U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 2000.
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 [no fee required]
Commission File Number 33-3560D
CONECTISYS CORP.
(Name of small business issuer in its charter)
Colorado 84-1017107
(state or other jurisdiction (I.R.S. Employer Identification No.)
Incorporation or Organization)
24730 Avenue Tibbitts
Suite 130
Valencia, California 91355
(Address of principal executive offices)
Issuer's telephone number: (661) 295-6763
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(b) 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:
[X]Yes[ ]No
Common Stock, issued and outstanding as of June 30, 2000: 21,280,572
PART I
Item 1. Financial Statement
A financial statement, unaudited and included herein beginning on page
F-1 (Exhibit 99.0), is incorporated herein by this reference.
Item 2. Management's Discussion and Analysis or Plan of Operation
Except for disclosures that report the Company's historical results, the
statements set forth in this section are forward-looking statements.
Actual results may differ materially from those projected in the forward-
looking statements. Additional information concerning factors that may
cause actual results to differ materially from those in the forward-
looking statements are in the Company's Annual Report on form 10-KSB for
the fiscal year ending September 30, 1999 and in the Company's other
filings with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes
no obligation to update any forward-looking statements or comments on
the reasons why actual results may differ therefrom.
Conectisys is the parent company of two wholly owned subsidiaries; United
Telemetry Co., Inc. and eEnergyServices.com, Inc. It is a commercial
telecommunications company primarily engaged in developing,
manufacturing and marketing proprietary telemetry equipment for use in
remote or automated meter reading (AMR) applications.
Results of operations
The Company realized a net loss from operations of $3,111,742 for the
3rd quarter ending June 30, 2000. The Company for the 3rd quarter
ending August 31, 1999 had a net loss from operations of $798,643. The
Company had no revenue for the quarter ending June 30, 2000 and $25,655
for the 3rd quarter ending August 31, 1999.
Plan of operation
Loss on operations for the Company for the quarter ending June 30, 2000
increased 398% from the prior year for the same period. These losses
are attributed to the Company's continued research and development
associated with its HNet System, marketing and general expenses.
The Company will, over the next 12 months, rely on additional funding
through the sale of common stock. The Company had 26,655.00 revenues
in fiscal 1999.
Liquidity and Capital Resources
As of June 30, 2000, the Company had a negative working capital of
$1,325,010 consisting of $109,710 in current assets and $1,434,720 in
current liabilities. The Company had a negative working capital of
$1,875,864 at quarter ended August 31, 1999. The Company is dependent on
achieving profitable operations through the success of its subsidiaries
to continue as a going concern.
The Company had total assets of $183,738 as of June 30, 2000, and total
liabilities of $1,434,738. Shareholder deficit is $1,250,990, as
compared to a deficit of $1,438,639 fiscal 3rd quarter ended August 31,
1999. The Company issued 3,717,225 shares of common stock for cash and
services during the 3rd quarter ending June 30, 2000.
Cash Flows
The Company had a net loss for the 3rd quarter ending June 30, 2000 of
$3,111,742. The cash used in operations toward this loss was $854,903.
The largest area of loss was the result of non-cash transactions to the
Company. Services to the Company that were not paid with cash totaled
$2,468,493. The Company issued shares for $704,491 of stock restricted
under rule 144 and incurred $184,300 in debt to finance the operating
losses for the quarter ending June 30, 2000.
The Company's management plans for correcting these deficiencies include
the future sales of the licensed products and services. Working capital
to meet the Company's operating expenses will be raised through a
secondary offering of the Company's Common Stock expected to be filed
with the United States Securities & Exchange Commission this fiscal year.
The Company filing of a secondary offering of its common stock is for
the long term funding requirements of a large-scale deployment of the
HNet System. In the longer term, the Company plans to achieve
profitability through the subsidiaries operations; however there are no
assurances that profitability will be achieved. The Company has
experienced negative cash flow from operations since inception and
expects to continue to experience negative cash flow from operations for
the near term.
Effect of inflation
Inflation did not have any significant effect on the operations of the
Company during the quarter ended June 30, 2000. Further, inflation is
not expected to have any significant effect on future operations of the
Company.
The Financial Accounting Standards Board (FASB) Impact
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) issued by the FASB is effective
for financial statements with fiscal years beginning after December 15,
1997. Earlier adoption is permitted. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have an effect, if any, on its
financial position or its results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments Of An Enterprise And Related Information," (SFAS 131) issued by
the FASB is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is permitted.
SFAS No. 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in
which they operate and their major customers. The Company does not
expect adoption of SFAS No. 131 to have an effect on its financial
position or results of operations; however, additional disclosures may
be made relating to the above items.
PART II
Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Stock Subscriptions
In the 3rd Quarter 2000 the Company received $125,603.00 in Stock
Subscription Agreements for 477,960 shares of restricted common stock.
The stock was sold for average of $.26 per share, approximately 50% of
the market price at the time of the purchase, which management believes
are exempt from registration under 4(2) of the 1933 Securities Act.
Additionally, in the 4th quarter 2000 the Company received another
$107,500.00 in Stock Subscriptions.
Also in the 3rd quarter 2000 the Company's Board of Directors issued
192,756 shares of restricted common stock for $80,930.00 for services
and 33,913 shares of common stock pursuant to a previously filed S-8
Registration Statement for $22,299.00 in services performed by
consultants to the Company.
On May 22, 2000 the Company's Board of Directors issued 2,056,346
shares of restricted common stock for $489,972.00 in debt owed to the
Company's President and CEO, Robert A. Spigno. Mr. Spigno execercised
various vested options he had with the Company. He execercised options
in the following amounts and prices per share: 1 million shares
@ $.20/share; 500,000 shares @ $.15 per share; and 556,346 @ $.3864
per share. Mr. Spigno also purchased 20,000 shares of Class A Preferred
Stock pursuant to his vested option for $20,000.00 or $1.00 per share.
In June 2000 the Company issued 800,000 shares of restricted to retire
$200,000 in outstanding debt.
On July 31, 2000 the Company's Board of Directors issued 491,868 shares
of restricted stock to the Company's Officers for accrued compensation
through the 3rd quarter 2000 at price per share of $.31. Additionally,
17,877 shares of restricted stock was issued to a consultant for
$6000.00 in services.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
HNet 1st Generation Pilot
On February 15, 2000 the Company successfully launched its HNet Pilot in
Los Angeles, California. Although the initial pilot is small, it is a
working model showing the capabilities of the HNet System. The Company's
much-awaited deployment of the HNet Automatic Meter Reading (AMR) pilot
demonstrates HNet's technology which acquires real time data from an
electric meter, processes this data to show power usage and cost, and
can display this information via the Internet. Ultimately, the HNet
System will be capable of preparing bills and real-time power usage
summaries suitable for power purchasing.
