U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the year ended September 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
Incorporation or Organization) Identification No.)
24370 Avenue Tibbitts, Suite 130
Valencia, California 91355
(Address of principal of Executive Offices) (Zip Code)
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B Contained herein, and disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-KSB. [X]
State Issuer's revenues for it's most recent fiscal year: $0
The aggregate number of shares of the voting stock held by non-affiliates
on January 12, 2001 was 18,606,465. The market value of these shares,
computed by reference to the market closing price on December 31, 2000
was $1,767,614. For the purpose of the foregoing calculation only, all
directors and executive officers of the registrant have been deemed
affiliates. The number of shares outstanding of issuer's classes of
equities as of January 12, 2001 was 23,996,938.
PART I
Item 1. Description of Business
General
The Company was incorporated under the laws of Colorado on February
3, 1986, to analyze and invest in business opportunities as they may
occur.
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 10,000 shares of the Company's common stock. Both
Primelink and Technilink were start-up companies with no material
operating activity.
The acquisitions of these companies occurred in connection with the
signing of the license agreements. The Company issued a total of 35,000
shares of common stock and assumed a loan of $400,000 to acquire the
licenses and the corporations. The only major assets acquired from
Primelink and Technilink were the license and technology. The stock
issued was valued at $1,750,000, the fair market value of common stock
issued.
On July 15, 1998 United Telemetry Company, Inc. was incorporated in
the State of Nevada as a wholly owned subsidiary of the Company.
On July 22, 1998, the Company acquired the remaining 20% interest
in Technilink, Inc.
The Company originally was the parent company of three subsidiaries
and a division. The lone division was eEnergyServices.com. In March 2000
the Company consolidated Primelink and United Telemetry Co. with all
operations being conducted under United Telemetry Co. On January 15,
2000, the Company incorporated eEnergyServices.com and consolidated the
operations of Technilink into eEnergyServices.com., Inc. The Company
believes these consolidations streamlined operations and allow for
further delineation of its intra-company operational tasks and better
public understanding of the Company. On March 31, 2000 the Company
elected to wind-up and dissolve the corporate operations of Primelink and
Technilink with all assets transferred to ConectiSys.
Conectisys Corporation Business
ConectiSys is a developmental company in the business of
telecommunications with an emphasis on the development and deployment of
products and services to satisfy energy conservation and deregulation
legislation that is sweeping the country. This legislation has created
new deregulated Energy Service Provider (ESP) markets, and with it higher
prices for electric energy in the short run, thus driving the need for
increased conservation. Since 1995, ConectiSys has been developing
technology that it believes to be a leader in the research and
development within both Residential and Commercial wireless Automatic
Meter Reading (AMR) markets that is an essential part of both energy
conservation and deregulation.
ConectiSys has developed a new commercial wireless network, which it
calls H-Net. (H-Net is a trademark of ConectiSys Corporation). H-Net is a
two-way communication network that is a low cost method to read electric
meters. Along with H-Net, the Company will offer a full array of energy
services to the utility industry, including data archiving which will
allow end-users the ability to view real-time data, thus giving them the
ability to instantly evaluate and provide cost savings, all via the
Internet. The Company's technologically advanced H-Net System will bring
an effective, low-cost total (turn-key) solution to the AMR market.
ConectiSys' Network Operating Center (NOC) is a state of the art computer
network. Each NOC has been designed to support the reading of one million
wireless meter-reading devices, four times an hour, twenty-four hours a
day. The NOC will provide access to the energy providers via the
Internet, of real time energy usage from remote locations anywhere in the
world. Additionally, the Company will provide the most modern accounting
and educational services available to consumers of energy. This H-Net
System should enable ConectiSys to be the leading nationwide provider of
telecommunication networks to the utility industry. The Company is
specifically targeting the Automatic Meter Reading industry.
ConectiSys' subsidiary, United Telemetry Co., Inc. (UTC), markets and
sells the hardware used in the actual automated meter reading H-Net
System. ConectiSys' other subsidiary, eEnergyServices.com, Inc., is the
information gathering and sorting end of the Company, providing the
information collected by the AMR H-Net System and displaying the results
through the Internet.
The restructuring of the utility market in the United States has provided
the impetus for developing low-cost AMR solutions. The mandates require
reading meters much more frequently than the current practice of once a
month, thus making the manual meter reading techniques currently in use
cost prohibitive. Direct use of the existing infrastructure via modems or
pagers costs substantially more than customers are currently paying for
meter reading, making it inefficient and an unacceptable alternative.
Hence, the need for a new technology which can simultaneously meet
performance and price requirements of this market.
The H-Net System is telemetry designed specifically for the AMR market.
It features low deployment and operating costs due to its towerless plug-
and-play architecture, while providing meter readings every fifteen
minutes. Considering that this corresponds to 96 reads per day or almost
3000 reads per month, even at a cost of one cent per read would lead to
an unacceptable monthly surcharge of thirty ($30.00) dollars per month.
