107,321
              )Issuance
                  of stock for theconversion
                  of convertibledebentures
                  and accrued interest
              
              
              10,363,796
              
              
              10,163
              
              
              789,090
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              799,253Issuance
                  of stock for cash
              
              
              3,300,000
              
              
              3,300
              
              
              326,700
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              330,000Stock
                  issued for debt
              
              
              698,750
              
              
              899
              
              
              113,951
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              114,850Stock
                  to be issued for cash received
              
              
              
              
              
              
              
              
              
              
              
              420,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              420,000Net
                  loss for the nine monthsended
                  June 30, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,809,208
              )
              
              (4,809,208
              )Balance
                  at June 30, 2008
              
              
              120,997,747
              
              $
              120,997
              
              $
              12,262,574
              
              $
              463,900
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (23,099,897
              )
              $
              (10,252,426
              )







The
      accompanying notes form an integral part of these unaudited financial
      statements.




Page
          9 of
          37




**Sionix
      Corporation**


**A
      Development Stage Company**


**Statement
      of Cash Flows (Unaudited)**




For
                  the Nine Months
                  Ended
                    June 30,
              
              Cummulative
                from
                Inception2007
              
              (October
                  3, 1994)to2008
              
              (As
                  Restated)
              
              June
                  30, 2008**Operating
                  activities:**Net
                  loss
              
              $
              (4,809,208
              )
              $
              (1,197,520
              )
              
              (23,099,895
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
              
              
              24,472
              
              
              23,723
              
              
              643,495Amortization
                  of beneficial conversion features discount andwarrant
                  discount
              
              
              1,073,445
              
              
              75,827
              
              
              1,907,270Stock
                  based compensation expense - employee
              
              
              
              
              
              
              
              
              1,835,957Stock
                  based compensation expense - consultant
              
              
              5,799,646
              
              
              84,929
              
              
              8,105,192Decrease
                  in warrant liabilities
              
              
              (2,702,841
              )
              
              
              
              
              (3,172,152
              )Decrease
                  in beneficial conversion features liabilities
              
              
              (1,215,741
              )
              
              
              
              
              (1,211,697
              )Impairment
                  of assets
              
              
              
              
              
              
              
              
              514,755Write-down
                  of obsolete assets
              
              
              
              
              
              
              
              
              38,862Impairment
                  of intangible assets
              
              
              
              
              
              
              
              
              1,117,601Loss
                  on termination of lease
              
              
              126,111
              
              
              
              
              
              126,111Loss
                  on settlement of debt
              
              
              
              
              
              
              
              
              130,268(Increase)
                  decrease in assets:Other
                  current assets
              
              
              (77,269
              )
              
              
              
              
              (586,346
              )Other
                  assets
              
              
              
              
              
              (4,600
              )
              
              (64,230
              )Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              409,406
              
              
              (67,806
              )
              
              636,807Accrued
                  expenses
              
              
              (139,840
              )
              
              484,626
              
              
              2,443,650Customer
                  deposits
              
              
              900,000
              
              
              
              
              
              900,000Net
                  cash used in operating activities
              
              
              (611,819
              )
              
              (600,821
              )
              
              (9,734,352
              )**Investing
                  activities:**Acquisition
                  of property and equipment
              
              
              (26,111
              )
              
              (25,361
              )
              
              (397,566
              )Acquisition
                  of patents
              
              
              
              
              
              
              
              
              (154,061
              )Net
                  cash used in investing activities
              
              
              (26,111
              )
              
              (25,361
              )
              
              (551,627
              )**Financing
                  activities:**Accrual
                  of liquidating damages
              
              
              138,375
              
              
              
              
              
              153,750Payment
                  on notes payable to officer
              
              
              (19,260
              )
              
              (33,800
              )
              
              (218,502
              )Proceeds
                  from notes payable, related party
              
              
              
              
              
              
              
              
              457,433Payments
                  on notes payable to related party
              
              
              (5,000
              )
              
              
              
              
              (5,000
              )Receipt
                  from (payments to) equity line of credit
              
              
              (27,336
              )
              
              (225,000
              )
              
              428,664Proceeds
                  from convertible notes payable
              
              
              
              
              
              1,336,000
              
              
              1,861,000Proceeds
                  from notes payable
              
              
              425,000
              
              
              
              
              
              425,000Issuance
                  of common stock
              
              
              330,000
              
              
              
              
              
              7,716,094Receipt
                  of cash for stock to be issued
              
              
              420,000
              
              
              
              
              
              463,900Net
                  cash provided by (used in) financing activities
              
              
              1,261,779
              
              
              1,077,200
              
              
              11,282,339Net
                  change in cash
              
              
              623,849
              
              
              451,018
              
              
              996,360Cash
                  balances:Beginning
                  of period
              
              
              372,511
              
              
              4,544End
                  of month
              
              $
              996,360
              
              $
              455,562
              
              $
              996,360Cash
                  paid for:Interest
              
              $
              -
              
              $
              -
              
              $
              -Income
                  taxes
              
              $
              -
              
              $
              -
              
              $
              -






The
      accompanying notes form an integral part of these unaudited financial
      statements.


Page
          10 of
          37


**Sionix
      Corporation**


**A
      Development Stage Company**


**June
      30, 2008**




**Notes
      to Financial Statements (Unaudited)**




**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 reincorporated in Nevada effective July 1, 2003 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 in Statement of Financial
        Accounting Standards (“SFAS”) No. 7, “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**
  BASIS
        OF
        PRESENTATION
  The
        unaudited financial statements have been prepared by the Company pursuant
        to the
        rules and regulations of the Securities and Exchange Commission. The information
        furnished in these unaudited financial statements reflects all adjustments
        (consisting of normal recurring accruals and adjustments) which are, in the
        opinion of management, necessary to fairly present the operating results
        for the
        respective periods. Certain information and footnote disclosures normally
        present in annual financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been omitted
        pursuant to such rules and regulations. The results of the nine month period
        ended June 30, 2008 are not necessarily indicative of the results to be expected
        for the full year ending September 30, 2008 and should be read in conjunction
        with the audited financial statements for the year ended September 30,
        2007.
  REVENUE
        RECOGNITION
  Although
        the Company has yet to generate sales, it plans to follow the guidance provided
        by SAB 104 for recognition of revenues. The Company does not plan to recognize
        revenue unless 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 sale 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 collectibility 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 collectibility 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.
  Page
            11 of
            37
  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 Statement No. 142 "Goodwill and Other Intangible Assets" (FAS 142).
        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 are a defendant in litigation. As required by Financial Accounting
        Standards Board Statement No. 5 "Accounting for Contingencies" (FAS 5), we
        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.
  STOCK-BASED
        COMPENSATION
  Effective
        October 1, 2006, the Company adopted Statement of Financial Accounting
        Standards (SFAS) No. 123-R, “Share-Based Payment”   (“SFAS 123-R”),
        which requires the measurement and recognition of compensation expense for
        all
        share-based payment awards made to employees and directors, including stock
        options, to be based on their fair values. SFAS 123-R supersedes Accounting
        Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), which the Company previously followed in accounting for stock-based
        awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107
        (SAB 107) to provide guidance on SFAS 123-R. The Company has applied SAB
        107 in
        its adoption of SFAS 123-R.
  NET
        LOSS
        PER SHARE
  Net
        loss
        per share is calculated in accordance with Statement of Financial Accounting
        Standards No. 128, "Earnings Per Share" (“SFAS 128”). Basic net loss per
        share is based upon 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 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.
  Page
            12 of
            37
  ESTIMATES
  The
        preparation of financial statements requires management to make estimates
        and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenue and expenses during the reporting
        period. Actual results could differ from those estimates
  ADVERTISING
  The
        cost
        of advertising is expensed as incurred. Total advertising costs were included
        in
        general and administrative expenses and were $945 and $3,385 for the nine
        months
        ended June 30, 2008 and 2007, respectively.
  RECLASSIFICATION
  For
        comparative purposes, the prior period’s financial statements have been
        reclassified to conform to the current period’s presentation.
  RECENTLY
        ISSUED ACCOUNTING PRONOUNCEMENTS
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value
        Measurements.” This statement clarifies the definition of fair value,
        establishes a framework for measuring fair value and expands the disclosures
        on
        fair value measurements. SFAS No. 157 is effective for fiscal years
        beginning after November 15, 2007. Company management is currently
        evaluating the effect of this pronouncement on its financial
        statements.
  In
        February 2007, FASB issued FASB Statement No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities”. FAS 159 is effective for fiscal
        years beginning after November 15, 2007. Early adoption is permitted subject
        to
        specific requirements outlined in the new Statement. Therefore, calendar-year
        companies may be able to adopt FAS 159 for their first quarter 2007 financial
        statements. The new Statement allows entities to choose, at specified election
        dates, to measure eligible financial assets and liabilities at fair value
        that
        are not otherwise required to be measured at fair value. If a company elects
        the
        fair value option for an eligible item, changes in that item's fair value
        in
        subsequent reporting periods must be recognized in current earnings. FAS
        159
        also establishes presentation and disclosure requirements designed to draw
        comparison between entities that elect different measurement attributes for
        similar assets and liabilities. Management is currently evaluating the effect
        of
        this pronouncement on the Company's financial statements.
  In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
        Combinations”. The objective of this statement will significantly change the
        accounting for business combinations. Under Statement 141R, an acquiring
        entity
        will be required to recognize all the assets acquired and liabilities assumed
        in
        a transaction at the acquisition-date fair value with limited exceptions.
        Statement 141 applies prospectively to business combinations for which the
        acquisition date is on or after the beginning of the first annual reporting
        period beginning on or after December 15, 2008. The Company does not expect
        the
        adoption of SFAS No. 141R to have a material impact on the Company's financial
        statements.
  In
        December 2007, FASB issued FASB Statement No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements—an amendment of ARB No. 51”. This Statement
        applies to all entities that prepare consolidated financial statements, except
        not-for-profit organizations, but will affect only those entities that have
        an
        outstanding non-controlling interest in one or more subsidiaries or that
        deconsolidate a subsidiary. Not-for-profit organizations should continue
        to
        apply the guidance in Accounting Research Bulletin No. 51, “Consolidated
        Financial Statements”, before the amendments made by this Statement, and any
        other applicable standards, until the Board issues interpretative guidance.
        This
        Statement is effective for fiscal years, and interim periods within those
        fiscal
        years, beginning on or after December 15, 2008 (that is, January 1, 2009,
        for
        entities with calendar year-ends). Earlier adoption is prohibited. The effective
        date of this Statement is the same as that of the related Statement 141(R).
        This
        Statement shall be applied prospectively as of the beginning of the fiscal
        year
        in which this Statement is initially applied, except for the presentation
        and
        disclosure requirements. The presentation and disclosure requirements shall
        be
        applied retrospectively for all periods presented. This statement has no
        effect
        on the financial statements as the Company does not have any outstanding
        non-controlling interest in one or more subsidiaries.
  Page
            13 of
            37
  **NOTE
        3**  **PROPERTY
        AND EQUIPMENT**
  Property
        and equipment consisted of the following at June 30, 2008:
  Equipment
                    and machinery
                