Based upon HNet's initial pilot success in proving the HNet System as a
viable system of administration and reporting for the AMR market place,
the Company is expecting to release a larger and more substantial 2nd-
generation pilot by September 2000. Additionally, the Company has
engineered a portable HNet System that is capable of demonstrating the
HNet System anywhere in the country.
HNet System At Work
HNet is new technology developed to allow energy companies to have a
wireless network of intelligent power meters, each unit talking to each
other and passing date back and forth, allowing real-time power
consumption data and statistics to be generated. All this is done using
the internet along with technology designed by the Company. The Company
believes that HNet will save money all along the transmission line.
Energy Service Providers (ESP's)will save money by efficiently collecting
accurate load profiles and using this nearly real-time power usage data
to competitively bid for energy in the newly deregulated energy market.
Detailed information and charts, never before available, can be
easily generated and distributed to authorized readers. Using a
web browser, an Energy Service Provider can tell exactly how much power
a metropolitan area, a neighborhood, or even an individual house is
using since each individual HNet unit has a unique identifier. Customers
will have the ability to check their electric usage and billing rates in
real time through the e-commerce services of eEnergyServices.com, Inc.,
a wholly owned subsidiary of the Company.
The HNet System Vision
The HNet System will provide an energy or utility company with the
ability to provide its customers with information through the Internet.
The site could provide energy usage data that would show when energy is
used every 15 minutes of every day and the related costs to each of its
customers, allowing its customers to analyze, identify and capture cost
savings opportunities.
The HNet System offers both educational and sales opportunities for the
customer and energy companies. The purchasing power produced by accurate
historical and real time data facilitates efficient and cost saving
advanced power purchasing. The HNet System allows the monitoring of
energy levels of its customers. This will ensure that the utility knows
about any delivery problems including power outages and energy thefts.
Using the HNet System, the utility company can determine which of its
customers do not have electric power, without the aid of customers'
service phone calls, when a regional area suffers a heavy
storm. Service crews can be dispatched efficiently and electric service
restored. Using HNet, the utility company knows precisely when each
customers'service is restored and the exact duration of the outage.
Communications with the customers via the mass media could be
maintained throughout the outage through Internet messaging and Internet
web information, i.e. acknowledgment of the outage, providing estimated
restoration time, and confirming restoration.
HNet will not only enhance safety but also convenience, allowing energy
to be remotely connected and disconnected, with all billing transactions
completely automated. With the HNet System and Internet connections,
customers can request energy service on-line and discover that there are
alternatives for time-of-use rates with incentives for managing energy
consumption at different times and pre-pay rates that do not require
large deposits. Since HNet allows the customer information system to
link directly to the meter, orders initiated by the customer can be
automatically implemented. The HNet System is monitoring the customer's
meter constantly and meter reads are gathered and displayed i1n 15-minute
intervals, 24 hours a day/ 7 days a week/ 365 days a year.
Energy companies will be able to implement innovative sales offerings of
energy such as pre-pay status, and provide detailed customer usage and
pricing information, allowing customers to utilize the ability to
purchase additional energy via the Internet.
Energy prices are constantly changing, and energy purchasing and trading
is a critical function of energy companies. HNet will provide customers
and utilities with reliable and accurate energy usage records. Customers
could be offered special incentives to use energy at off-peak times
improving energy utilization and conservation during critical peak
periods.
The HNet System would allow the distribution of energy generation more
simply and inexpensively with energy usage and other vital information
flowing directly, precisely and electronically to all necessary parties
in the energy supply line. Energy purchasers can make precise forecasts
of purchasing, eliminating volatile wholesale energy prices. The HNet
System allows customers who are getting ready to terminate or switch
energy service providers to use the Internet to inform the current
energy company of the change. At a precise time, selected by the
customer, the HNet System reads the meter, passes the information to
the current energy provider's system to produce a final bill, and
disconnects the meter. The new meter data from that point forward is
automatically routed to the new energy provider. Billing delays and
settlement time lags are non-existent. A customer can pay the bills
electronically - all at a very low cost to the utility company. Low
transaction costs will speed the path towards an open, competitive
market.
The HNet System can provide lower energy costs; quicker transactions
with less paperwork and less potential for errors; increase asset
utilization; customer satisfaction is enhanced through choice and costs
savings, thus increasing customer loyalty.
HNet System Live
Interested parties can view the HNet System at work gathering real
time pilot meter readings at the Company's web site, eEnergyServices.com
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit 99.0 Financial Statement (Unaudited)
(b) During the Registrant's fiscal quarter ending June 30, 2000, the
registrant filed no current reports on Form 8-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned hereunto duly authorized.
CONECTISYS CORPORATION
Date: August 14, 2000 By /S/ Robert A. Spigno
Robert A. Spigno, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Robert A. Spigno Chairman of the Board, August 14, 2000
(Robert A. Spigno) Chief Executive Officer,
and President
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
June 30, 2000
Jun. 30, Aug. 31, Sep. 30,
2000 1999 1999
Unaudited Unaudited Audited
ASSETS
Current assets:
Cash and cash equivalents 109,710 18,176 27,004
Accounts receivable, net of
allowance for doubtful accounts
of $0 for 2000 and $0 for 1999 0 0 0
Other receivable 0 4,522 0
Total current assets 109,710 22,698 27,004
Property and equipment, net 64,028 107,068 95,072
Licenses and technology, net of
accumulated amortization of
of $411,478 for Jun. 30, 2000
and $91,321 for Aug. 31, 1999 10,000 330,157 40,000
Deposits 0 0 7,000
Total assets 183,738 459,923 169,076
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
June 30, 2000
Jun. 30, Aug. 31, Sep. 30,
2000 1999 1999