Traditional SCADA systems cost much more than one cent per read and are
therefore also clearly unacceptable. In comparison, manual monthly meter
reads costs about one ($1.00) per month. The H-Net System is designed to
meet the low cost of the traditional system while providing the high
performance required by modern AMR.
The utility industry in California is in disarray; energy prices are
extremely high and deficits are growing. The utility industry is
desperately preparing to comply with the mandates set by energy
deregulation by requesting emergency price increases from the State of
California. California has responded by preparing plans to increase
production of energy within the state and increase the conservation of
electricity, specifically that of residential users, in the future. The
economic boom of the last eight years has created a tremendous increase
in demand for electric power in California and throughout the country
dictating that usually abundant surpluses of electric power are no longer
available to states like California. Local utility companies have been
searching for AMR products to meet the requirements of conservation and
deregulation, both of which require that an electric meter be read at
least one (1) time each day with real time readings.
All products attempting to fill the AMR void are being evaluated against
traditional meter reading methods for cost, accuracy and reliability.
AMR telemetry and products have proven thus far too costly, which has
prevented any substantial deployment of any one AMR product solution. As
such there is no dominant AMR technology or equipment supplier in the
marketplace today. Less than 1/10 of one percent of all domestic
electric meters are connected to an AMR System.
The Company believes that the H-Net System wireless network, produced by
UTC and operated by eEnergyServices.com, provides an effective, low-cost,
total solution for the AMR market.
The Company's deployment of the first two generations of the H-Net System
Wireless Automatic Meter Reading technology were deployed and operational
in the first and third quarters of 2000 respectfully. These pilots
demonstrated the acquisition of real time data from the H-Net System, the
processing of this data to show power usage and cost, the preparation of
simulated bills and real-time power usage summaries suitable for power
purchasing. The Company expects its third generation pilot and beta
testing (third party testing) to begin in the first and second quarters
of 2001.
Proprietary Information
The Company relies on proprietary knowledge and employs various methods
to protect its trade secrets, concepts, ideas and designs. The Company
has filed for patent protection on the H-Net product line. However, such
methods may not afford complete protection, and there can be no assurance
that others will not independently develop such processes, concepts,
ideas and designs. The Company, through its subsidiaries, manufactures
and markets its technology. However, such technology is not presently
patented in the United States, and although the Company has undertaken to
file one or more applications for U.S. patents pertaining to the
technology, there can be no assurance that patents will ultimately be
issued. Further, the possibility exists that the technology may be
deemed to infringe upon other technology, which is already patented, or
subject to an application filed prior to the Company's application when
filed. In that event, the Company could be subject to liability for
damages for infringement and could be required to cease production of
equipment until appropriate licensing arrangements are made. The Company
could also be subject to competition from the party deemed to be the
owner of the patent pertaining to the technology.
Employees
As of January 12, 2001, the Company and its subsidiaries employed six
full time employees, of whom four are officers of Conectisys.
Item 2. Description of Property
The Company's principal operation center is located at 24370 Avenue
Tibbitts, Suit 130, Valencia, California 91355. This 1000 sq. ft. space
is leased for $1,244.50 per month.
Additional office space was located at 7260 Spigno Place, Agua Dulce,
California 91350. This space was leased from a related party. The lease
is for executive office space (1090 Square feet) and office equipment.
The lease payment is $2,500 per month. This office space lease was
terminated in September 2000.
With expansion of the H-Net Wireless Network it will be necessary to
lease additional office space in the future.
Item 3. Legal Proceedings
On December 13, 1999 the Company and Southern Arizona Graphic Associates,
Inc. ("Arizona Lithographers") settled a civil lawsuit filed on June 28,
1999 in the Pima County, Arizona. The Company issued Arizona
Lithographers 26,087 shares in exchange for certain photographic rights
and reprints. The case was dismissed with prejudice on December 15, 1999.
On March 26, 1999, a civil case, brought by Clamar Capital Corp., was
dismissed by District Court of Arapahoe, State of Colorado against
Conectisys Corp.
On March 5, 1999 the Company entered into an Amended Final Judgment of
Permanent Injunctive Relief with the Securities and Exchange Commission
("SEC") in Securities and Exchange Commission v. Conectisys Corp. et al.,
Civil Case number 96-4146 (MRP). 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 the company would not in the future
violate sections 5(a), 5(c), 17(a) d, 10(b), 10(b-5), or 15(c); in return
the SEC would not demand the previously ordered disgorgement of
$175,000.00.