                $
                209,014Furniture
                    and fixtures
                
                
                24,594233,608Less
                    accumulated depreciation
                
                
                (217,247
                )Net
                    Property and Equipment
                
                $
                16,361
  Depreciation
        expense was $24,472 and $23,723 for the nine months ended June 30, 2008 and
        2007, respectively.
  **NOTE
        4**  **ACCRUED
        EXPENSES**
  Accrued
        expenses consisted of the following at June 30, 2008:
 Accrued
                    salaries
                
                $
                1,527,676Advisory
                    board compensation
                
                
                576,000Interest
                    payable
                
                
                223,857Other
                    accruals
                
                
                102,155Total
                    accrued expenses
                
                $
                2,429,688
  **NOTE
        5**  **CUSTOMER
        DEPOSITS**
  In
        May
        2008, the Company received an order for two water filtration systems, which
        required a deposit. The Company is in the design phase of the manufacturing
        process, and has not recognized any revenue related to these water filtration
        systems. As of June 30, 2008, customer deposits were $900,000.
  **NOTE
        6**  **NOTES
        PAYABLE TO RELATED PARTIES**
  The
        Company has received advances in the form of unsecured promissory notes from
        stockholders in order to pay ongoing operating expenses. These notes bear
        interest at rates up to 13% and are due on demand. As of June 30, 2008, notes
        payable amounted to $124,000.
  **NOTE
        7**  **CONVERTIBLE
        NOTES PAYABLE**
  CONVERTIBLE
          NOTE 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 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 is not declared
        effective within 180 days after the closing, the conversion price shall be
        reduced by $0.0025 per share for each 30 day period that the effectiveness
        of
        the registration statement is delayed but in no case may the conversion price
        to
        be reduced below $0.04 per share. As of September 30, 2007, the conversion
        price
        was $0.04 per share.
  Page
            14 of
            37
  FASB
        133,
        paragraph 12 was applied to determine if the
        embedded beneficial conversion features should be bifurcated from the
        convertible bridge notes. The Company determined that the economic
        characteristics of the embedded beneficial conversion features are not clearly
        and closely related to the convertible bridge notes, the embedded beneficial
        conversion feature and convertible bridge notes are not remeasured at fair
        value
        at each balance sheet date, and a separate contract with the same terms would
        be
        a derivative pursuant to FASB 133, paragraphs 6-11. Therefore, the embedded
        beneficial conversion features were bifurcated from the convertible bridge
        notes. FASB
        133 *,* paragraph 6 was applied to determine if the embedded beneficial conversion
        features were within the scope and definition of a derivative. The embedded
        beneficial conversion features had one or more underlings and one or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the embedded beneficial conversion features were
        determined to be derivatives. The
        Company applied EITF 00-19, paragraph 8 to determine the classification of
        the
        beneficial conversion feature, which states that contracts which require
        net-share settlement are equity. Therefore the embedded conversion features
        were
        determined to be equity instruments at the date of issuance. The Company
        applied
        EITF 00-19, paragraph 9, which states that all contracts be initially measured
        at fair value. The terms of the conversion feature were analyzed and the
        Company
        determined that the convertible notes were a conventional convertible pursuant
        to paragraph 4 of EITF 00-19. The Company included SFAS 150 in the analysis
        of the convertible notes. SFAS
        150
        requires three classes of freestanding financial instruments, as defined
        in
        paragraphs 8 through 17, to be classified as liabilities. The first class,
        as
        defined in paragraph 9, includes financial instruments that are mandatorily
        redeemable financial instruments. There are no terms or conditions that require
        the Company to unconditionally redeem the convertible notes by transferring
        assets at a specified or determinable date. The second class, as defined
        in
        paragraph 11, is financial instruments that require the repurchase of shares
        of
        Common Stock by transferring assets. There are no terms or conditions that
        require the Company to repurchase shares of Common Stock. The third class,
        as
        defined in paragraph 12, includes financial instruments that require the
        issuance of a variable number of shares of Common Stock. There are no terms
        or
        conditions that require the Company to issue a variable number of shares
        of
        Common Stock. Therefore, the Company concluded that the convertible notes
        were
        not within the scope of SFAS 150.
 
 The
        fair
        value of the embedded beneficial conversion features was valued at $750,000
        at
        the date of issuance using the Black Sholes model with
        the
        following assumptions: risk free rate of return of 2.02% to 5.09%; volatility
        of
        268% to 275%; 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 $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.
  As
        of
        June 30, 2008, the outstanding convertible notes totaled $573,333 and the
        unamortized embedded beneficial conversion feature discount totaled $5,555,
        for
        a net convertible debt of $567,778.
  For
        the
        nine months ended June 30, 2008, interest expense was $55,593 and amortization
        expense for the embedded beneficial conversion feature discount was $283,472,
        which was included in interest expense in the other income (expense) section
        of
        the statement of operations.
  Calico
        Capital Management, LLC acted as an agent for the Company in arranging the
        transaction for Bridge Notes 1 and 2 and was paid a placement fee of $75,000.
        The Company recorded these fees as an expense in 2007.
  CONVERTIBLE
        NOTE 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 mature on December
        31, 2008.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.
  Page
            15 of
            37
  FASB
        133,
        paragraph 12 was applied to determine if the
        embedded beneficial conversion features should be bifurcated from the
        convertible bridge notes. The Company determined that the economic
        characteristics of the embedded beneficial conversion features are not clearly
        and closely related to the convertible bridge notes, the embedded beneficial
        conversion feature and convertible bridge notes are not remeasured at fair
        value
        at each balance sheet date, and a separate contract with the same terms would
        be
        a derivative pursuant to FASB 133, paragraphs 6-11. Therefore, the embedded
        beneficial conversion features were bifurcated from the convertible bridge
        notes. FASB
        133 *,* paragraph 6 was applied to determine if the embedded beneficial conversion
        features were within the scope and definition of a derivative. The embedded
        beneficial conversion features had one or more underlings and one or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the embedded beneficial conversion features were
        determined to be derivatives. The
        Company applied EITF 00-19, paragraph 8 to determine the classification of
        the
        beneficial conversion feature, which states that contracts which require
        net-share settlement are equity. Therefore the embedded conversion features
        were
        determined to be equity instruments at the date of issuance. The Company
        applied
        EITF 00-19, paragraph 9, which states that all contracts be initially measured
        at fair value. The terms of the conversion feature were analyzed and the
        Company
        determined that the convertible notes were a conventional convertible pursuant
        to paragraph 4 of EITF 00-19. The Company included SFAS 150 in the analysis
        of the convertible notes. SFAS
        150
        requires three classes of freestanding financial instruments, as defined
        in
        paragraphs 8 through 17, to be classified as liabilities. The first class,
        as
        defined in paragraph 9, includes financial instruments that are mandatorily
        redeemable financial instruments. There are no terms or conditions that require
        the Company to unconditionally redeem the convertible notes by transferring
        assets at a specified or determinable date. The second class, as defined
        in
        paragraph 11, includes financial instruments that require the repurchase
        of
        shares of Common Stock by transferring assets. There are no terms or conditions
        that require the Company to repurchase shares of Common Stock. The third
        class,
        as defined in paragraph 12, includes financial instruments that require the
        issuance of a variable number of shares of Common Stock. There are no terms
        or
        conditions that require the Company to issue a variable number of shares
        of
        Common Stock. Therefore, the Company concluded that the convertible notes
        were
        not within the scope of SFAS 150.
 