Unaudited Unaudited Audited
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and
current portion of
long-term debt
Related 0 0 210,500
Other 399,813 940,934 416,434
Accounts payable 204,400 304,473 262,341
Accrued compensation 602,400 529,292 887,383
Due to officer 0 0 133,195
Other current liabilities 228,115 123,863 194,225
Total current liabilities 1,434,728 1,898,562 2,104,078
Total liabilities 1,434,728 1,898,562 2,104,078
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized,
120,020 shares issued and
outstanding 140,020 80,500 120,020
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000
shares authorized, -0- shares
issued and outstanding 0 0 0
Stock options exercisable, convertible
preferred stock - Class B, stock
options issued and outstanding, common
stock - 4,663,500 and 3,600,000 stock
options issued and outstanding 1,363,610 0 250,000
Common stock, no par value;
250,000,000 shares authorized,
21,280,572 for Jun. 30, 2000 and
13,761,992 for Aug. 31, 1999 shares
issued and outstanding 14,961,846 12,560,397 12,299,702
Accumulated deficit (17,716,466) (14,079,536) (14,604,724)
Total shareholders' deficit (1,250,990) (1,438,639) (1,935,002)
Total liabilities and
shareholders' deficit 183,738 459,923 169,076
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended June 30, 2000, Aug. 31, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2000
Dec. 1, 1990
Nine Months (Inception)
Jun. 30, Aug. 31, Jun. 30,
2000 1999 2000
Unaudited Unaudited Unaudited
Net revenues 0 25,655 517,460
Cost of sales 134,875 96,603 554,200
Gross profit (loss) (134,875) (70,948) (36,740)
Operating expenses:
General and administrative 2,892,873 702,350 12,851,365
Bad debt write-offs 0 0 1,680,522
Loss from operations (3,027,748) (773,298) (14,568,627)
Non-operating income (expenses) (83,994) (25,345) (2,132,597)
Minority interest 0 0 62,500
Net loss (3,111,742) (798,643) (16,638,724)
Weighted average shares
outstanding -
basic and diluted 16,275,993 12,518,903
Net loss per share -
basic and diluted (0.19) (0.06)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through June 30, 2000
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Balance,
December 1, 1990
(re-entry
development stage) 0 0 10,609 1,042,140 (1,042,140) 0
Shares issued in exchange for:
Cash, Aug. 31, 1993 0 0 1,000 1,000 0 1,000
Capital contribution,
Aug. 31, 1993 0 0 2,000 515 0 515
Services, March 26, 1993 0 0 2,000 500 0 500
Services, March 26, 1993 0 0 1,200 600 0 600
Net loss for the year 0 0 0 0 (5,459) (5,459)
Balance,
November 30, 1993 0 0 16,809 1,044,755 (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1, 1994 0 0 2,400 3,000 0 3,000
Cash, September 1, 1994 0 0 17,771 23,655 0 23,655
Services, September 15, 1994 0 0 8,700 11,614 0 11,614
Cash, September 26, 1994 0 0 3,000 15,000 0 15,000
Cash, October 6, 1994 16,345(A) 16,345 0 0 0 16,345
Cash, September and October,
1994 0 0 1,320 33,000 0 33,000
Net loss for the year 0 0 0 0 (32,544) (32,544)
Balance,
November 30, 1994 16,345 16,345 50,000 1,131,024 (1,080,143) 67,226
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through June 30, 2000
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Cash, February 13, 1995 0 0 1,160 232,000 0 232,000
Debt repayment, February 13,
1995 0 0 2,040 408,000 0 408,000
Debt repayment, February 20,
1995 0 0 4,778 477,810 0 477,810
Acquisition of assets, CIPI
February, 1995 0 0 28,750 1,950,000 0 1,950,000
Acquisition of assets, April 5,
1995 0 0 15,000 0 0 0
Cash and services, April and
May 1995 0 0 16,000 800,000 0 800,000
Cash, June 1, 1995 0 0 500 30,000 0 30,000
Acquisition of assets and
services, September 26, 1995 0 0 4,000 200,000 0 200,000
Cash, September 28, 1995 0 0 41 3,000 0 3,000
Acquisition of assets,
September 1995 0 0 35,000 1,750,000 0 1,750,000
Return of assets, CIPI
September, 1995 0 0 (27,700) (1,950,000) 0 (1,950,000)
Net loss for the year 0 0 0 0 (2,293,867) (2,293,867)
Balance,
November 30, 1995 16,345 16,345 129,569 5,031,834 (3,374,010) 1,674,169
Shares issued in exchange for:
Cash, February, 1996 0 0 1,389 152,779 0 152,779
Debt repayment, February 1996 0 0 10,000 612,000 0 612,000
Services, February, 1996 0 0 3,160 205,892 0 205,892
Cash, March, 1996 0 0 179 25,000 0 25,000
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through June 30, 2000
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares returned and canceled,
March, 1996 0 0 0 (15,000) 0 0 $ 0
Services, April, 1996 0 0 13 2,069 0 2,069
Services, September, 1996 4,155(A) 4,155 586 36,317 0 40,472
Services, October, 1996 0 0 6,540 327,000 0 327,000
Debt repayment, November, 1996 0 0 2,350 64,330 0 64,330
Net loss for the year 0 0 0 0 (2,238,933) (2,238,933)
Balance,
November 30, 1996 20,500 20,500 138,786 6,457,221 (5,612,943) 864,778
Shares issued in exchange for:
Services, March, 1997 0 0 228 6,879 0 6,879
Services, April, 1997 0 0 800 13,120 0 13,120
Services, July, 1997 0 0 1,500 16,200 0 16,200
Cash, July, 1997 0 0 15,000 300,000 0 300,000
Services, August, 1997 0 0 5,958 56,000 0 56,000
Adjustment for partial shares due
to reverse stock split (1:20) 0 0 113 0 0 0
Services, October, 1997 0 0 1,469,666 587,865 0 587,865
Debt repayment, October, 1997 0 0 1,540,267 620,507 0 620,507
Cash, October, 1997 0 0 1,500,000 281,250 0 281,250
Services, November, 1997 0 0 4,950 10,538 0 10,538
Net loss for the year 0 0 0 0 (2,739,268) (2,739,268)
Balance,
November 30, 1997 0 20,500 4,677,268 8,349,580 (8,352,211) 17,869
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through June 30, 2000
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Services, December, 1997
through November, 1998 0 0 2,551,610 2,338,264 0 2,338,264
Debt repayment, April, 1998
through September, 1998 0 0 250,000 129,960 0 129,960
Cash, January, 1998 through
July, 1998 0 0 4,833,334 1,139,218 0 1,139,218
Acquisition of assets,
July, 1998 0 0 300,000 421,478 0 421,478
Acquisition of 20% minority
interest in subsidiary,
July, 1998 0 0 50,000 59,247 0 59,247
Services, November, 1998 60,000(A) 60,000 0 0 0 60,000
Net loss for the year 0 0 0 0 (4,928,682) (4,928,682)
Balance,
November 30, 1998 80,500 80,500 12,662,212 12,437,747 (13,280,893) (762,646)
Shares issued in exchange for:
Shares returned and canceled,
December, 1998 0 0 (1,350,000) (814,536) (814,536)
Services, December, 1998
through September, 1999 0 0 560,029 349,454 349,454
Cash, December, 1998
through September, 1999 0 0 1,155,800 129,537 129,537
Debt repayment, Sept., 1999 39,520(A) 39,520 960,321 197,500 237,020
Services, December, 1998
through September, 1999 150,000(B) 150,000(B) 0 0 150,000
Debt repayment, Sept., 1999 100,000(A) 100,000 0 0 100,000
Net loss for the period 0 0 0 0 (1,323,831) (1,323,831)
Balance,
September 30, 1999 370,020 $ 370,020 13,988,362 $12,299,702 $(14,604,724) $(1,935,002)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through June 30, 2000
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Services, October, 1999
through June, 2000 (B-Options) 1,113,610 3,272,782 1,368,458 2,482,068
Cash, October, 1999
through June, 2000 0 0 1,763,082 704,491 704,491
Debt repayment, October
1999 through June, 2000 20,000 20,000 2,256,346 589,195 609,195