Item 4. Submission of Matters to a Vote of Security Holders
An annual stockholders meeting was held on March 15, 2000. Record holders
of the Common stock as of February 14, 2000 (the "Record Date") were
entitled to vote at the Meeting. As of the Record date, there were
15,609,888 shares of Common Stock issued and outstanding. Holders of the
Common Stock on the Record Date were entitled to one vote for each share
held as of the Record Date. The nominees for the Board of Directors were
Robert Spigno, Lawrence Muirhead and Melissa Weger. The nominees received
74.7% of the possible votes and were retained as the current Board of
Directors until the next annual meeting of shareholders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company is authorized to issue 250,000,000 shares of no par value
Common Stock. As of the date of this Offering the Company had 24,046,938
shares of Common Stock issued.
ConectiSys Corporation's holders of Common Stock are each entitled to
cast one vote for each Share held of record on all matters presented to
shareholders. Cumulative voting is not allowed; hence, the holders of a
majority of the outstanding Common Stock can elect all directors. There
are however 140,020 shares of Class A Preferred Stock, $1.00 par value,
outstanding and up to One (1) million shares are authorized that can be
issued with super voting rights of 100 to 1 (100 votes for each share of
Class A Preferred Stock).
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available
therefore and, in the event of liquidation, to share pro rata in any
distribution of the Company's assets after payment of liabilities. The
Board of Directors in not obligated to declare a dividend and it is not
anticipated that dividends will be paid until the Company is in profit.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion,
redemptions, sinking fund or similar provisions regarding the Common
Stock. All of the outstanding Shares of Common Stock are fully paid and
non-assessable and all of the Shares of Common Stock offered thereby will
be, upon issuance, fully paid and non-assessable.
Holders of Shares of Common Stock will have full rights to vote on all
matters brought before shareholders for their approval. The holders of
Common Stock will have no conversion, preemptive or other subscription
rights. The Shares of Common Stock outstanding at the Closing will be
validly issued, fully paid, and non-assessable.
As of November 1, 2000, there were over 2500 shareholders of record of
the Company's common stock.
Price Range Of Common Stock
The Company's Common Stock is listed on the NASDAQ electronic bulletin
board under the symbol "CNES". The following table sets forth the range
of high and low sales prices for the Common Stock as reported by the
NASDAQ electronic bulletin board for each quarter since 1999 (calendar
years):
Year Quarter Close High Low
1999 First 0.644 0.712 0.589
Second 0.434 0.455 0.406
Third 0.782 0.833 0.743
Fourth 0.688 0.748 0.631
2000 First 1.700 1.850 1.619
Second 0.746 1.110 0.468
Third 0.579 0.624 0.546
Fourth 0.219 0.251 0.199
The Preferred Stock
The Company's Board of Directors is currently authorized to issue
50,000,000 shares of Preferred Stock; the Board of Directors has
authorized the issuance of 1,000,000 shares of Class A Preferred Stock
with 100 to 1 voting rights. At the present time there is 140,020 shares
of Class A Preferred Stock issued and outstanding, all of which is owned
by the CEO and President of the Company, Robert A. Spigno.
Further the Board of Directors has authorized the issuance of 1,000,000
shares of Class B Preferred Stock, which is convertible at any time at
the rate of 10 shares of Common Stock for each share of Class B Preferred
Stock. Such Preferred Stock may have the effect of delaying or preventing
a change in control of the Company without further shareholder action and
may adversely affect the rights and powers, including voting rights, of
the holders of Common Stock.
Voting Rights
Holders of the Company's Common Stock are entitled to one vote per share
for each Common Share held of record by Company shareholders. Class A
Preferred stockholders are entitled to 100 votes per Share for each share
of Class A Preferred Stock.
Dividend Policy
The Company does not currently intend to declare or pay any dividends on
its Common Stock, except to the extent that such payment is consistent
with the Company's overall financial condition and plans for growth. As
the Company obtains the projected profits, substantial dividends may be
delivered to the shareholders of record. Any future determination to
declare and pay dividends will be at the discretion of the Company's
Board of Directors and will be dependent on the Company's financial
condition, results of operations, cash requirements, plans for expansion,
legal limitations, contractual restrictions and other factors deemed
relevant by the Board of Directors.
Stock Issuances
In October 1999, the Company re-acquired and canceled 17,500 common
shares from the former president of PrimeLink, in return for a $12,000
consulting agreement.
During the months October, 1999 through March, 2000, the Company issued a
total of 241,200 shares of its common stock valued at $52,919 in a
private placement, which management believes are exempt from registration
under 4(2) of the 1933 Securities Act. In conjunction with this issuance
and the March through September, 1999 issuance noted above, certain
shareholders received warrants to purchase 506,500 shares of common stock
at $2.00 per share through November 1, 2001.
During the period October, 1999 through September, 2000, the Company
issued a total of 2,612,796 shares of its common stock to various
consultants for services rendered and to be rendered (retainer of
$128,611) totaling $1,051,932.
In November, 1999, the Company received cash of $66,927 to cover the
balance due on an old subscription for 300,000 shares of the Company's
common stock.
In November, 1999 through September, 2000, the Company issued 240,000
shares of its common stock to its outside accountant for services
rendered and to be rendered (retainer of $4,935) in the amount of
$130,000.