 The
        fair
        value of the embedded beneficial conversion features was determined to be
        $86,000 at the date of issuance using the Black Sholes 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.
  As
        of
        June 30, 2008, the outstanding convertible notes totaled $78,000 and the
        unamortized embedded beneficial conversion feature discount was $21,667,
        for a
        net convertible debt of $56,333.
  For
        the
        nine months ended June 30, 2008, interest expense was $6,526, and amortization
        expense for the embedded beneficial conversion feature discount was $43,000,
        which was included in interest expense in the other income (expense) section
        of
        the statement of operations.
  Calico
        Capital Management, LLC acted as an agent for the Company in arranging the
        transaction for Bridge Notes 1 and 2 and was paid a placement fee of $75,000.
        The Company recorded these fees as an expense in 2007.
  CONVERTIBLE
        NOTE 3
  On
        July
        18, 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. The Subordinated Convertible Debentures 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, which expire five years from the date of grant.
  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 Subordinated Convertible Debentures
        and
        the warrant shares (collectively, the "Registerable Securities"). If the
        Company
        does not file a registration statement with respect to the Registerable
        Securities within forty-five days following the closing of the Offering,
        or if
        the Registration Statement is not declared effective by the Securities and
        Exchange Commission within 90 days, then the Company must pay to each purchaser
        damages equal to 1.5% of the purchase price paid by the purchaser for its
        Subordinated Convertible Debentures, for each 30 day period that follows
        after
        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. The Company recorded $153,750 as liquidated
        damages as of June 30, 2008. No derivative liability is recorded as the amount
        of liquidated damage is fixed with a maximum ceiling.
  Page
            16 of
            37
  To
        determine the allocation of the proceeds of the convertible debt, the Company
        applied APB 14, paragraph 15, which states that proceeds from the sale of
        debt
        with stock purchase warrants should be allocated between the debt and warrants,
        and paragraph 16, which states that the proceeds should be allocated based
        on
        the relative fair values of the two securities at the time of issuance.
  The
        fair
        value of the warrants was determined to be $741,371 at the date of issuance
        calculated using the Black Sholes model with
        the
        following assumptions: risk free rate of return of 4.96% to 5.02%; volatility
        of
        219.89% to 226.04%; dividend yield of 0% and an expected term of 5
        years. As a
        result, the relative fair value of the warrants was determined to be
        $594,811.
  FASB
        133,
        paragraph 12 was applied to determine if the
        embedded beneficial conversion features should be bifurcated from the
        convertible bridge notes. The Company determined that the economic
        characteristics of the embedded beneficial conversion features are not clearly
        and closely related to the convertible bridge notes, the embedded beneficial
        conversion feature and convertible bridge notes are not remeasured at fair
        value
        at each balance sheet date, and a separate contract with the same terms would
        be
        a derivative pursuant to FASB 133, paragraphs 6-11. Therefore, the embedded
        beneficial conversion features were bifurcated from the convertible bridge
        notes. FASB
        133 *,* paragraph 6 was applied to determine if the embedded beneficial conversion
        features were within the scope and definition of a derivative. The embedded
        beneficial conversion features had one or more underlings and one or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the embedded beneficial conversion features were
        determined to be derivatives. The
        Company applied EITF 00-19, paragraph 8 to determine the classification of
        the
        beneficial conversion feature, which states that contracts which require
        net-share settlement are equity. Therefore the embedded conversion features
        were
        determined to be equity instruments at the date of issuance. The Company
        applied
        EITF 00-19, paragraph 9, which states that all contracts be initially measured
        at fair value. The terms of the conversion feature were analyzed and the
        Company
        determined that the convertible notes were a conventional convertible pursuant
        to paragraph 4 of EITF 00-19. The Company included SFAS 150 in the analysis
        of the convertible notes. SFAS
        150
        requires three classes of freestanding financial instruments, as defined
        in
        paragraphs 8 through 17, to be classified as liabilities. The first class,
        as
        defined in paragraph 9, includes financial instruments that are mandatorily
        redeemable financial instruments. There are no terms or conditions that require
        the Company to unconditionally redeem the convertible notes by transferring
        assets at a specified or determinable date. The second class, as defined
        in
        paragraph 11, includes financial instruments that require the repurchase
        of
        shares of Common Stock by transferring assets. There are no terms or conditions
        that require the Company to repurchase shares of Common Stock. The third
        class,
        as defined in paragraph 12, includes financial instruments that require the
        issuance of a variable number of shares of Common Stock. There are no terms
        or
        conditions that require the Company to issue a variable number of shares
        of
        Common Stock. Therefore, the Company concluded that the convertible notes
        were
        not within the scope of SFAS 150.
 
 The
        fair
        value of the embedded beneficial conversion features was determined to be
        $430,189 at the date of issuance using the Black Sholes model with
        the
        following assumptions: risk free rate of return of 4.96% to 5.02%; volatility
        of
        219.89% to 226.04%; dividend yield of 0% and an expected term of 1
        year.
 
 Southridge
        Investment Group LLC, Ridgefield, Connecticut (“Southridge”) acted as the
        Company’s agent in arranging the transaction, and received a placement fee of
        $102,500. Southridge also received warrants to purchase 465,909 shares of
        the
        Company’s Common Stock on the same terms and conditions as the warrants issued
        to the purchasers. The Company recorded the placement fees as an expense.
        The
        grant date fair value of the warrants was determined to be $124,060 and was
        calculated using the Black-Sholes option pricing model, using the following
        assumptions: risk free rate of return of 5.01%, volatility of 226.04%, dividend
        yield of 0% and expected term of five years.
  As
        of
        June 30, 2008, the outstanding convertible notes totaled $485,000, the
        unamortized warrant discount was $0, and the embedded beneficial conversion
        feature discount was $0, for a net convertible debt of $485,000.
  For
        the
        nine months ended June 30, 2008, interest expense was $59,972, amortization
        expense for the warrant discount was $298,262, which was included in interest
        expense in the other income (expense) section of the statement of operations,
        and amortization expense for the beneficial conversion feature discount was
        $412,154, which was also included in interest expense in the other income
        (expense) section of the statement of operations.
  Page
            17 of
            37
  As
        of
        June 30, 2008, the Company entered into various debenture agreements (the
        “Bridge Notes”) with several investors. Under the terms of the agreements,
        the Bridge Notes bear interest at the rate of 10% per annum. The
        Bridge Notes will automatically mature and the entire outstanding principal
        amount, together with all unpaid and accrued interest, shall become due and
        payable after the earlier of (i) the eighteen (18) month anniversary of 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 to the Company are at
        least
        $2,500,000, unless, prior to such time, the notes have been converted into
        shares of the Company’s Common Stock.
  **NOTE
        8**  **10%
        SUBORDINATED NOTES PAYABLE**
  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 mature 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.
 
 The
        Company applied APB 14, paragraphs 15 and 16, to determine the allocation
        of the
        proceeds of the convertible debt. Paragraph 15 states that proceeds from
        the
        sale of debt with stock purchase warrants should be allocated between the
        debt
        and warrants, and paragraph 16 states that the proceeds should be allocated
        based on the relative fair values of the two securities at the time of issuance.
 
 The
        grant
        date fair value of the warrants was determined to be $125,462 which was
        calculated using the Black-Sholes option pricing model, using the following
        assumptions: risk free rate of return of ranging from 2.64% to 3.26%, volatility
        ranging from 97.08% to 98.27%, dividend yield of 0% and expected life of
        six
        years. As a result, the
        relative fair value of the warrants was $96,814.
 
 FASB
        133,
        paragraph 12 was applied to determine if the
        embedded beneficial conversion features should be bifurcated from the
        convertible bridge notes. The Company determined that the economic
        characteristics of the embedded beneficial conversion features are not clearly
        and closely related to the convertible bridge notes, the embedded beneficial
        conversion feature and convertible bridge notes are not remeasured at fair
        value
        at each balance sheet date, and a separate contract with the same terms would
        be
        a derivative pursuant to FASB 133, paragraphs 6-11. Therefore, the embedded
        beneficial conversion features were bifurcated from the convertible bridge
        notes. FASB
        133 *,* paragraph 6 was applied to determine if the embedded beneficial conversion
        features were within the scope and definition of a derivative. The embedded
        beneficial conversion features had one or more underlings and one or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the embedded beneficial conversion features were
        determined to be derivatives. The
        Company applied EITF 00-19, paragraph 8 to determine the classification of
        the
        beneficial conversion feature, which states that contracts which require
        net-share settlement are equity. Therefore the embedded conversion features
        were
        determined to be equity instruments at the date of issuance. The Company
        applied
        EITF 00-19, paragraph 9, which states that all contracts be initially measured
        at fair value. The terms of the conversion feature were analyzed and the
        Company
        determined that the convertible notes were a conventional convertible pursuant
        to paragraph 4 of EITF 00-19. The Company included SFAS 150 in the analysis
        of the convertible notes. SFAS
        150
        requires three classes of freestanding financial instruments, as defined
        in
        paragraphs 8 through 17, to be classified as liabilities. The first class,
        as
        defined in paragraph 9, includes financial instruments that are mandatorily
        redeemable financial instruments. There are no terms or conditions that require
        the Company to unconditionally redeem the convertible notes by transferring
        assets at a specified or determinable date. The second class, as defined
        in
        paragraph 11, includes financial instruments that require the repurchase
        of
        shares of Common Stock by transferring assets. There are no terms or conditions
        that require the Company to repurchase shares of Common Stock. The third
        class,
        as defined in paragraph 12, includes financial instruments that require the
        issuance of a variable number of shares of Common Stock. There are no terms
        or
        conditions that require the Company to issue a variable number of shares
        of
        Common Stock. Therefore, the Company concluded that the convertible notes
        were
        not within the scope of SFAS 150.
 