Net loss for the period 0 0 0 0 (3,111,742) (3,111,742)
Balance,
June 30, 2000 390,020 $ 1,503,630 21,280,572 $14,961,846 $(17,716,466) $(1,250,990)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000, Aug. 31, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2000
Dec. 1, 1990
Nine Months (Inception)
Jun. 30, Aug. 31, Jun. 30,
2000 1999 2000
Unaudited Unaudited Unaudited
Cash flows from operating activities:
Net loss (3,111,742) (798,643) (16,638,724)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services 2,468,493 19,920 6,615,871
Stock issued for interest 13,575 0 549,166
Provision for bad debt
write-offs 0 0 1,422,401
Minority interest 0 0 (62,500)
Write-off of intangible
assets 0 0 1,299,861
Depreciation and
amortization 61,044 102,392 1,584,931
Settlements 0 0 (25,000)
Accounts receivable 0 0 (4,201)
Accrued interest
receivable 0 0 (95,700)
Deposits 7,000 0 0
Accounts payable (57,941) 29,046 204,400
Accrued compensation (284,983) 57,827 664,922
Due to officer 0 0 555,193
Other current liabilities 49,651 15,012 392,780
Net cash used in
operating activities (854,903) (574,446) (3,520,839)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000, Aug. 31, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2000
Dec. 1, 1990
Nine Months (Inception)
Jun. 30, Aug. 31, Jun. 30,
2000 1999 2000
Unaudited Unaudited Unaudited
Cash flows from investing
activities:
Issuance of
notes receivable 0 0 (1,322,500)
Costs of licenses
and technology 0 0 (94,058)
Purchase of equipment 0 (12,254) (136,175)
Net cash used in
investing activities 0 (12,254) (1,552,733)
Cash flows from financing
activities:
Common stock issuance 704,491 98,198 2,833,901
Preferred stock issuance 0 0 16,345
Proceeds from debt, other 177,000 0 1,847,691
Proceeds from debt, related 68,500 505,213 275,044
Proceeds from stock purchase 0 0 281,250
Payments on debt, other (12,382) (4,269) (38,292)
Payments on debt, related 0 0 (53,172)
Decrease in stock
subscription receivable 0 0 20,000
Contributed capital 0 0 515
Net cash provided by
financing activities 937,609 599,142 5,183,282
Net increase (decrease) in
cash and cash equivalents 82,706 12,442 109,710
Cash and cash equivalents
at beginning of period 27,004 5,734 0
Cash and cash equivalents
at end of period 109,710 18,176 109,710
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000, Aug. 31, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2000
Dec. 1, 1990
Nine Months (Inception)
Jun. 30, Aug. 31, Jun. 30,
2000 1999 2000
Unaudited Unaudited Unaudited
Supplemental disclosures of
cash flow information:
Cash paid for interest 25,245 92 185,577
Cash paid for income taxes 0 0 1,650
Non-cash financing activities:
Common stock issued
in exchange for:
Note receivable 0 0 281,250
Property and equipment 0 0 130,931
Licenses and technology 0 0 2,191,478
Repayment of debt and
interest 0 0 1,804,795
Services and interest 2,482,068 19,920 7,451,260
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Conectisys Corporation (the "Company") was incorporated under the laws of
Colorado on February 3, 1986, to analyze and invest in business opportunities
as they may occur.
TechniLink has developed the Cube 2001 series for the monitoring and
controlling of various devices in the petroleum and gas industry.
PrimeLink has developed a product line that uses cutting edge communications
to assist in the monitoring of meters for utility companies and the petroleum
industry. This technology, while eliminating the need for a meter reader, is
more significant in enabling the utility companies to utilize energy
conservation and, in the case of power companies, re-routing of electrical
power to areas where it is needed. The devices are also in use in vending
machines to monitor sales and functions of the vending machine without the
physical inspection usually needed.
Effective December 1, 1994, the Company agreed to acquire all of the
outstanding shares of Progressive Administrators, Inc. ("PAI") in exchange
for 300,000 shares of its no par value common stock. The transaction was to
be accounted for as a purchase transaction. The shares to be issued by the
Company were to be "restricted securities" within the meaning of Rule 144 of
the Securities Act of 1933, as amended. Accordingly, PAI would have been a
wholly-owned subsidiary of the Company as of December 1, 1994. PAI was
formed in the state of Colorado on September 14, 1994 and is engaged in the
records storage business.
Effective December 1, 1994, the Company also agreed to acquire all of the
outstanding shares of Creative Image Products, Inc. ("CIPI") in exchange for
575,000 shares of its no par value common stock. The shares were issued in
February of 1995. The shares issued by the Company were "restricted
securities" within the meaning of Rule 144 of the Securities Act of 1933, as
amended. Accordingly, CIPI was a wholly-owned subsidiary of the Company as
of December 1, 1994. CIPI was formed in the state of Kansas on April 29,
1994 and is engaged in the insecticide business and, through its wholly-owned
subsidiary, ADA Signature Distributors, Inc., the sign manufacturing
business. During 1995, the Company's only operations consisted of CIPI's
manufacturing of organic insecticides prior to its disposal. On September
28, 1995, the Company entered into an agreement to unwind the acquisition of
CIPI. CIPI issued a promissory note to the Company in the amount of
$1,302,500 to reimburse the Company for cash advances. In accordance with
the agreement, the shares issued to CIPI were exchanged for all shares issued
to the Company. The shares outstanding carry no value on the financial
statements. In 1997, the Company wrote-off this note receivable as it was
deemed uncollectible.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization (continued)
On February 15, 1996, PrimeLink entered into a Joint Marketing and
Development Agreement (the "Agreement") with SkyTel Corp. pursuant to which
PrimeLink agreed to customize and develop a paging technology based receiver
for use in connection with SkyTel's two-way wireless messaging services and
system (the "SkyTel Network") and both parties agreed to assist each other in
the marketing of the Primelink product and the SkyTel Network. The Company
believes that the joint marketing of its product with the SkyTel System could
have significant potential for the Company. However, the Agreement does not
require any purchases of the PrimeLink product by SkyTel, and may not
necessarily result in any significant revenues for the Company. The
Agreement is for a two-year term, and will automatically renew for additional
one-year terms until terminated by either party.
In September 1995, the Company acquired 80% of the outstanding stock of
TechniLink, Inc., a California corporation, and 80% of the outstanding stock
of PrimeLink, Inc., a Kansas corporation, in exchange for an aggregate of
200,000 shares of the Company's common stock. The acquisitions were
accounted for as purchases. Both PrimeLink and TechniLink are start-up
companies with no material operating activity and therefore no pro forma
statements of operations were provided.