In December, 1999 and February, 2000, the Company issued 879,309 shares
of its common stock to current and former officers for accrued
compensation in the amount of $419,747.
In December, 1999, the Company issued an additional 19,804 shares of its
common stock valued at $7,195 (net of 6,283 canceled shares valued at
$10,805) in full settlement of a vendor dispute.
506 Private Placement Offering - On February 1, 2000 the Company began a
Private Placement Offering under Regulation D, Rule 506 in two (2) year,
and 10% interest bearing Convertible Notes. The Notes were convertible
to restricted common stock at a rate of 50% of the market price at the
date of conversion. These notes were only sold to accredited investors as
the term is defined in the private placement memorandum and rule 501(a)
of regulation D promulgated by the Securities and Exchange Commission
(SEC) under the 1933 act with a minimum investment OF $25,000.00. The
Private Placement Memorandum can be viewed in its entirety on the
Company's web site www.conectisys.net. The Company sold $195,000.00 in
Promissory Notes. $120,000.00 have been converted to the Company's
restricted common stock at the rate of $.598/share. Three (3) Promissory
Notes are still outstanding in the aggregate amount of $75,000.00. A Form
D was filed with the SEC as required by Regulation D of the 1933 Exchange
Act.
In February and March, 2000, a consultant exercised 250,000 common stock
options at $125,000 ($0.50 per share)
In March, 2000, the Company issued 20,000 shares of its common stock for
$16,000 in legal services.
In March, 2000, the Company issued 500,672 shares of its common stock in
subscriptions and private placements totaling $195,000, which management
believes are exempt from registration under 4(2) of the 1933 Securities
Act.
In March, 2000, the Company issued 135,000 shares of its common stock to
an officer for $89,042 in cash.
In March, 2000, the Company adjusted the exercise price on 2,600,000
common stock options previously issued to two officers and an employee,
resulting in an increase in compensation expense of $1,113,610.
In April, 2000 through September, 2000, the Company issued 1,019,800
shares of its common stock through cash subscriptions totaling $242,450,
which management believes are exempt from registration under 4(2) of the
1933 Securities Act, and for which $15,450 (representing 61,800 shares)
had not yet been collected as of September 30, 2000.
During April, 2000 through September, 2000, an additional 242,560 shares
of the Company's common stock were issued in a private placement totaling
$68,087, which management believes are exempt from registration under
4(2) of the 1933 Securities Act. In conjunction with these and previous
issuances, certain shareholders received warrants to purchase 446,305
shares of the Company's common stock at $2.00 per share through September
1, 2002.
In May, 2000, the Company's CEO exercised 2,056,346 common stock options
and 20,000 Class A Preferred stock options in exchange for debt and
accrued compensation aggregating $509,972. $407,735 was transferred from
stock options exercisable to common stock as a result of this
transaction.
In June, 2000, a note-holder converted $200,000 principal value of debt
into 800,000 shares of the Company's common stock (at $0.25 per share).
In August and September, 2000, three officers and an employee received
539,389 shares of the Company's common stock as payment for $229,693 of
accrued compensation.
In September, 2000, old liabilities of $108,020 were transferred to
shareholders' equity (deficit) in recognition of additional paid-in
capital.
In September, 2000, the Company issued 500,000 common stock options to a
consultant valued at $43,900 (representing a floating exercise price that
was 15% below the current market price of the Company's common stock).
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The Company realized a net loss from operations of $3,576,910 for the
fiscal year end September 30, 2000. The Company for the fiscal year end
1999 had a net loss from operations of $1,323,831. The Company had no
revenue for the fiscal year end September 30, 2000 and $25,655 for the
fiscal year 1999.
Plan of Operation
Loss on operations for the Company for the fiscal year end September 30,
2000 increased 270% from the prior year for the same period. These
losses are attributed to the Company's continued research and development
associated with its H-Net 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 intends to register an offering of
10,000,000 new common shares via Form SB-2 Registration Statement.
Liquidity and Capital Resources
As of fiscal year end September 30, 2000, the Company had a negative
working capital of $888,172 consisting of $192,234 in current assets and
$1,080,406 in current liabilities. The Company had a negative working
capital of $2,077,074 at fiscal year end 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 $285,538 as of the fiscal year end
September 30, 2000 and total liabilities of $1,155,406. Shareholder
deficit is $869,868 as compared to a deficit of $1,935,002 fiscal year
end 1999. The Company issued 9,539,376 shares of common stock for cash
and services during the fiscal year ending September 30, 2000.
Cash Flows
The Company had a net loss for the fiscal year ended September 30, 2000
of $3,756,910. The cash used in operations toward this loss was
$933,861. 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 $2,136,049. The Company issued shares for $823,975 of
stock restricted under rule 144 and incurred $182,000 in debt to finance
the operating losses for the fiscal year ended September 30, 2000.