 As
        of
        June 30, 2008, the principal outstanding totaled $425,000, unamortized warrant
        discount totaled $80,675, and the net amount of the note payable was $344,325.
  For
        the
        nine months ended June 30, 2008, interest expense was $14,795, and amortization
        expense for the warrant discount was $16,140, which was included in interest
        expense in the other income (expense) section of the statement of
        operations.
  Page
            18 of
            37
  **NOTE
        9**  **WARRANT
        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 shares
        of
        Common Stock. The options expire 5 years from the date of issuance.
  On
        the
        grant date ,
        the
        Company applied Financial
        Accounting Standard Board ( FASB)
        Statement No. 133, *Accounting
        for Derivative Instruments and Hedging Activities,* paragraph 6 to determine if the options were within the scope and definition
        of
        a derivative. The options: had one or more underlings, and one or more notional
        amounts; required no initial investment; and required or permitted net
        settlement. Therefore, the options were determined to be derivatives. In
        order
        to determine how to classify the options, the Company followed the guidance
        of
        paragraphs 7 and 8 of Emerging
        Issue Task Force (EITF)
        00-19, *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company’s Own Stock* ,
        which
        states that contracts ** that
        require settlement in shares are equity instruments .
        In
        order to determine the value of the options, the Company applied EITF 00-19,
        paragraph 9, which states that contracts that require the company to deliver
        shares as part of a physical settlement or net-share settlement should be
        initially measured at fair value. In accordance with EITF 00-19, the options
        were recorded in additional paid-in capital at fair value on the date of
        issuance.
  The
        Company analyzed the options as of September 30, 2007 by following the guidance
        of FASB 133, paragraph 6 to ascertain if the options issued remained derivatives
        as of September 30, 2007. All of the criteria in the original analysis were
        met,
        and the options issued were determined to be within the scope and definition
        of
        a derivative. The Company next followed the guidance of EITF 00-19, paragraph
        19, which states that if a company is required to obtain shareholder
        approval to increase the company’s authorized shares in order to net-share or
        physically settle a contract, share settlement is not controlled by the company,
        and the contract is required to be c lassified
        as a liability. The Company next applied EITF 00-19, paragraph 10, which
        states
        that if classification changes as the result of an event, the contract should
        be
        reclassified as of the date of the event at fair value. The event responsible
        for the change in classification was the issuance of the Convertible
        Debentures on July 17, 2007.
  In
        accordance with EITF 00-19, the options were reclassified as of July 17,
        2007
        from additional paid-in capital to warrant liabilities on the balance sheet,
        at
        the fair value of $2,271,879 which was calculated using the Black Sholes
        model
        with the following assumptions: risk free rate of return of 5.02%; volatility
        of
        219.89%; dividend yield of 0%; and an expected term of 3.67 years.
  The
        Company analyzed
        the options by applying FASB 133 , paragraph
        6 to ascertain if the options issued remained derivatives as of June 30,
        2008.
        All of the criteria in the original analysis were met, and the options issued
        were determined to be within the scope and definition of a derivative. EITF
        00-19, paragraph 8 was applied which states that if share settlement is not
        controlled by the company, the contract is required to be classified as a
        liability. Paragraph 9 also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the options was determined to be $842,430 as of June 30, 2008, and
        was
        calculated using the Black Sholes model with the following assumptions: risk
        free rate of return of 2.36%; volatility of 74.72%; dividend yield of 0%;
        and an
        expected term of 2.75 years.
  The
        decrease in the fair value of the options was $1,084,484 for the nine months
        ended June 30, 2008, and was recorded by decreasing the warrant liability
        on the
        balance sheet.
  *Warrants
        Related to Convertible Debentures*
  On
        July
        17, 2007 the Company completed an offering of $1,025,000 of Convertible
        Debentures 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 Debentures and 465,908 shares
        of
        Common Stock as a placement fee) at an exercise price of $0.50 per share.
  Page
            19 of
            37
  The
        Company followed the guidance of FASB 133, paragraph 6, to
        determine if the warrants were within the scope and definition of a derivative
        at the date of issuance. The warrants had one or more underlings and one
        or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the warrants were determined to be derivatives at
        the
        date of issuance. In order to determine how to classify the warrants, the
        Company followed the guidance of EITF 00-19, paragraphs 7 and 8, which state
        that contracts  that
        require net-cash settlement (including a requirement to net cash settle the
        contract if an event occurs and if that event is outside the control of the
        company) are liability instruments. In order
        to determine the value of the warrants, the Company followed the guidance
        of
        EITF 00-19, paragraph 9, which states that contracts which require the company
        to deliver shares as part of a physical settlement or net-share settlement
        should be initially measured at fair value.
  The
        fair
        value of the warrants was determined to be $554,249 ($430,189 attributable
        to
        the holders of the Convertible Debentures and $124,060 attributable to the
        placement fee) at the date of issuance, which was calculated using the Black
        Sholes model with
        the
        following assumptions: risk free rate of return of 4.96% to 5.02%; volatility
        of
        219.89% to 226.04%; dividend yield of 0% and an expected term of 5 years.
  The
        Company then applied EITF 00-19, paragraph 9, which states that all contracts
        classified as liabilities are to be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the warrants was determined to be $499,932 ($379,672 attributable to
        the
        holders of the Convertible Debentures and $120,260 attributable to the placement
        fee) as of
        September 30, 2007, which was calculated using the Black Sholes model with
        the
        following assumptions: risk free rate of return of 4.05%; volatility of 126.94%;
        dividend yield of 0%; and an expected term of 4.67 to 4.75 years.
  The
        Company analyzed
        the warrants by applying FASB 133 , paragraph
        6 to ascertain if the warrants remained derivatives as of June 30, 2008.
        All of
        the criteria in the original analysis were met, and the warrants issued were
        determined to be within the scope and definition of a derivative. EITF 00-19,
        paragraph 8 was applied which states that if share settlement is not controlled
        by the company, the contract is required to be classified as a liability.
        Paragraph 9 also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the warrants was determined to be $238,490 as of June 30, 2008,
        which
        was calculated using the Black Sholes model with the following assumptions:
        risk
        free rate of return of 2.36%; volatility of 74.72%; dividend yield of 0%;
        and an
        expected term of 3.92 to 4 years.
  The
        decrease in the fair value of the warrants was $261,442 for the nine months
        ended June 30, 2008, and recorded by decreasing warrant liabilities on the
        balance sheet by $261,442 ($188,034 related
        to the holders of the convertible bridge notes, and $73,408 related to the
        placement fee) .
  *Options
        Related to 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 has been appointed as
        the
        Company’s Chief Executive Officer. As compensation for his services, the Company
        granted to 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, options for the purchase of 340,000
        shares of Common Stock are not exercisable until the notes dated June 6,
        2007
        (Convertible Note 2 as discussed in Note 7 above) are eligible for conversion
        into shares of Common Stock. These
        options were issued outside of the 2001 Executive Officers Stock Option
        Plan.
  On
        the
        grant date ,
        the
        Company applied FASB 133 *,* paragraph 6 to determine if the options were within the scope and definition
        of
        a derivative. The options: had one or more underlings, and one or more notional
        amounts; required no initial investment; and required or permitted net
        settlement. Therefore, the options were determined to be derivatives. In
        order
        to determine how to classify the options, the Company followed the guidance
        of
        EITF 00-19, paragraphs 7 and 8, which state that contracts  that
        require net-cash settlement (including a requirement to net cash settle the
        contract if an event occurs and if that event is outside the control of the
        company) are liability instruments. In order
        to determine the value of the options, the Company applied EITF 00-19, paragraph
        9, which states that contracts that require the company to deliver shares
        as
        part of a physical settlement or net-share settlement should be initially
        measured at fair value.
  Page
            20 of
            37
  The
        fair
        value of the options was determined to be $1,448,321 at the date of issuance,
        which was calculated using the Black Sholes model with the following
        assumptions: risk free rate of return of 3.26%; volatility of 98.01%; dividend
        yield of 0%; and an expected term of 5 years.
  The
        Company analyzed
        the options as of June 30, 2008, by applying FASB 133 , paragraph
        6 to ascertain if the options issued remained derivatives as of June 30,
        2008.
        All of the criteria in the original analysis were met, and the options issued
        were determined to be within the scope and definition of a derivative. EITF
        00-19, paragraph 8 was applied which states that if share settlement is not
        controlled by the company, the contract is required to be classified as a
        liability. Paragraph 9 also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the options was determined to be $990,390 as of June 30, 2008, which
        was calculated using the Black Sholes model with the following assumptions:
        risk
        free rate of return of 2.36%; volatility of 74.72%; dividend yield of 0%;
        and an
        expected term of 4.42 years.
  The
        decrease in the fair value of the options was $457,931 for the nine months
        ended
        June 30, 2008, and was recorded by decreasing the warrant liability on the
        balance sheet.
  *Warrants
        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 to 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 stock option agreement, options for the purchase of 340,000
        shares of Common Stock are not exercisable until the notes dated June 6,
        2007
        (Convertible Note 2 as discussed in Note 7 above) are eligible for conversion
        into shares of Common Stock. These
        warrants were issued outside of the 2001 Executive Officers Stock Option
        Plan.
  The
        Company followed the guidance of FASB 133, paragraph 6, to
        determine if the warrants were within the scope and definition of a derivative
        at the date of issuance. The warrants had one or more underlings and one
        or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the warrants were determined to be derivatives at
        the
        date of issuance. In order to determine how to classify the warrants, the
        Company followed the guidance of EITF 00-19, paragraphs 7 and 8, which state
        that contracts  that
        require net-cash settlement (including a requirement to net cash settle the
        contract if an event occurs and if that event is outside the control of the
        company) are liability instruments. In order
        to determine the value of the warrants, the Company followed the guidance
        of
        EITF 00-19, paragraph 9, which states that contracts which require the company
        to deliver shares as part of a physical settlement or net-share settlement
        should be initially measured at fair value.
  The
        fair
        value of the warrants was determined to be $1,448,321 at the date of issuance
        and was calculated using the Black Sholes option valuation model with the
        following assumptions: risk free interest rates of 3.26%, expected volatility
        of
        98.01%, dividend yields of 0% and expected term of 5 years.
  The
        Company analyzed
        the warrants by applying FASB 133 , paragraph
        6 to ascertain if the warrants remained derivatives as of June 30, 2008.
        All of
        the criteria in the original analysis were met, and the warrants issued were
        determined to be within the scope and definition of a derivative. EITF 00-19,
        paragraph 8 was applied which states that if share settlement is not controlled
        by the company, the contract is required to be classified as a liability.
        Paragraph 9 also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the warrants was determined to be $990,390 as of June 30, 2008,