The acquisitions of these companies occurred in connection with the signing
of the license agreements discussed in Note 8. The Company issued a total of
700,000 shares of common stock and assumed a loan of $400,000 to acquire the
licenses and the Corporations. The only major asset acquired from PrimeLink
and TechniLink was the license and technology. The stock issued was valued
at $1,750,000, the fair market value of common stock issued, and is included
in licenses and technology on the balance sheet.
On July 22, 1998, the Company acquired the remaining 20% interest in
TechniLink, Inc. for 50,000 shares of the Company's common stock valued at
$59,247.
The Company has filed corporate certificates of dissolution with the
California Secretary of State for its 80%-owned subsidiary PrimeLink, Inc.
and its wholly-owned subsidiary TechniLink, Inc. These will become effective
when valid tax clearance certificates have been issued by the Franchise Tax
Board. Upon dissolution, the assets of the dissolved subsidiaries will be
distributed to the parent corporation.
Basis of presentation and going concern uncertainty
The accompanying consolidated financial statements include the transactions
of Conectisys Corporation, its wholly-owned subsidiary TechniLink, Inc., and
its 80% owned subsidiary PrimeLink, Inc. All material intercompany
transactions and balances have been eliminated in the accompanying
consolidated financial statements. Certain prior period amounts in the
accompanying consolidated financial statements have been reclassified to
conform to the current period's presentation.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Basis of presentation and going concern uncertainty
(continued)
The Company returned to the development stage in accordance with SFAS No. 7
on December 1, 1990 and during the fiscal year ended November 30, 1995. The
Company has completed two mergers and is in the process of developing its
technology and product lines.
As of June 30, 2000, the Company had a deficiency in working capital of
approximately $1,310,000, and had incurred continual operating losses since
its return to the development stage ($1.8 million in 1996, $2.3 million in
1997, $4.2 million in 1998, $1.0 million in 1999 (ten months) and 3.1 million
for the nine months ended June 30, 2000), which raise substantial doubt about
the Company's ability to continue as a going concern.
Management's plans for correcting these deficiencies include the future sales
of their newly licensed products and to raise capital through the issuance of
common stock to assist in providing the Company with the liquidity necessary
to retire the outstanding debt and meet operating expenses (See Note 13(b)).
In the longer term, the Company plans to achieve profitability through the
operations of the subsidiaries. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of the recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Use of estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily 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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values for its financial instruments. The following summary presents a
description of the methodologies and assumptions used to determine such
amounts. Fair value estimates are made at a specific point in time and are
based on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties, matters
of judgment and, therefore, cannot be determined with precision. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
instrument. Changes in assumptions could significantly affect the estimates.
Since the fair value is estimated at June 30, 2000, the amounts that will
actually be realized or paid at settlement of the instruments could be
significantly different. The carrying amount of cash and cash equivalents is
assumed to be the fair value because of the liquidity of these instruments.
Accounts payable, accrued compensation, other current liabilities, and notes
payable approximate fair value because of the short maturity of these
instruments.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Cash and cash equivalents
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less. All
funds on deposit are with one financial institution.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on
property and equipment using the straight-line method over the expected
useful lives of the assets, which are generally five years for vehicles and
office equipment and seven years for furniture and fixtures.
Licensing agreements
The costs of acquiring license rights are capitalized and amortized over the
shorter of the estimated useful life of the license or the term of the
license agreement. The licenses are being amortized over a period of five
years. During the year ended November 30, 1998, the Company acquired
additional license rights in the amount of $421,478 from TechniLink.
Although the license remains viable, the Company currently lacks the
resources to develop and market it. Accordingly, during the ten month period
ended September 30, 1999, the Company accelerated amortization on this asset
by writing it down to its net realizable value of $40,000, incurring a charge
of $283,133. The balance of the carrying value of older licenses and
deferred technology was written-off during the year ended November 30, 1998,
as a consequence of persistent competitive pressure. The expense incurred
was $632,257.
Technology
Deferred technology costs include capitalized product development and product
improvement costs incurred after achieving technological feasibility and are
amortized over a period of five years.
Impairment of long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from non-employees in exchange for
equity instruments. The Company adopted this accounting standard on January
1, 1996. SFAS No. 123 also encourages, but does not require, companies to
record compensation cost for stock-based employee compensation. The Company
has chosen to account for stock-based compensation utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation cost
for stock options is measured as the excess, if any, of the fair market price
of the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Also, in accordance with SFAS No. 123, the Company
has provided footnote disclosures with respect to stock-based employee
compensation. The cost of stock-based compensation is measured at the grant
date on the value of the award, and this cost is then recognized as
compensation expense over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair market value of the stock as determined by the model at
the grant date or other measurement date over the amount an employee must pay
to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in exchange for
goods or services are valued at the cost of the goods or services received or
at the market value of the shares issued, depending on the ability to
estimate the value of the goods or services received.
Income taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, which requires the Company to recognize deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based
on the difference between the financial statement carrying amounts and tax
basis of assets using the enacted rates in effect in the years in which the
differences are expected to reverse.
Net loss per common share - diluted
Net loss per common share - diluted is based on the weighted
average number of common and common equivalent shares outstanding for the
periods presented. Common equivalent shares representing the common shares
that would be issued on exercise of convertible securities and outstanding
stock options and warrants reduced by the number of shares which could be
purchased from the related exercise proceeds are not included since their
effect would be anti-dilutive.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
New accounting pronouncements
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," (SFAS No. 130) issued by the FASB is effective for financial
statements with fiscal years beginning after December 15, 1997. Earlier
adoption is permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company does not expect adoption of SFAS
No. 130 to have a material effect on its financial position or its results of
operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments of an Enterprise and Related Information," (SFAS No. 131) issued by
the FASB is effective for financial statements with fiscal years beginning
after December 15, 1997. Earlier application is permitted. SFAS No. 131
requires that public companies report certain information about operating
segments, products, services and geographical areas in which they operate and
their major customers. The Company does not expect adoption of SFAS No. 131
to have an effect on its financial position or results of operations;
however, additional disclosures may be made relating to the above items.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company leases office space from S.W. Carver Corporation, a company owned
by a major shareholder of the Company. The lease is for a period of twelve
months, renewable annually in April at the option of the lessee. Effective
April, 1998, the monthly rent was increased from $2,000 to $2,500. Lease
expense for the nine month period ended June 30, 2000 and the ten months
ended September 30, 1999 was $22,500 and $25,000, respectively.