Effect of Inflation
Inflation did not have any significant effect on the operations of the
Company during the fiscal year ending September 30, 2000. Further,
inflation is not expected to have any significant effect on future
operations of the Company.
Y2K Compliance
The Company experienced no adverse effects and could not identify any
system failures during the "Y2K" transition. The "Y2K" problem did not
pose any operational problems for the Company's computer systems.
However, the Company will continue to monitor the situation.
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.
Item 7. Financial Statements
Financial statements are audited and included herein beginning on
Exhibit, page 1 and are incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
MANAGEMENT
The officers and directors of the Company are as follows:
Name Age Position
Robert A. Spigno 45 Chairman of the Board of Directors
and Chief Executive Officer
Rodney W. Lighthipe 52 President
Lawrence Muirhead 40 Chief Technical Officer and Director
Patricia Spigno 42 Chief Financial Officer, Treasurer
and Secretary
Melissa Weger 24 Corporate Administrator and Director
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when such director's
successor is elected and qualifies. The next annual meeting of
stockholders is set for March 2001.
The following is a brief description of the business background of the
directors/key employees of the Company.
Robert A. Spigno,
Chairman of the Board of Directors and Chief Executive Officer
Robert A. Spigno, age 45, has been Chief Executive Officer, President and
Chairman of the Board of the Company since August 1995. Prior thereto,
Mr. Spigno received his general contractors license from the State of
California in 1978, and then ventured out to the home building industries
as a sole proprietor. In 1989, he formed a California corporation named
S.W. Carver Corporation, for which Mr. Spigno served as President and
Chairman of the Board since 1989. Mr. Spigno brings over 25 years of
experience in executive management and majority ownership of several
privately held companies. He has been instrumental from concept to
profitability in each of his companies, and offers ConectiSys the vision
needed for the years ahead.
Rodney W. Lighthipe, President
Mr. Lighthipe, age 52, is the newly appointed President of the Company.
Mr. Lighthipe was formerly the Power Contracts Manager from 1974-1980 for
Southern California Edison in which he opened new transmission paths
throughout the Western United States and Canada for the purchase and sale
of bulk electrical power. He was also Research Manager from 1980-1987 and
organized an International Consortium of Companies for the design,
construction and operation of the world's largest Coal Gasification
plant.
Mr. Lighthipe also served as the Director of Research from 1992-1996 for
San Diego Gas & Electric and was responsible for the development and
deployment of new technologies. Major projects included the installation
of photovoltaics in remote areas and the launch of a "smart card" project
employing residential telephone systems.
Mr. Lighthipe also acted as a Consulting Engineer in the energy and
telecommunications fields as well as serving two tours of duty in Vietnam
as a Lieutenant in the United States Navy.
Lawrence P. Muirhead,
Member of the Board of Directors and Chief Technology Officer
Mr. Muirhead, age 40, has been with the Company for over a year and
he combines his excellent record of academic achievement with 18 years of
engineering and research experience in the aerospace industry to help
lead the Company in new product development and deployment.
Melissa Weger,
Member of the Board of Directors and Corporate Administrator
Ms. Weger, age 24 was appointed as a Director in November 1999 and she
was elected as a Director by the shareholders on March 15, 2000. Ms.
Weger has been a great asset to the Company since her arrival in 1998.
Along with her public relations responsibilities, Ms. Weger manages the
daily office activities of the Company. Her efforts include the drafting
and publishing of the Company's press releases as well as responding to
inquires of the Company's shareholders.
Patricia A. Spigno,
Chief Financial Officer, Secretary and Treasurer
Ms. Spigno has been an officer of the Company since 1995. She has served
in the past as a Director until 1997. Ms. Spigno brings 22 years
experience in accounting and asset management. This multi-talented
individual adds professional stability and is the cornerstone of the
Company's corporate staff. Ms. Spigno is the former spouse of Robert A.
Spigno, the Company's CEO.
Committees of the Board of Directors
The Company has a Stock Option Committee, which currently is composed of
Robert A. Spigno, Lawrence Muirhead and Melissa Weger. The Committee
reviews all option grants under the Company's Non-Qualified Stock Option
and Stock Bonus Plan.
Item 10. Executive Compensation
Remuneration for services in all capacities rendered to the Company for
1998 through September 30, 2000 with anticipated fiscal year 2001
compensation to all directors and officers, and as a total group as
follows:
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus * Compensation Compensation
Robert A. Spigno, 2000 $160,000 $80,000 -0- -0-
CEO & Director 2001 $160,000 $80,000 -0- -0-
Rodney W. Lighthipe, 2000 $5,000 -0- -Stock- $25,000
President 2001 $120,000 -0- -Stock- $25,000
Patricia A. Spigno, 2000 $80,000 $40,000 -0- -0-
Secretary & Treasurer 2001 $80,000 $40,000 -0- -0-
Lawrence Muirhead, 2000 $150,000 -0- -0- -0-
CTO & Director 2001 $150,000 -0- -0- -0-
Melissa Weger, 2000 $36,400 -0- -0- -0-
Corp. Admin. & Director 2001 $36,400 -0- -0- -0-
All Executive Officers 2000 $431,400 $120,000 -0- -0-
and Directors as a group 2001 $546,400 $120,000 -0- -0-
* All bonuses paid in restricted common stock.