        using
        the Black Sholes model with the following assumptions: risk free rate of
        return
        of 2.36%; volatility of 74.72%; dividend yield of 0%; and an expected term
        of
        4.42 years.
  The
        decrease in the fair value of the warrants was $457,931 for the nine months
        ended June 30, 2008, and recorded by decreasing the warrant liability on
        the
        balance sheet.
  *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 offering, the Company issued warrants to purchase 850,000
        shares
        of Common Stock.
  Page
            21 of
            37
  The
        Company followed the guidance of FASB 133, paragraph 6, to
        determine if the warrants were within the scope and definition of a derivative
        at the date of issuance. The warrants had one or more underlings and one
        or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the warrants were determined to be derivatives at
        the
        date of issuance. In order to determine how to classify the warrants, the
        Company followed the guidance of EITF 00-19, paragraphs 7 and 8, which state
        that contracts  that
        require net-cash settlement (including a requirement to net cash settle the
        contract if an event occurs and if that event is outside the control of the
        company) are liability instruments. In order
        to determine the value of the warrants, the Company followed the guidance
        of
        EITF 00-19, paragraph 9, which states that contracts which require the company
        to deliver shares as part of a physical settlement or net-share settlement
        should be initially measured at fair value.
  The
        fair
        value of the warrants was determined to be $96,814 at the date of issuance,
        which was calculated using the Black-Sholes option pricing model, using the
        following assumptions: risk free rate of return of ranging from 2.64% to
        3.26%,
        volatility ranging from 97.08% to 98.27%, dividend yield of 0% and expected
        life
        of six years.
  The
        Company analyzed
        the warrants by applying FASB 133 , paragraph
        6 to ascertain if the warrants remained derivatives as of June 30, 2008.
        All of
        the criteria in the original analysis were met, and the warrants issued were
        determined to be within the scope and definition of a derivative. EITF 00-19,
        paragraph 8 was applied which states that if share settlement is not controlled
        by the company, the contract is required to be classified as a liability.
        Paragraph 9 also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  The
        fair
        value of the warrants was determined to be $76,248 as of June 30, 2008, using
        the Black Sholes model with the following assumptions: risk free rate of
        return
        of 2.36%; volatility of 74.72%; dividend yield of 0%; and an expected term
        of
        5.58 years.
  The
        decrease in the fair value of the options was $20,566 for the nine months
        ended
        June 30, 2008, and recorded by decreasing the warrant liability on the balance
        sheet.
  *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
        Company followed the guidance of FASB 133, paragraph 6, to
        determine if the warrants were within the scope and definition of a derivative
        at the date of issuance. The warrants had one or more underlings and one
        or more
        notional amounts, required no initial investment and required or permitted
        net
        settlement. Therefore, the warrants were determined to be derivatives at
        the
        date of issuance. In order to determine how to classify the warrants, the
        Company followed the guidance of EITF 00-19, paragraphs 7 and 8, which state
        that contracts  that
        require net-cash settlement (including a requirement to net cash settle the
        contract if an event occurs and if that event is outside the control of the
        company) are liability instruments. In order
        to determine the value of the warrants, the Company followed the guidance
        of
        EITF 00-19, paragraph 9, which states that contracts which require the company
        to deliver shares as part of a physical settlement or net-share settlement
        should be initially measured at fair value.
  The
        fair
        value of the warrants was determined to be $483,476 at the date of issuance,
        which was calculated using the Black Sholes option pricing model, using the
        following assumptions: risk free rate of return of 1.32% to 2.17%, volatility
        of
        72.4% to 77.86%, dividend yield of 0%, and expected term of 3 years.
  The
        Company analyzed
        the warrants by applying FASB 133 , paragraph
        6 to ascertain if the warrants remained derivatives as of June 30, 2008.
        All of
        the criteria in the original analysis were met, and the warrants were determined
        to be within the scope and definition of a derivative. EITF 00-19, paragraph
        8
        was applied which states that if share settlement is not controlled by the
        company, the contract is required to be classified as a liability. Paragraph
        9
        also states that contracts
        classified as liabilities should be measured at fair value at each balance
        sheet
        date, with changes in fair value reported in earnings and disclosed in the
        financial statements as long as the contracts remain classified as
        liabilities.
  Page
            22 of
            37
  The
        fair
        value of the warrants was determined to be $553,363 as of June 30, 2008,
        which
        was calculated using the Black-Sholes option pricing model, using the following
        assumptions: risk free rate of return of 2.36%, volatility of 74.72%, dividend
        yield of 0% and expected term of 2.67 to 2.83 years.
  The
        increase in the fair value of the warrants of $69,887 for the nine month
        period
        ended June 30, 2008 was recorded in decrease in warrant liability in the
        other
        income (expense) section of the statement of operations.
  **NOTE
        10 BENEFICIAL CONVERSION FEATURES LIABILITY**
  As
        of
        September 30, 2007, the Company had Convertible Bridge Notes outstanding
        totaling $1,861,000 that were issued between October 17, 2006, and July 17,
        2007. The bridge notes included embedded beneficial conversion features that
        allowed the holders of the convertible notes to convert their notes into
        shares
        of Common Stock at rates between $0.01 and $0.22. The bridge notes mature
        between June 17, 2008 and December 31, 2008. The bridge notes accrue interest
        at
        rates between 8% and 10%, and any accrued but unpaid interest is also
        convertible by the holder of the convertible bridge notes into shares of
        Common
        Stock at the same rate.
  The
        Company followed the guidance of FASB 133, paragraph 6, to ascertain if the
        embedded beneficial conversion features remained derivatives subsequent to
        the
        date of issuance. All of the criteria in the original analysis were met,
        and the
        embedded beneficial conversion features issued were determined to be within
        the
        scope and definition of a derivative. The Company followed the guidance of
        FASB
        133, paragraph 12, to determine if the embedded beneficial conversion features
        should be separated from the convertible bridge notes . All of
        the criteria in the original analysis were met, and the embedded beneficial
        conversion features were separated from the convertible bridge notes. In
        order
        to determine the classification of the embedded conversion features, the
        Company
        applied paragraphs 7 and 8 of EITF 00-19. Paragraph 7 states that contracts
        which require net-cash
        settlement are liabilities, and paragraph 8 states that contracts which give
        the
        counterparty (holders of the convertible notes) a choice of net-cash settlement
        or settlement in shares are liabilities. Therefore the embedded conversion
        features were determined to be liabilities. In order to determine the value
        of
        the embedded conversion features, the Company followed the guidance of EITF
        00-19, paragraph 9, which states that all contracts classified as liabilities
        are to be measured at fair value at each balance sheet date, with changes
        in
        fair value reported in earnings and disclosed in the financial statements
        as
        long as the contracts remain classified as liabilities.
  The
        fair
        value of the embedded beneficial conversion features was determined to be
        $1,430,812 at the date of issuance using the Black Sholes model with
        the
        following assumptions: risk free rate of return of 2.02% to 5.09%; volatility
        of
        108.5% to 274.86%; dividend yield of 0% and an expected term of 1 to 1.5
        years.
  The
        fair
        value of the embedded beneficial conversion features was determined to be
        $1,430,812 as of September 30, 2007, which was calculated using the Black
        Sholes
        model with
        the
        following assumptions: risk free rate of return of 4.05%; volatility of 126.94%;
        dividend yield of 0% and an expected term of .58 to 1.25 years.
  The
        Company analyzed
        the beneficial conversion features by applying FASB 133 , paragraph
        6 to ascertain if the beneficial conversion features remained derivatives
        as of
        June 30, 2008. All of the criteria in the original analysis were met, and
        the
        beneficial conversion features were determined to be within the scope and
        definition of a derivative. FASB 133, paragraph 12 was applied to determine
        if
        the embedded beneficial conversion features should be separated from the
        convertible bridge notes . All of
        the criteria in the original analysis were met, and the embedded beneficial
        conversion features were separated from the convertible bridge notes. EITF
        00-19, paragraphs 7 and 8 were applied to determine the classification.
        Paragraph 7 states that contracts which require net-cash
        settlement are liabilities, and paragraph 8 states that contracts which give
        the
        counterparty (holders of the convertible notes) a choice of net-cash settlement
        or settlement in shares are liabilities. The embedded conversion features
        were
        determined to be liabilities and the Company followed the guidance of EITF
        00-19, paragraph 9 to determine their value. Paragraph 9 states that all
        contracts classified as liabilities are to be measured at fair value at each
        balance sheet date, with changes in fair value reported in earnings and
        disclosed in the financial statements as long as the contracts remain classified
        as liabilities.
  The
        fair
        value of the monthly embedded beneficial conversion features was determined
        to
        be $215,071 as of June 30, 2008, using the Black Sholes model with the following
        assumptions: risk free rate of return of 2.36%; volatility of 74.72%; dividend
        yield of 0%; and an expected term of 1.42 to 3.75 years.
  Page
            23 of
            37
  The
        decrease in the fair value of the beneficial conversion features was $1,215,740
        for the nine months ended June 30, 2008, and recorded by decreasing the
        beneficial conversion features liability on the balance sheet.
  **NOTE
        11**  **STOCKHOLDERS’
        DEFICIT**
  COMMON
        STOCK
  The
        Company has 150,000,000 authorized shares with $0.001 par value. As of June
        30,
        2008, the Company had 121,479,647 shares issued and 120,997,747 shares
        outstanding.
  In
        January 2008, the Company issued 150,000 shares of Common Stock to a vendor
        to
        in lieu of $25,000.
  In
        April
        2008, the Company issued 748,750 shares of Common Stock as part of the
        settlement of the termination of an operating lease.
  During
        the three months ended June 30, 2008, the Company issued 10,163,796 shares
        of
        Common Stock for the conversion of convertible notes payable and accrued
        interest for $799,253.
  On
        May
        28, 2008, the Company completed an offering of units consisting of shares
        of
        Common Stock and warrants to purchase shares of Common Stock. The Company
        issued
        3,300,000 shares of Common Stock, at an offering price of $0.10, for total
        proceeds of $330,000.
  STOCK
        OPTIONS
  *2001
        Executive Officers Stock Option Plan*
  In
        October 2000, the Company entered into amendments to the employment agreements
        of each of the executive officers eliminating the provisions of stock bonuses.
        In lieu of the bonus provision, the Company adopted the 2001 Executive Officers
        Stock Option Plan. The Company reserved 7,576,680 shares of Common Stock
        for
        issuance under the plan, and there are options for the purchase of 7,034,140
        shares of Common Stock outstanding. The exercise price of the options is
        $0.15
        and the options expire in September 2011.
  *Options
        Related to 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 was appointed as the
        Company’s Chief Executive Officer. As compensation for his services, the Company
        granted to 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, options for the purchase of 340,000
        shares
        of Common Stock are not exercisable until the notes dated June 6, 2007
        (Convertible Note 2 as discussed in Note 7 above) are eligible for conversion
        into shares of Common Stock. These options were issued outside of the 2001
        Executive Officers Stock Option Plan.
  A
        summary
        of the Company’s option activity is listed below:
  WeightredAverage
                