NOTE 3. NOTES RECEIVABLE
A note receivable from CIPI of $1,302,500 was deemed to be uncollectible and
was written-off in the fiscal year ended November 30, 1997, resulting in a
bad debt expense of $446,625. The Company had previously provided a
cumulative allowance for doubtful accounts of $855,875 in fiscal 1996 and
1995. Interest receivable on this note was also written-off accordingly.
A promissory note was received on a stock purchase agreement for 1,500,000
shares in the amount of $281,250 during the year ended November 30, 1997. An
initial payment of $99,980 was received, leaving a balance of $181,270 at
year-end. The balance was collected in full during the year ended November
30, 1998.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 consisted of the following:
Office equipment $ 217,388
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 269,359
Accumulated depreciation (205,331)
-----------
Net book value $ 64,028
===========
NOTE 5. DUE TO OFFICER
During the ten month period ended September 30, 1999, the Company received
cash advances from its president totaling $555,193. At September 30,1999,
$197,500 of these advances was exchanged for the assumption of a promissory
note to S.W. Carver, due on demand (and in no event later than October 1,
2000) at an annual interest rate of 10%, and another $287,020 of these
advances was exchanged for equity. Also at September 30, 1999, $62,522 in
accrued compensation was transferred to the advance account, resulting in a
balance of $133,195. This balance was converted into a promissory note due
on demand (and in no event later than October 1, 2000) at an annual interest
rate of 10%. The Company received an additional $73,500 from the president.
On May 12, 2000, these debts along with $71,043 of accrued compensation were
exchanged for equity.
NOTE 6. NOTES PAYABLE
Notes payable at June 30, 2000 consisted of the following:
Note payable to Devon
Investment Advisors,
unsecured, due on demand,
interest payable at an
annual rate of 10% $ 241,824
Note payable to Black Dog
Ranch LLC, unsecured, due
on demand, interest payable
at an annual rate of 18% 82,989
Note payable to Deauville
Capital Partners, unsecured,
Due two years from date of
note with an option to convert
to common stock, interest
payable at an annual rate of 10% $ 75,000
---------
Total notes payable 399,813
Current portion (399,813)
---------
Long-term portion $ 0
=========
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 6. NOTES PAYABLE (continued)
The maturity of long-term debt at June 30, 2000 was as follows:
Year ended September 30,: 2000 $ 399,813
Thereafter 0
---------
Total notes payable $ 399,813
=========
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 50,000,000 shares of $1.00 par value
preferred stock, no liquidation preference. One million of the preferred
shares are designated as Class A preferred shares which have super voting
power wherein each share receives 100 votes and has anti-dilution rights.
One million of the preferred shares are designated as Class B preferred
shares which have conversion rights wherein each share may be converted into
ten shares of common stock.
In December, 1997, the Company issued 4,550 shares of its common stock in
exchange for legal services valued at $2,733.
In January, 1998, the Company issued 133,334 shares of its common stock to an
investor for $167,730.
In February, 1998, the Company entered into a stock purchase agreement with
two subsidiaries of BVI Corporation, resulting in the purchase of 4,000,000
shares of the Company's common stock at a subscription price of $.158625 per
share, with a total value of $634,500.
In April, June, and September, 1998, 500,000 shares of common stock were
issued to a creditor in exchange for debt of $129,960.
In April and June, 1998, 80,023 shares of the Company's common stock were
issued in exchange for consulting services valued at $132,254.
In July, 1998, 450,000 shares of the Company's common stock were issued to
three investors for cash in the aggregate of $336,988.
In July, 1998, the Company issued 300,000 shares of its common stock to the
minority interest shareholder of TechniLink, Inc. in exchange for the
acquisition of licensed technology valued at $421,478, and issued another
50,000 shares in exchange for the remaining 20% minority interest valued at
$59,247.
In July, 1998, 120,000 shares of the Company's common stock were issued to
four Company directors for director fees totaling $246,186.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In July, 1998, the Company issued 3,000 of its common shares in exchange for
consulting fees of $4,325.
In July, 1998, the Company issued another 425,000 shares of its common stock
to two consultants for services valued at $832,868.
In July, 1998, the Company issued 6,283 shares of its common stock in
exchange for printing services valued at $10,805.
In August, 1998, the Company issued 58,637 shares of its common stock for
consulting services totaling $91,147.
In September, 1998, the Company issued 1,410,000 shares of its common stock
for market consulting services totaling $880,967.
In October and November, 1998, the Company issued 444,117 shares of its
common stock in exchange for consulting services of $136,979.
In November, 1998, the Company issued 60,000 shares of its Class A $1.00 par
value preferred stock as officer compensation.
In December, 1998, the Company canceled 1,350,000 shares of its common stock
previously issued to a consultant and valued at $814,536, which were
contingent on the establishment of a $5,000,000 line of credit (never
achieved).
In December, 1998, the Company issued 750,000 shares of its common stock
valued at $50,000 to a consultant for services rendered.
In January and September, 1999, the Company issued a total of 152,548 shares
of its common stock for consultant services rendered of $45,360.
During the months March, 1999 through September, 1999, the Company issued a
total of 405,800 shares of its common stock valued at $79,537 in a private
placement.
In September, 1999, the Company issued 100,000 shares of its common stock for
consultant fees rendered of $84,644.
In September, 1999, the Company issued 960,321 shares of its common stock to
repay related party debt of $197,500.
In September, 1999, the Company issued a total of 47,481 shares of its common
stock valued at $15,957 as hiring bonuses for two employees.
In September, 1999, the Company issued 260,000 shares of its common stock to
its president as compensation for director fees of $203,493 and also issued
him 39,520 of its Class A $1.00 par value preferred stock to partially repay
debt.
In September, 1999, the Company issued options to purchase 500,000 shares
each (a total of 1,000,000) of its Class B convertible preferred stock at a
price of $5.00 per share in exchange for debt reduction of $50,000 each (a
total of $100,000) to a note holder and the Company's president.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In September, 1999, the Company issued options to purchase 600,000 shares of
the Company's common stock (500,000 options to its president and 100,000
options to an employee) valued at $150,000.
In October, 1999, the Company placed 221,200 shares of the Company stock for
sale for $49,920.
In November, 1999, the Company issued 100,000 shares of the Company's stock
valued at $50,000 for accounting services rendered.
In December, 1999, the Company issued 40,000 shares of the Company's stock
valued at $30,000 for accounting services rendered.
In December, 1999, the Company issued 815,000 shares of the Company's stock
valued at $334,177 for consulting services rendered.
In December, 1999, the Company issued 139,770 shares of the Company's stock
valued at $80,000 for bonuses owed to the Secretary of the Company
In December, 1999, the Company issued 279,539 shares of the Company's stock
valued at $160,000 for bonuses owed to the President of the Company.
In December, 1999, the Company issued 26,087 shares of the Company's stock
valued at $18,000 for advertising and promotional brochures.
In January, 2000, the Company cancelled 6,283 shares of the Company's stock
valued at $10,805 for advertising and promotional brochures.