As of fiscal year 2000, the Directors of the Company do not receive
compensation for their services as directors but may be reimbursed for
their reasonable expenses for attending Board meetings.
The Company has plans for profit sharing, insurance, and stock option
plans for the benefit of its officers, directors or other employees for
fiscal year 2000, but has not yet adopted any such programs.
In November 1999, the Company established a Non-Qualified Stock Option
and Stock Bonus Plan for independent consultants to the Company. The Plan
authorized the issuance of up to one (1) million shares of common stock.
In furtherance of the Plan the Company filed an S-8 Registration
Statement in December 1999. 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. 600,000 shares were
issued to consultants under the Plan for past services rendered and
150,000 represented retainers on ongoing consulting contracts; 250,000
shares were issued at $.50 per share pursuant to a Performance Award
Option to a Consultant. The entire 250,000-share option was exercised
during the 2nd quarter ending March 31, 2000 resulting in $125,000.00 in
cash to the Company.
In September 2000, the Company amended its Non-Qualified Stock Option and
Stock Bonus Plan for independent consultants to the Company. The Amended
Plan authorized the issuance of up to one (1) million shares of common
stock. In furtherance of the Amended Plan the Company filed an S-8
Registration Statement in September 2000. The purpose of the Amended Plan
is to further 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. 100,000 shares were issued to consultants under the
Amended Plan for services and 500,000 shares represented retainers on
ongoing consulting contracts.
Employment Agreements
1. The CEO of the Company, Mr. Spigno, entered into an agreement
dated October 2, 1995 (which was amended September 1, 1997 and 1999, and
on March 27, 2000) for a period of five years through April 1, 2005, and
he is entitled to receive a base salary of $160,000 per year. He 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 2,000,000 shares of the Company's restricted
common stock at a price $.3864 per share.
2. The President of the Company, Mr. Lighthipe, entered into an
agreement dated September 11, 2000 for a period of six months through
March 11, 2001, and he is entitled to receive a base salary of $120,000
per year. Mr. Lighthipe was issued 100,000 shares of restricted common
stock as a hiring bonus. He shall further receive performance bonuses
(paid in restricted common stock) upon successful completion of specific
milestones pertaining to the implementation and deployment of the HNET
System. The incentive package could net Mr. Lighthipe up to 650,000
shares of restricted common stock. He is also granted an option to
purchase up to 100,000 shares of the Company's restricted common stock at
a price $.38 per share.
3. The Secretary and Treasurer of the Company, Ms. Spigno, entered into
an Agreement dated October 2, 1995 (which was amended September 1, 1997
and 1999, and on March 27, 2000) for a period of five years through April
1, 2005, and she is entitled to receive a base salary of $80,000 per
year. She 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 of $.38 per share.
4. The Chief Technical Officer of the Company, Mr. Muirhead,
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. He 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. Mr. Muirhead 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 for the prior 180 days of trading from
the date of purchase.
Item 11. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS
As of September 30, 2000, the Company had 23,527,738 outstanding shares
of common stock. Each common share entitles the holder to one vote on
any matter submitted to shareholders for approval. The Company has
authorized 1,000,000 shares of Class A Preferred Stock, $1.00 par value
per share, of which 140,020 shares currently are issued and outstanding.
Class A Preferred stock has 100 to 1 voting rights. Also authorized are
1,000,000 shares of Class B Preferred Stock, $1.00 par value per share.
Class B Preferred stock has conversion rights of 10 common stock shares
for each share Class B Preferred stock of which there is no stock
outstanding.
The following table sets forth information, as of the date hereof with
the respect to the beneficial ownership of shares of Common Stock by (i)
each person known by the Company to be owner of more than 5% of the
outstanding shares of Common Stock; (ii) each director and officer; and
(iii) all officers and directors as a group. Additionally, the table sets
forth the issued and outstanding shares of Class A Preferred Stock.
Number of Percentage of
Common Stock Shares Common Stock
NONE
Security Ownership of Management
Robert A. Spigno* 2,698,701 11.4%
Rodney W. Lighthipe* 100,000 0.4%
Patricia A. Spigno * 1,470,838 6.3%
Lawrence P. Muirhead* 796,796 3.4%
Melissa Weger* 54,138 0.2%
Total Directors and Officers as a whole 5,390,473 22.9%
Number of Percentage of
Class A Preferred Stock Shares Class A Preferred
Robert A. Spigno* 140,020 100.0%
* Address: 24730 Avenue Tibbetts, Suite 130, Valencia, California 91355
The Company has options outstanding to purchase 6,156,709 shares of
restricted stock and 1,000,000 shares of Class B Preferred Stock, which
is convertible at a rate of 10 to 1 into restricted Common Stock or
10,000,000 shares of restricted Common Stock. The Company has a total of
16,156,709 in Options for restricted common stock including the Options
for Class B Preferred Stock.