                Number
                    ofExercise
                
                OutstandingPrice
                
                OptionsOutstanding
                    as of September 30, 2007
                
                $
                0.15
                
                
                7,034,140Granted
                
                
                0.25
                
                
                8,539,312Forfeited
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Outstanding
                    as of June 30, 2008
                
                $
                0.20
                
                
                15,573,452
  Page
            24 of
            37
  OUTSTANDING
        OPTIONS:
 ExercisePrice
                
                
                Stock
                      Options
                      Outstanding
                
                
                Stock
                      Options
                      Exercisable
                
                
                Weighted
                            Average
                            Remaining
                            Contractual
                            Life
                            In
                              Years
                
                
                Weighted
                          Average
                          Exercise
                          Price
                            of
                          Options
                          Outstanding
                
                
                Weighted
                    Average
                    Exercise
                    Price
                      of
                    Options
                    Exercisable$
                0.15
                
                
                7,034,140
                
                
                7,034,140
                
                
                2.25
                
                $
                0.15
                
                $
                0.150.25
                
                
                8,539,312
                
                
                2,561,794
                
                
                4.42
                
                
                0.25
                
                
                0.25
 
 STOCK
        WARRANTS
  *Warrants
        Related to Convertible Debentures*
  On
        July
        17, 2007 the Company completed an offering of $1,025,000 of Convertible Bridge
        Notes 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 bridge notes, 465,908 shares of
        Common Stock as a placement fee) at an exercise price of $0.30 per share.
        The
        warrants expire five years from the date of issuance.
  *Warrants
        Related to Special Adviser*
  On
        December 19, 2007, the Company entered into a one year Consulting Agreement
        with
        Mark Maron pursuant to which Mr. Maron was appointed as Special Adviser to
        the
        Company. As compensation for his services, the Company granted to 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. As per the terms of the stock option
        agreement, options for the purchase of 340,000 shares of Common Stock are
        not
        exercisable until the notes dated June 6, 2007 (Convertible Note 2 as discussed
        in Note 7 above) are eligible for conversion into shares of Common Stock.
        These
        warrants were issued outside of the 2001 Executive Officers Stock Option
        Plan.
  *Warrants
        Related to 10% Subordinated Debentures*
  In
        January 2008, the Company completed an offering of units consisting of $425,000
        of Subordinated Debentures to a group of institutional and accredited investors
        which included warrants to purchase 850,000 shares of Common Stock at an
        exercise price of $0.40 per share. The warrants expire six years from the
        date
        of issuance.
  *Warrants
        Related to $750,000 Issuance of Common Stock*
  On
        May
        28, 2008 the Company completed an offering of $750,000 of units consisting
        of
        Common Stock and warrants to purchase the Company’s Common Stock to a group of
        institutional and accredited investors. 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.
  A
        summary
        of the Company’s warrant position is listed below:
 WeightredAverage
                
                Number
                    ofExercise
                
                OutstandingPrice
                
                WarrantsOutstanding
                    as of September 30, 2007
                
                $
                0.39
                
                
                3,805,454Granted
                
                
                0.16
                
                
                24,389,312Forfeited
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Outstanding
                    as of June 30, 2008
                
                $
                0.17
                
                
                28,194,766
  Page
              25 of
              37
  WARRANTS
        OUTSTANDING
 Exercise
                  Price
                
                Warrants
                  Outstanding
                
                Warrants
                    Exercisable
                
                Average
                            Remaining
                            Contractual
                            Life
                            In
                              Years
                
                Average
                        Exercise
                        Price
                          of
                        Options
                        Outstanding
                
                Average
                              Exercise
                              Price
                                of
                              Options
                              Exercisable$
                0.30
                
                
                2,795,454
                
                
                2,795,454
                
                
                4.00
                
                $
                0.30
                
                $
                0.300.25
                
                
                8,539,312
                
                
                2,561,794
                
                
                4.42
                
                
                0.25
                
                
                0.250.40
                
                
                850,000
                
                
                850,000
                
                
                5.58
                
                
                0.40
                
                
                0.400.10
                
                
                15,000,000
                
                
                15,000,000
                
                
                2.75
                
                
                0.10
                
                
                0.10
   All
        outstanding warrants were exercisable as of June 30, 2008.
  **NOTE
        12**  **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 June 30, 2008, the Company has incurred
        cumulative losses of $23,099,897 including a loss for the nine months ended
        June
        30, 2008, of $4,809,209. 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 financing 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. Its 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. 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. It 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 converted into equity. As a result, if
        it
        begins to generate revenues from operations, those revenues will need to
        be
        significant in order to cover current and anticipated expenses. These factors
        have raised 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 operations.
  **NOTE
        13**  **COMMITMENT**
  On
        February 19, 2007 the Company entered into a two year lease agreement beginning
        March 1, 2007. According to the terms of the agreement, at the beginning
        of each
        lease year, the then most recently published Consumer Price Index (CPI) figure
        shall be determined and the monthly rental payable for the succeeding lease
        year
        will be calculated.
  **NOTE
        14**  **SUPPLEMENTAL
        CASHFLOW DISCLOSURE**
  During
        the nine months ended June 30, 2008, the Company had the following noncash
        transactions:
  Conversion
        of $724,667 in principal amount of convertible notes, and $74,586 of accrued
        interest into 10,163,795 shares of Common Stock.
  Issuance
        of 748,750 shares of Common Stock for $114,850 in lieu of payment to
        vendor.
  Page
            26 of
            37
  **NOTE
        15**  **SUBSEQUENT
        EVENT**
  **Issuance
        of Warrants to Board of Director**
  On April
        11, 2008, the Company issued an option to purchase 500,000 shares of Common
        Stock to the Chief Financial Officer, who is also a director, at an exercise
        price of $0.11. The option expires April 11, 2013.
  **Operating
        Lease**
  On
        July
        21, 2008, the Company entered into a three year agreement beginning August
        1,
        2008, for a 12,000 square foot industrial facility in Anaheim, California
        for
        research and development and manufacturing and distribution of its water
        filtration systems. Monthly lease payments are $8,650 for fiscal year 2009,
        $8,995 for fiscal year 2010, and $9,355 for fiscal year 2011.
  **Issuance
        of $1,000,000 in Subordinated Convertible Notes Payable and Related
        Warrants**
  In
        July
        2008, the Company completed an offering of $1,000,000 in principal amount
        of
        Subordinated Convertible Debentures to a group of institutional and accredited
        investors, which bear interest at the rate of 12% per annum, and mature 12
        months from the date of issuance. The Subordinated Convertible Debentures
        are
        convertible into 4,000,000 shares of Common Stock at an initial conversion
        rate
        of $0.25 per share. As part of the above offering the Company issued warrants
        to
        purchase 1,000,000 shares of Common Stock at an initial exercise price of
        $0.30
        per share, which expire five years from the date of grant.
  **Issuance
        of $96,149 in Common Stock In Lieu of Debt**
  On
        July
        22, 2008, the Company agreed to issue 641,000 shares of Common Stock to a
        vendor
        in for payment for $96,149 of services provided to the Company. As part of
        the
        agreement, the Company issued warrants to purchase 641,000 shares of common
        stock at an exercise price of $0.15 per share.
  **NOTE
        16 RESTATEMENT**
  On
        October 1, 2004, the Company formed an advisory board consisting of four
        members.  Each member was to receive $5,000 monthly from October 1, 2004,
        to February 22, 2007 for a total of $576,000.  Of the total amount, $96,000
        should have been accrued during the nine months ended June 30, 2007, and
        include
        in general and administrative expenses.  Due to an oversight, these
        agreements were not included in the minutes to the Board of Directors, and
        therefore, management these items were not recorded in the appropriate
        periods.  The company is in the process of restating the appropriate
        periods for these unbooked changes.
  As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedGeneral
                and Adminstrative Expenses
              
              $
              932,668
              
              $
              96,000
              
              $
              1,028,668
  Page
            27 of
            37
 FORWARD-LOOKING
        STATEMENTS
  This
        Quarterly Report on Form 10-QSB filed by Sionix Corporation contains
        forward-looking statements. These are statements regarding financial and
        operating performance and results and other statements that are not historical
        facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,”
“intend,” “plan,” “forecast,” and similar expressions are intended to identify
        forward-looking statements. These statements, and any other statements that
        are
        not historical facts, are forward looking statements. Certain important risks
        could cause results to differ materially from those anticipated by some of
        the
        forward-looking statements. Some, but not all, of these risks include, among
        other things:
  Ø
            whether
                we will be able to find financing to continue our
                operations;  Ø
            whether
                there are changes in regulatory requirements that adversely affect
                our
                business;  Ø
            the
                ability of management to execute its plans to meet its
                goals;  Ø
            general
                economic conditions, whether nationally or in the regional and local
                markets in which we operate, which may be less favorable than
                expected;  Ø
            the
                ability to retain key members of management and key employees;
                and  Ø
            other
                uncertainties, all of which are difficult to predict and many of
                which are
                beyond our control.  We
        do not
        intend to update forward-looking statements. You should refer to and carefully
        review the information in the documents we file with the Securities and Exchange
        Commission.
  Page
            28 of
            37
 **ITEM
        2**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**
  DEVELOPMENT
        STAGE COMPANY. Sionix Corporation (referred to as “the Company”, “we”, “us” or
“our”) is a development stage company as defined in Statement of Financial
        Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development
        Stage Enterprises.” The Company designs and develops turn-key stand-alone water
        treatment systems for municipalities (both potable and wastewater), industry
        (both make-up water and wastewater), emergency response, military and small
        residential communities. To date, the Company’s efforts have been principally
        devoted to research and development, organizational activities, and raising
        capital. Development of our ELIXIR water treatment system was completed in
        2002.
        Recent tests undertaken by independent third parties indicated that the levels
        of manganese and iron in the water should be reduced. The Company is currently
        in the process of determining the optimum way to achieve this result. We
        have
        earned no revenues from sales of our product, however, we have received an
        order
        for our first sale. Because we earn no revenues, our operations are, and
        have
        been in the past, dependent on our ability to borrow money or to raise capital
        by selling our equity or debt securities.
  Our
        lack
        of operating capital has slowed the pace of the development and testing of
        our
        product. During the 2007 fiscal year we began raising working capital through
        sales of debt securities, which has allowed us to complete installation of
        the
        ELIXIR water treatment system at the Villa Park Dam, Villa Park, California.
        In
        order to conserve our cash, whenever possible we use our securities,
        particularly our common stock, to pay vendors.
  On
        June
        13, 2008, the Company took an order for its initial sale of 2 ELIXIR units.
        The
        total sales price for the initial units is approximately $4.3 million. A
        customer deposit of $900,000 was received at the date of the order. Delivery
        of
        the initial unit is anticipated to be late January or February
        2009.
  Our
        plan
        for the next 12 months is to continue to raise capital, complete the
        verification of equipment production standards and test data, and continue
        the
        introduction of the ELIXIR water treatment system to the market place. In
        addition, we plan to hire competent production support and administrative
        staff
        to effectively run the Company.
  MANAGEMENT.
        On December 19, 2007, the Company entered into a one year Employment Agreement
        with Richard H. Papalian and a one year Consulting Agreement with Mark Maron
        pursuant to which Mr. Papalian has been appointed as the Company’s Chief
        Executive Officer and Mr. Maron has been appointed as Special Adviser to
        the
        Company. As compensation for these services, the Company granted each person
        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 which represented 5% of the
        outstanding shares of the Company’s Common Stock on a fully diluted basis on the
        date the options were issued. **** On
        August
        14, 2008, Mr. Papalian resigned as the Company’s Chief Executive Officer,
        although he continues to serve as a director. Mr. James Houtz, the Company’s
        President and Chief Operating Officer, has assumed the position of Chief
        Executive Officer.
  PLAN
        OF
        OPERATION. As stated above, during the next twelve months we plan to continue
        to
        raise capital, verify equipment production standards and test data and continue
        the introduction of the ELIXIR water treatment system to the market place.
        Provided that our production standards and test data are confirmed and that
        we
        are able to raise sufficient capital, we intend to hire competent production
        support and administrative staff. Additionally, we plan to increase our
        promotional activities, including using various types of media, and to directly
        contact public agencies and potential private customers. If the unit continues
        to operate successfully, we believe we will receive orders for additional
        units.
  PRODUCTION
        FACILITIES. In January 2008 the Company reevaluated its decision to manufacture
        the ELIXIR units and decided to have the units manufactured by third parties.
        Consequently, as described below, in March 2008 the Company terminated its
        lease
        of the 60,000 square foot manufacturing facility in Garden Grove, California.
        On
        July 21, 2008, the Company entered into a three year lease agreement beginning
        as of August 1, 2008 for a 12,000 square foot facility which houses its research
        and development and subassembly operations. Monthly lease payments are $8,650
        for the 2009 fiscal year, $8,995 for the 2010 fiscal year, and $9,355 for
        the
        2011 fiscal year.
  Effective
        November 1, 2007, the Company leased a 60,000 square foot research and
        development, production, engineering and administrative office facility in
        Garden Grove, California. On March 18, 2008 the Company negotiated a termination
        of the lease by issuing 748,750 shares of its Common Stock plus relinquishing
        any claim to its $100,000 security deposit. During the three months ended
        March
        31, 2008 the Company recognized a loss on the transaction of $125,915 which
        is
        made up of a $25,915 write off of leasehold improvements and the forfeiture
        of
        the $100,000 deposit. $89,850 of rent expense was attributed to the 748,750
        shares of Common Stock.
  Page
            29 of
            37
  SIGNIFICANT
        ACCOUNTING POLICIES AND ESTIMATES.
  The
        preparation of our consolidated 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 nine months ended
        June
        30, 2008. Management believes the following critical accounting policies
        reflect
        its more significant estimates and assumptions.
  Revenue
        Recognition. Although the Company has yet to generate sales, it plans to
        follow
        the guidance provided by SAB 104 for recognition of revenues. The Company
        does
        not plan to recognize revenue unless 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 sale 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 collectibility 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.
  Page
            30 of
            37
  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 Statement No. 142 "Goodwill and Other Intangible
        Assets" (FAS 142). 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 are a defendant in litigation. As required
        by Financial Accounting Standards Board Statement No. 5 "Accounting for
        Contingencies" (FAS 5), we 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.
  Share
        Based Payments. Effective October 1, 2006, the Company adopted Statement
        of
        Financial Accounting Standards (SFAS) No. 123-R, “Share-Based Payment” (“SFAS
        123-R”), which requires the measurement and recognition of compensation expense
        for all share-based payment awards made to employees and directors, including
        stock options, to be based on their fair values. SFAS 123-R supersedes
        Accounting Principles Board Opinion No.25, “Accounting for Stock Issued to
        Employees” (“APB 25”), which the Company previously followed in accounting for
        stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin
        No.107 (SAB 107) to provide guidance on SFAS 123-R. The Company has applied
        SAB
        107 in its adoption of SFAS 123-R.
  OFF-BALANCE
        SHEET ARRANGEMENTS. We have no off-balance sheet arrangements, special purpose
        entities or financing partnerships.
  CAPITAL
        EXPENDITURES. The Company currently has no commitments for capital
        expenditures.
  MATERIAL
        TRENDS, EVENTS OR UNCERTAINTIES. Other than as discussed herein, the Company
        does not know of any material trends, events or uncertainties that may impact
        its operations in the future.
  CONTRACTUAL
        OBLIGATIONS. The Company is committed under the following contractual
        obligations
  ContractualObligations
              