In February, 2000, the Company issued 412,000 shares of the Company's stock
valued at $103,000 for consulting and accrued salary.
In February, 2000, the Company issued 100,000 shares of the Company's stock
valued at $53,767 for consulting services.
In February, 2000, the Company sold 250,000 shares of the Company's stock for
$125,000 in cash.
In February, 2000, the Company issued 100,000 shares of the Company's stock
valued at $89,747 for accrued salaries owed to the ex-Chief Financial
Officer.
In March, 2000, the Company sold 637,672 shares of the Company's stock for
$284,041 in cash.
In March, 2000, the Company issued 420,000 shares of the Company's stock
valued at $534,895 for consulting services.
In March, 2000, the Company issued 20,000 shares of the Company's stock
valued at $16,000 for legal services.
In April, 2000, the Company issued 45,356 shares of the Company's stock
valued at $31,250 for consulting services.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In April, 2000, the Company issued 53,650 shares of the Company's stock
valued at $19,680 for consulting services.
In April, 2000, the Company issued 33,913 shares of the Company's stock
valued at $22,299 for consulting services.
In May, 2000, the Company issued 250,000 shares of the Company's stock valued
at $80,000; $50,000 for cash and $30,000 for consulting services.
In May, 2000, the Company issued 2,056,346 shares of the Company's stock
valued at $489,972 to the president of the Company to retired $404,195 in
debts outstanding, $13,575 in accrued interest and $72,202 in compensation.
These shares were issued against options outstanding to the president of the
Company.
Throughout the three months ended June 2000, the Company issued 477,960
shares of the Company stock for $125,603 in cash.
In June, 2000, the Company issued 800,000 shares of the Company's stock to
retire $200,000 of debt outstanding.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 8. INCOME TAXES
Deferred income taxes consisted of the following at June 30, 2000:
Deferred tax asset, benefit
of net operating loss
carryforward $ 5,500,000
Deferred tax liability -
Valuation allowance (5,500,000)
-----------
Net deferred taxes $ -
===========
The valuation allowance offsets the net deferred tax asset, since it is more
likely than not that it would not be recovered.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into six employment agreements with key Individuals,
the terms of the agreements are as follows:
1) The President and CEO of PrimeLink entered into an agreement dated
September 15, 1995 for a period of three years. This agreement, along
with his royalty agreement, were mutually terminated. The separation
agreement, as of October 31, 1997, called for a settlement of $12,000
to be paid $1,000 monthly for the following twelve months. As of June
30, 2000, $4,000 remained unpaid.
2) The President and CEO of TechniLink entered into an agreement dated
September 15, 1995 for a period of three years. He is entitled to
receive a base salary of $90,000 per year and an annual bonus equal to
15% of the net profits before taxes earned by TechniLink, Inc. He is
also granted an option to purchase up to 250,000 shares of the
Company's restricted common stock at a price equal to 50% of the
average market value of the stock on the date of purchase. In
December, 1998, he resigned from the Company.
3) The President and CEO of the Company entered into an agreement dated
October 2, 1995 (which was amended September 1, 1997 and September 1,
1999) for a period of five years, and he is entitled to receive a base
salary of $160,000 per year. The employee shall further receive a
bonus, paid at year-end, equal to 50% of the employee's salary, for
continued employment. The staying bonus will be compensated for with
the Company's restricted common stock. He is also granted an option to
purchase up to 500,000 shares of the Company's restricted common stock
at a price equal to 50% of the average market value at the date of
purchase.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 9. COMMITMENTS AND CONTINGENCIES
Employment agreements (continued)
4) The Chief Financial Officer of the Company entered into an agreement
dated October 2, 1995 (which was amended September 1, 1997) for a
period of three years, and he is entitled to receive a base salary of
$80,000 per year and an annual bonus of 2% of the Company's pretax
income. The employee shall further receive a bonus, paid at year-end,
equal to 50% of the employee's salary, for continued employment. The
staying bonus shall be compensated for with the Company's restricted
common stock. He is also granted an option to purchase up to 500,000
shares of the Company's restricted common stock at a price equal to 50%
of the average market value at the date of purchase. Effective
February, 1999, he resigned from the Company.
5) The Secretary and Treasurer of the Company entered into an Agreement
dated October 2, 1995 (which was amended September 1, 1997 and
September 1, 1999) for a period of three years, and she is entitled to
receive a base salary of $80,000 per year. The employee shall further
receive a bonus, paid at year-end, equal to 50% of the employee's
salary, for continued employment. The staying bonus shall be
compensated for with the Company's restricted common stock. She is
also granted an option to purchase up to 500,000 shares of the
Company's restricted common stock at a price equal to 50% of the
average market value at the date of purchase.
6) The Chief Technical Officer of the Company entered into an Agreement
dated August 1, 1998 for an initial term of three years, and he is
entitled to receive a base salary of $150,000 per year, with a minimum
of $90,000 to be paid annually in cash and the balance paid (at the
option of the Company) in cash or restricted common stock under rule
144. The employee shall receive a hire-on bonus of $75,000 worth of
the Company's restricted common stock under rule 144, at one-half
market price. The employee shall further receive performance bonuses
(paid in restricted common stock, as above) upon successful completion
of specific milestones pertaining to the implementation and deployment
of certain software (up to $862,500). If substantially all performance
milestones are met, he is also granted an option to purchase up to
500,000 shares of the Company's restricted common stock at a price
equal to 60% of the average market value at the date of purchase.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
License agreements
The Company has entered into license agreements with the Presidents of both
PrimeLink and TechniLink. The license agreements were entered into on
September 20, 1995, in connection with the acquisition of PrimeLink and
TechniLink (see Note 1 above), and are for a period of five years. As
consideration for these license agreements, the Company issued each licensee
250,000 shares of its restricted common stock and will pay each licensee a
royalty of 5% of net sales of the applicable product. In addition, in the
event of the sale or merger of TechniLink or PrimeLink, a royalty sum of 20%
of the sales price of the license shall be paid to the licensee; the sales
price shall not be less than $1,500,000. The licenses were valued at the
fair market value of the stock issued to obtain the licenses. In 1997, there
was a separation agreement between the President of PrimeLink and the
Company, whereby the President of PrimeLink agreed to forfeit royalty rights
for a $12,000 settlement.
Litigation
There have been three recent legal proceedings in which the Company has been
a party:
The first case, Securities and Exchange Commission (the "Plaintiff") vs.