The Company has 1,513,055 warrants to purchase one (1) share of
restricted Common Stock each at $2.00 per share; 506,500 are exercisable
until November 1, 2001, 446,305 are exercisable until September 1, 2002
and the remaining 560,250 are exercisable until March 3, 2003.
The Company has 500,000 shares of common stock options to various
Consultants at a 15% discount from the market value that are exercisable
until September 1, 2001.
The Company has 1,000,000 shares of Class B Preferred Stock Options to
purchase one (1) share of Class B Preferred Stock, which is convertible
to ten (10) shares of restricted Common Stock, at a price of $5.00 per
share of Class B Preferred Stock or if converted $.50 per share of
restricted common stock; These Options are exercisable until November 1,
2001.
The Company has 9,980 shares of Class A Preferred Stock Options to
purchase one (1) share of Class A Preferred Stock, at a price of $1.00
per share; These Options are exercisable until June 16, 2001 and are
vested with the Company's President and CEO, Robert A. Spigno.
The Company has an additional 4,143,654 options to purchase one (1) of
restricted Common Stock held by various Directors and Officers of the
Company as indicated below:
Common Stock No. Options Exercise Price Expiration Date
Robert A. Spigno 1,443,654 $.3864 12/2/00
Rodney W. Lighthipe 100,000 $.38 3/11/02
Lawrence Muirhead 2,000,000 (*) $.50 12/31/02
Patricia Spigno 500,000 $.38 8/31/04
Melissa Weger 100,000 $.38 12/31/02
Class A Preferred Stock
Robert A. Spigno 9,980 $1.00 6/16/01
Class B Preferred Stock
Robert A. Spigno 500,000 $5.00 6-12-01
(*) Options contingent upon completion of certain milestones.
Item 12. Certain Relationships and Related Transactions
The Company previously leased office space from S.W. Carver Corporation,
a company owned by Robert A. Spigno (President and CEO of the Company)
and Patricia A. Spigno (Secretary and Treasurer of the Company). The
lease was for a period of twelve months, renewable annually each April at
the option of the lessee. Effective April 1998, the monthly rent was
increased from $2,000 to $2,500. The lease was terminated in September
2000. Lease expense for the fiscal year ending September 30, 2000 and the
ten-month period ended September 30, 1999 was $27,500 and $25,000,
respectively.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
Financial Statements
(b) Since October 1, 1999 the Registrant filed the following current
reports on Form 8-K:
September 22, 2000, November 24, 1999 and October 18, 1999.
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: January 12, 2001 By /S/ Robert A. Spigno
Robert A. Spigno, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated have signed this Report below.
Signature
Title
Date
/S/ Robert A. Spigno
(Robert A. Spigno)
Chairman of the Board &
Chief Executive Officer,
January 12, 2001
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Page No.
INDEPENDENT AUDITORS' REPORT 1-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 3-4
Consolidated Statements of Operations 5
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) 6-10
Consolidated Statements of Cash Flows 11-13
Notes to Consolidated Financial Statements 14-38
INDEPENDENT AUDITORS' REPORT
Board of Directors
Conectisys Corporation and Subsidiaries
Valencia, California
We have audited the accompanying consolidated balance sheet of Conectisys
Corporation and Subsidiaries (a development stage company) (the "Company")
as of September 30, 2000, and the related consolidated statements of
operations, changes in shareholders' equity (deficit), and cash flows for
the year ended September 30, 2000, the ten month period beginning December
1, 1998 and ending September 30, 1999, and the cumulative period from
December 1, 1990 (inception of development stage) through September 30, 2000,
except that we did not audit the financial statements as of and for the period
ended November 30, 1997; these financial statements were audited by other
auditors, whose reports dated March 6, 1998 (for the period December 1, 1990
(inception of the development stage) through November 30, 1997) and January 9,
1995 (for the period December 1, 1990 (inception of the development stage)
through November 30, 1994), respectively, expressed a going concern uncertainty.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Conectisys Corporation and Subsidiaries as of September 30,
2000, and the results of their operations and their cash flows for the year
ended September 30, 2000, the ten month period beginning December 1, 1998
and ending September 30, 1999, and the cumulative period from December 1,
1990 (inception of development stage) through September 30, 2000, in
conformity with generally accepted accounting principles.