              Payments
                  Due by PeriodTotal
              
              Less
                  than 1Year
              
              1
                  to 3Years
              
              3
                  to 5 Years
              
              Over
                  5YearsOperating
                  lease obligations
              
              
              402,200
              
              
              72,500
              
              
              329,700
              
              
              0
              
              
              0
  RESULTS
        OF OPERATIONS
  THREE
        MONTHS ENDED JUNE 30, 2008 COMPARED TO THREE MONTHS ENDED JUNE 30, 2007
  The
        Company had no revenues for the three months ended June 30, 2008 and June
        30,
        2007. The Company has negotiated the sale of two water treatments units and
        has
        received $900,000 which has been recorded in customer deposits. Based on
        the
        Company’s revenue recognition policy, none of the proceeds have been recognized
        as revenue because the units have not been delivered and title has not passed
        to
        the customer.
  The
        Company incurred operating expenses of $923,831 for the three months ended
        June
        30, 2008, an increase of $471,351 or approximately 104%, as compared to $452,480
        for the three months ended June 30, 2007. General and administrative expenses
        were $634,702 for the three months ended June 30, 2008, an increase of $190,158
        or approximately 43%, as compared to $444,544 for the three months ended
        June
        30, 2007. The increase in general and administrative expenses was primarily
        due
        to the issuance of warrants and options. Depreciation and amortization expense
        was $8,157 for the three months ended June 30, 2008, an increase of $221
        or
        approximately 3%, as compared to $7,936 for the three months ended June 30,
        2007. The Company incurred research and development expenses of $280,972
        for the
        three months ended June 30, 2008 as compared to no such expenses for the
        three
        months ended June 30, 2007. Research and development expenses for the three
        months ended June 30, 2008, consist primarily of salaries of personnel directly
        responsible for the water treatment system located at Villa Park Dam and
        the
        costs of the independent third party testing.
  Page
            31 of
            37
  Other
        income and (expense) was $(1,858,881) for the three months ended June 30,
        2008,
        an increase of $1,784,630 or approximately 2,404%, as compared to $(74,251)
        for
        the three months ended June 30, 2007. Decrease in warrant liability was
        $2,210,711 for the three months ended June 30, 2008, as compared to $0 for
        the
        three months ended June 30, 2007. The decrease in warrant liability represents
        the decrease in the fair value of option and warrant liability for the three
        months ended June 30, 2008. The options and warrants were required to be
        classified as liabilities as of July 17, 2007, and valued at fair value on
        each
        balance sheet date, with the change in value reported in earnings. Therefore
        there was no increase or decrease in the option and warrant liability for
        the
        three months ended June 30, 2007. The increase in beneficial conversion features
        liability was $659,811 for the three months ended June 30, 2008, as compared
        to
        $0 for the three months ended June 30, 2007. The increase in beneficial
        conversion features liability represents the increase in the fair value of
        the
        beneficial conversion features liability for the three months ended June
        30,
        2008. The beneficial conversion features were required to be classified as
        liabilities as of July 17, 2007, and valued at fair value on each balance
        sheet
        date, with the change reported in earnings. Therefore there was no increase
        or
        decrease in the beneficial conversion features liability for the three months
        ended June 30, 2007. Interest expense was $313,696 during the three months
        ended
        June 30, 2008, an increase of $239,389 or approximately 322%, as compared
        to
        $74,307 for the three months ended June 30, 2007. The increase is primarily
        due
        to the amortization of the beneficial conversion features discount of $164,979
        and warrant discount of $84,909, and additional outstanding debt. Net loss
        was $2,782,712
        for the three months ended June 30, 2008, an increase of $2,255,981 or
        approximately 427%, as compared to $527,631 for the three months ended June
        30,
        2007 .
  NINE
        MONTHS ENDED JUNE 30, 2008 COMPARED TO NINE MONTHS ENDED JUNE 30, 2007
  During
        the 2007 fiscal year, the Company began to raise money for its operations
        by
        selling debentures. As a result of these offerings, the Company was able
        to
        resume its operating activities, finalize the beta unit and begin evaluating
        the
        effectiveness of the unit.
  The
        company had no revenues for the nine months ended June 30, 2008 and June
        30,
        2007. The Company has negotiated the sale of two water treatments units and
        has
        received $900,000 which has been recorded in customer deposits. Based on
        the
        Company’s revenue recognition policy, none of the proceeds have been recognized
        as revenue because the units have not been delivered and title has not passed
        to
        the customer.
  The
        Company incurred operating expenses of $7,626,805 for the nine months ended
        June
        30, 2008, an increase of $6,670,414 or approximately 697%, as compared to
        $956,391 for the nine months ended June 30, 2007. General and administrative
        expenses were $6,755,429 for the nine months ended June 30, 2008, an increase
        of
        $5,822,761 or approximately 624%, as compared to $932,668 for the nine months
        ended June 30, 2007. The increase in general and administrative expenses
        was
        primarily due to the issuance of warrants and options. Depreciation and
        amortization expense was $24,472 for the nine months ended June 30, 2008,
        an
        increase of $749 or approximately 3%, as compared to $23,723 for the nine
        months
        ended June 30, 2007. There were no research and development expenses incurred
        during the nine months ended June 30, 2007.
  Other
        income and (expense) was $2,818,497 for the nine months ended June 30, 2008,
        an
        increase of $2,962,726 or approximately 2,054%, as compared to $(144,229)
        for
        the nine months ended June 30, 2007. Increase in warrant liability was
        $2,702,841 for the nine months ended June 30, 2008, as compared to $0 for
        the
        nine months ended June 30, 2007. The increase in warrant liability represents
        the increase in the fair value of option and warrant liability for the nine
        months ended June 30, 2008. The options and warrants were required to be
        classified as liabilities as of July 17, 2007, and valued at fair value on
        each
        balance sheet date, with the change in value reported in earnings. Therefore
        there was no increase or decrease in the option and warrant liability for
        the
        nine months ended June 30, 2007. The increase in beneficial conversion feature
        liability was $1,215,740 for the nine months ended June 30, 2008, as compared
        to
        $0 for the nine months ended June 30, 2007. The increase in beneficial
        conversion features liability represents the increase in the fair value of
        the
        beneficial conversion features liability for the nine months ended June 30,
        2008. The beneficial conversion features were required to be classified as
        liabilities as of July 17, 2007, and valued at fair value on each balance
        sheet
        date, with the change reported in earnings. Therefore there was no increase
        or
        decrease in the beneficial conversion features liability for the nine months
        ended June 30, 2007. Interest expense was $977,912 during the nine months
        ended
        June 30, 2008, an increase of $833,017 or approximately 575%, as compared
        to
        $144,895 for the nine months ended June 30, 2007. The increase is primarily
        due
        to the amortization of the beneficial conversion features discount of $738,627
        and warrant discount of $346,669. Miscellaneous expense of $125,015 relates
        to
        the termination of the lease of the production facility. The Company incurred
        research and development expenses of $846,904 for the nine months ended June
        30,
        2008 as compared to no such expenses for the nine months ended June 30, 2007.
        Research and development expenses for the nine months ended June 30, 2008,
        consist primarily of salaries of personnel directly responsible for the water
        treatment system located at Villa Park Dam and the costs of the independent
        third party testing. ****
  Page
            32 of
            37
  Net
        loss
        was $4,809,208 for the nine months ended June 30, 2008, an increase of
        $3,707,688 or approximately 337%, as compared to $1,101,520 for the nine
        months
        ended June 30, 2007.
  LIQUIDITY
        AND CAPITAL RESOURCES. Net cash flows used in our operating activities totaled
        $611,819 for the nine months ended June 30, 2008, an increase of $10,998
        or
        approximately 1.83%, as compared to $600,821 for the nine months ended June
        30,
        2007. The increase in cash flows used in operating activities, not including
        the
        increase in net loss, is primarily attributable to amortization of beneficial
        conversion feature discount and warrant discount of $1,073,445, warrants
        and stock issued to nonemployees for $5,799,646, decrease in warrant liability
        of $2,702,841, decrease in beneficial conversion feature of $1,215,741, and
        receipt of customer deposit of $900,000.
  Net
        cash
        flows used in our investing activities was $26,111 for the purchase of
        equipment, as compared to $25,361 for investing activities during the nine
        months ended June 30, 2007.
  Net
        cash
        flows provided by financing activities totaled $1,261,779 for the nine months
        ended June 30, 2008, an increase of cash flows provided of $184,579 or
        approximately 17.14%, as compared to net cash flows provided by financing
        activities of $1,077,200 for the nine months ended June 30, 2007. Cash provided
        by financing activities for the nine months ended June 30, 2008 included
        the
        accrual of $138,375 for liquidated damages, issuance of notes payable of
        $425,000, issuance of stock of $330,000, and receipt of cash to be issued
        for
        stock of $420,000. Cash used in financing activities for the nine months