Andrew S. Pitt, Conectisys Corp., Devon Investments Advisors, Inc., B&M
Capital Corp., Mike Aaman, and Smith Benton & Hughes, Inc. (Defendants) Civil
Case # 96-4164. The case alleges that a fraudulent scheme was orchestrated
and directed by the defendants to engage in the sale and distribution of
unregistered shares of Conectisys by creating the appearance of an active
trading market for the stock of Conectisys and artificially inflating the
price of its shares. In the suit, the SEC sought permanent injunctions from
violating securities laws. The SEC did not seek any civil penalties from the
Company. The courts, having conducted a trial of this matter without jury
and taken it under submission, found for the plaintiff as follows: against
Conectisys on the claim that the defendant violated section 5(a), 5(c), and
17(a). Conectisys was not found to have violated section 10(b), 10(b-5), or
15(c). The Company was subsequently ordered to disgorge profits totaling
$175,000. On March 5, 1999, the Company entered into an Amended Final
Judgment of Permanent Injunctive Relief with the Securities and Exchange
Commission ("SEC"). The Company and the SEC agreed on a settlement in which
the Company would dismiss its then pending appeal and take a permanent
injunction that it would not in the future violate sections 5(a), 5(c),
17(a), 10(b), 10(b-5), or 15(c); in return the SEC would not demand the
previously ordered disgorgement of $175,000.
The second case was brought by Clamar Capital Corp. (the "Plaintiff") against
Smith Benton & Hughes; Michael Zaman; Claudia Zaman; Andrew Pitt and
Conectisys Corp. (collectively the "Defendants"). The case was brought
before the District Court of Arapahoe, State of Colorado, Case # 97-CV-1442,
Division 3. The Plaintiff did not specify an amount of damages that it
sought from the Defendants. On March 26, 1999, the District Court of
Arapahoe, State of Colorado, dismissed the civil case against Conectisys
Corp. brought by Clamar Capital Corp.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Litigation (continued)
The third case was brought by Southern Arizona Graphic Associates, Inc. (the
"Plaintiff") against Conectisys Corporation (the "Defendant"). The case was
brought before the Superior Court of the State of Arizona, County of Pima,
Case # 333852. The claim was for goods, printing services, and funds
advanced by the Plaintiff. On December 8, 1999, the Company's Board of
Directors approved the issuance of 26,087 shares of the Company's common
stock valued at $18,000 in full settlement of the defendant's claim. The
matter was subsequently dismissed with prejudice.
NOTE 10. MAJOR CUSTOMERS
The Company, as a development stage enterprise, had no revenue during the
nine months ended June 30, 2000. The Company had limited revenues during the
ten months ended September 30, 1999.
NOTE 11. STOCK OPTIONS
During the ten months ended September 30, 1999, the Company issued to a note
holder options to purchase 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share. As consideration, the Company
reduced the debt by $50,000 and received an extension of time to pay-off its
promissory note. The Company also issued to its president options to
purchase another 500,000 shares of the Company's Class B preferred stock at
an exercise price of $5.00 per share in exchange for a reduction in debt of
$50,000. Total consideration received on the above issued options, as
evidenced by debt reduction, was $100,000. These options can be exercised
between November 1, 1999 and November 1, 2002.
The Company's president currently owns 140,020 of the Company's Class A
Preferred Stock, and has options to purchase another 29,980 shares for $1.00
per share through June 16, 2001.
The Company accounts for stock-based compensation under the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25. Had
compensation cost for stock options granted during the nine months ended June
30, 2000 been determined based on the fair value at the grant dates
consistent with the method of FASB Statement No. 123 (utilizing the Black-
Scholes model), the Company's net loss would have increased by $214,130,
attributable to 563,500 common stock options issued to a consultant at an
exercise price of $2.00 per share, exercisable over an approximate three year
period. The pro forma effect on the net loss for the nine months ended June
30, 2000 is indicated below:
As Reported Pro Forma
----------- -----------
Net loss $(3,111,742) $(3,325,872)
Net loss per share -
basic and diluted $(.19) $(.20)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 11. STOCK OPTIONS (continued)
During the ten month period ended September 30, 1999, 500,000 common stock
options were issued to the Company's president and another 100,000 common
stock options were issued to an employee. These options were valued at
$150,000 in aggregate. No pro forma information required by SFAS No. 123 is
included, as the disclosure would not be materially different from the
amounts and disclosures already presented. On March 27, 2000, the Company
fixed the exercise prices of 2,600,000 common stock options previously issued
at (higher) floating exercise prices to the Company's president, the
Company's secretary, and the employee, resulting in an additional
compensation cost of approximately $1,113,610. The value of the total common
stock options exercisable thereby increased to $1,263,610.
The Company has granted various common stock options and warrants to
employees; the options and warrants were granted at approximately the fair
market value at the date of grant (except as noted above) and vested
immediately. The common stock option activity during the nine months ended
June 30, 2000 and the ten months ended September 30, 1999 was as follows:
Common Stock
Options Weighted
and Average
Warrants Price
--------- --------
Balance outstanding,
December 1, 1998 3,000,000 $ .37
Granted 600,000 $ 0.54
--------- --------
Balance outstanding,
September 30, 1999 3,600,000 $ 0.40
Granted 1,313,500 $ 1.01
Exercised 2,306,346 0.50
--------- --------
Balance outstanding,
March 31, 2000 (unaudited) 2,607,154 $ 0.47
========= ========
(1) Due to floating strike prices, weighted average price upon issuance
is $0.57, upon exercise is $0.47.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE 11. STOCK OPTIONS (continued)
The following table summarizes information about common stock options at June
30, 2000:
Outstanding Exercisable
Weighted Weighted Weighted
Range of Common Average Average Common Average
Exercise Stock Life Exercise Stock Exercise
Prices Options (Months) Price Options Price
------------- --------- ------- ------- --------- -------
$ .38 - $ .38 100,000 53 $ .38* 100,000 $ .38*
$ .39 - $ .39 1,443,654 41 $ .39* 1,443,654 $ .39*
$ .38 - $ .38 500,000 66 $ .38* 500,000 $ .38*
$2.00 - $2.00 563,500 32 $ 2.00 563,500 $ 2.00
$ .15 - $2.00 2,607,154 44 $ .73 2,607,154 $ .73
========= == ======= ========= =======
* Formerly a floating exercise price
** Reflects May 22, 2000 exercise
NOTE 12. FORM S-8 FILING
In December 1999, the Company filed a Form S-8 registration statement for the
Conectisys Corporation Non-Qualified Stock and Stock Bonus Plan (the "Plan").
The purpose of the Plan is to compensate independent consultants of the
Company through the granting of non-qualified stock options (as described in
Sections 83 and 421 of the Internal Revenue Code). Shares of stock covered
by stock options and stock bonuses consist of 1,000,000 shares of the common
stock of the Company. The entire registration has been filled. 750,000
shares were issued to consultants for services rendered or to be rendered,
including 33,913 issued as a retainer subsequent to March 31, 2000; 250,000
shares were issued at $0.50 per share pursuant to a Performance Award Option
to a consultant. The entire 250,000 share option was exercised during the
quarter ended March 31, 2000, resulting in a $125,000 cash inflow to the
Company.