        ended
        June 30, 2008 included payments on notes payable to officer of $19,260, payments
        on notes payable to related party of $5,000, and payments on equity line
        of
        credit of $27,336.
  On
        June
        30, 2008, the Company had cash and cash equivalents of $996,360. The sole
        source
        of liquidity has been borrowings from affiliates and the sale of our securities.
        Management anticipates that additional capital will be required to finance
        the
        Company's operations. The Company believes that anticipated proceeds from
        sales
        of securities and other financing activities, plus anticipated cash flow
        from
        operations during the 2008 fiscal year, will be sufficient to finance the
        Company's operations. However, the Company has limited commitments for sales,
        and there can be no assurance that financing will be available or that the
        Company will not encounter unforeseen difficulties that may deplete its capital
        resources more rapidly than anticipated. Also, the Company may not be able
        to
        generate sufficient revenues from operations during the fiscal year and,
        while
        there are anticipated sources of additional sales, none of these sources
        have
        progressed to the stage where we can rely on any of these cash
        resources.
  As
        of
        June 30, 2008, the Company had an accumulated deficit of $23,099,897. It
        can be
        expected that the 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
        June
        30, 2008, the Company incurred cumulative losses of $23,099,897 including
        a loss
        for the nine months ended June 30, 2008 of $4,809,208. 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
        financing 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 cost structure.
        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.
        Its
        ability to meet its cash requirements for the next twelve months depends
        on its
        ability to obtain such financing. Even if obtained, any such financing will
        likely involve additional fees and debt service requirements. Accordingly,
        there
        is no assurance that the Company will be able to implement its
        plans.
  Page
            33 of
            37
  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. It 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 converted into equity. As a result, if
        it
        begins to generate revenues from operations, those revenues will need to
        be
        significant in order to cover current and anticipated expenses. These factors
        have raised 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 operations.
  **ITEM
        3**  **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 defined in Rules 13a-15(e) and
        15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange
        Act”), as of June 30, 2008, to ensure that information required to be disclosed
        by us in the reports filed or submitted by us under the Exchange Act is
        recorded, processed, summarized and reported within the time periods specified
        in the Securities Exchange Commission’s rules and forms, including to ensure
        that information required to be disclosed by us in the reports filed or
        submitted by us under the Exchange Act is accumulated and communicated to
        our
        management, including our principal executive and principal financial officers,
        or persons performing similar functions, as appropriate to allow timely
        decisions regarding required disclosure. Based on that evaluation, our Chief
        Executive Officer and Chief Financial Officer have concluded that as of June
        30,
        2008, 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 results 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 which have caused management to conclude
        that, as of June 30, 2008, our disclosure controls and procedures were not
        effective at the reasonable assurance level:
  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 and will be applicable
        to
        us for the year ending December 31, 2009. 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
        have
        had, and continue to have, a significant number of audit adjustments. Audit
        adjustments are the result of a failure of the internal controls to prevent
        or
        detect misstatements of accounting information. The failure could be due
        to
        inadequate design of the internal controls or to a misapplication or override
        of
        controls. Management evaluated the impact of our significant number of audit
        adjustments and has concluded that the control deficiency that resulted
        represented a material weakness.
  Page
            34 of
            37
  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
        attempted to remediate the material weaknesses in our disclosure controls
        and
        procedures identified above by working with our independent registered public
        accounting firm and refining our internal procedures. In addition, we hired
        two
        consultants with significant experience in financial accounting and reporting,
        as well as redesigning poorly conceived accounting systems. The consultants
        are
        in the process of reviewing our internal controls and financial accounting
        and
        reporting and the restatement of the financial statements is a result of
        these
        efforts. To date, we have not been successful in reducing the number of audit
        adjustments, but will continue our efforts in the coming fiscal
        year.
  **Changes
        in Internal Control over Financial Reporting**
  We
        are
        working diligently to restructure the Company’s internal control over financial
        reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
        the
        Exchange Act) and are making significant improvements in this area.
  **PART
        II - OTHER INFORMATION**
  ITEM
          1  LEGAL
          PROCEEDINGS
  None
  ITEM
          2  UNREGISTERED
          SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  On
          May
          28, 2008 the Company completed an offering of units consisting of Common
          Stock
          and warrants to purchase Common Stock to a group of institutional and accredited
          investors. The warrants have an exercise price of $0.10 and expire 3 years
          from
          the date of issuance. The Company sold a total of 7,500,000 units at a
          price of
          $0.10 per unit for gross proceeds of $750,000. As of June 30, 2008, 3,300,000
          shares of Common Stock has been issued. The remaining 4,200,000 shares
          of Common
          Stock and warrants for the purchase of the 15,000,000 shares of Common
          Stock
          have not yet been issued. We
          relied
          on section 4(2) of the Securities Act of 1933 and Regulation D promulgated
          thereunder to issue the securities inasmuch as the securities were offered
          and
          sold without any form of general solicitation or general advertising and
          the
          offerees made representations that they were accredited investors.
  During
          the three months ended June 30, 2008, the Company issued 10,163,796 shares
          of Common Stock in exchange for $724,667 in principal amount and $74,586
          in
          interest owed to seventeen holders of our convertible notes. We relied
          on
          section 3(9) of the Securities Act of 1933 to issue the securities inasmuch
          as
          the notes were exchanged by us with our existing security holders exclusively,
          and no commission or other remuneration was paid or given directly or indirectly
          for soliciting the exchange.
  ITEM
          3  DEFAULTS
          UPON SENIOR SECURITIES
  Under
          the
          terms of a Registration Rights Agreement executed in connection with an
          offering
          that closed on July 18, 2007, we were 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 certain units it sold consisting
          of
          Subordinated Convertible Debentures and Warrants. The units had a value
          of
          $1,025,000. If we did not file a registration statement with respect to
          the
          these 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 of the closing, then we are required to pay to
          each
          purchaser damages equal to 1.5% of the purchase price paid by the purchaser
          for
          the Subordinated Convertible Debentures for each 30 days that transpires
          after
          these deadlines. The amount of the aggregate damages payable by us is limited
          to
          15% of the purchase price. We had until August 31, 2007 to file the registration
          statement. We filed the registration statement on November 14, 2007, incurring
          a
          penalty for 78 days which amounted to $38,437.50. The registration statement
          has
          not been declared effective as of the date of this report, therefore we
          have
          incurred an additional penalty totaling $153,750.
  ITEM
          4  SUBMISSION
          OF MATTERS TO A VOTE OF SECURITY HOLDERS
  None
  Page
              35 of
              37
  ITEM
          5  OTHER
          INFORMATION
  None
  ITEM
          6  EXHIBITS
  3.1
                Articles
                    of Incorporation, as amended and restated(1)
  3.2
                Bylaws,as
                    amended and restated(1)
   10.1
                Agreement
                    to Convert Debt dated June 24, 2008 between the registrant and
                    Richardson
                    & Patel,LLP*
  31.1
                Certification
                    Pursuant to Rule 13a - 14(a) and 15d -
                    14(a)(4)*
  31.2
                Certification
                    Pursuant to Rule 13a - 14(a) and 15d -
                    14(a)(4)*
  32
                Certification
                    Pursuant to Section 1350 of Title 18 of the United States
                    Code*
  (1)  Incorporated
          by reference from the Current Report on Form 8-K filed with the Securities
          and
          Exchange Commission on July 15, 2003.
  (2)  Incorporated
          by reference from the Current Report on Form 8-K filed with the Securities
          and
          Exchange Commission on December 20, 2007.
  *  Filed
          herewith.
  Page
              36 of
              37
  **SIGNATURES**
  Pursuant
          to the requirements of the Securities Exchange Act of 1934, the registrant
          has
          duly caused this report to be signed on its behalf by the undersigned thereunto
          duly authorized.
  Date:
          August 19, 2008
  SIONIX
                  CORPORATIONBy:
                /S/ JAMES
                  HOUTZJAMES HOUTZ, CHIEF EXECUTIVE
                  OFFICER
  By:
                  /S/ MARCUS
                    WOODSMARCUS WOODS, CHIEF FINANCIAL
                    OFFICER
  Page
              37 of
              37