1
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has a deficiency in working capital at
September 30, 2000. These matters raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Hurley & Company
Granada Hills, California
December 19, 2000
2
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 33,688
Prepaid expenses and deposits 158,546
-----------
Total current assets 192,234
Property and equipment, net of
accumulated depreciation of
$220,987 93,304
Other assets:
License rights and technology, net of
accumulated amortization of
$421,478 -
-----------
Total assets $ 285,538
===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET (continued)
September 30, 2000
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 97,827
Accrued compensation 438,647
Due to officer 75,000
Other current liabilities 152,995
Notes payable and
current portion of long-term debt 315,937
------------
Total current liabilities 1,080,406
Long-term debt, net of current portion 75,000
Commitments and contingencies -
SHAREHOLDERS' DEFICIT:
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized, 140,020
shares issued and outstanding 140,020
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000 shares
authorized, -0- shares issued and outstanding -
Common stock, no par value; 250,000,000
shares authorized, 23,527,738
shares issued and outstanding 16,187,421
Stock options exercisable, convertible preferred
stock - Class B, 1,000,000 stock options
issued and outstanding, common stock -
3,207,154 stock options issued and outstanding 999,775
Stock subscriptions receivable (61,800 common shares) (15,450)
Deficit accumulated during the development stage (18,181,634)
------------
Total shareholders' deficit (869,868)
------------
Total liabilities and
shareholders' deficit $ 285,538
============
The accompanying notes are an integral part of these consolidated
financial statements.
4
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2000,
the Ten Month Period Beginning December 1, 1998 and Ending
September 30, 1999, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 2000
Year Ten Months Dec. 1, 1990
Ended Ended (Inception)
September 30, September 30, Through
2000 1999 Sept. 30, 2000
----------- ----------- --------------
Net revenues $ - $ 25,655 $ 517,460
Cost of sales 110,466 94,434 529,791
----------- ----------- --------------
Gross loss (110,466) (68,779) (12,331)
Operating expenses:
General and administrative 3,387,331 928,186 13,345,823
Bad debt expense - - 1,680,522
----------- ----------- --------------
Loss from operations (3,497,797) (996,965) (15,038,676)
Other income (expense):
Settled damages - 25,000 25,000
Other income 12,072 - 12,072
Interest income 3 227 102,918
Interest expense (91,188) (68,960) (967,845)
Write-off of
intangible assets - (283,133) (1,299,861)
Minority interest - - 62,500
----------- ----------- --------------
Net loss $(3,576,910) $(1,323,831) $ (17,103,892)
=========== =========== ==============
Weighted average number
of shares outstanding -
basic and diluted 17,948,218 12,244,646
Net loss per share -
basic and diluted $ (.20) $ (.11)
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
5
CONECTISYS CORORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through September 30, 2000
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B Stock During the Shareholders'
Class A No Par Value Stock Subscript. Development Equity
Shares Value Shares Value Options Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
December 1, 1990
(re-entry
development stage) - $ - 10,609 $ 1,042,140 $ - $ - $ (1,042,140)$ -
Shares issued in exchange for:
Cash, May 31, 1993 - - 1,000 1,000 - - - 1,000
Capital contribution,
May 31, 1993 - - 2,000 515 - - - 515
Services, March 26, 1993 - - 2,000 500 - - - 500
Services, March 26, 1993 - - 1,200 600 - - - 600
Net loss for the year - - - - - - (5,459) (5,459)
--------- ---------- --------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1993 - - 16,809 1,044,755 - - (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1, 1994 - - 2,400 3,000 - - - 3,000
Cash, September 1, 1994 - - 17,771 23,655 - - - 23,655
Services, September 15, 1994 - - 8,700 11,614 - - - 11,614
Cash, September 26, 1994 - - 3,000 15,000 - - - 15,000
Cash, October 6, 1994 16,345 16,345 - - - - - 16,345
Cash, September and October,
1994 - - 1,320 33,000 - - - 33,000
Net loss for the year - - - - - - (32,544) (32,544)
--------- ---------- --------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1994 16,345 16,345 50,000 1,131,024 - - (1,080,143) 67,226
The accompanying notes are an integral part of these consolidated financial statements.
6
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 September 30, 2000
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B Stock During the Shareholders'
Class A No Par Value Stock Subscript. Development Equity
Shares Value Shares Value Options Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Cash, February 13, 1995 - $ - 1,160 $ 232,000 $ - $ - $ - $ 232,000
Debt repayment, February 13,
1995 - - 2,040 408,000 - - - 408,000
Debt repayment, February 20,
1995 - - 4,778 477,810 - - - 477,810
Acquisition of assets, CIPI
February, 1995 - - 28,750 1,950,000 - - - 1,950,000
Acquisition of assets, April 5,
1995 - - 15,000 - - - - -
Cash and services, April and
May 1995 - - 16,000 800,000 - - - 800,000
Cash, June 1, 1995 - - 500 30,000 - - - 30,000
Acquisition of assets and
services, September 26, 1995 - - 4,000 200,000 - - - 200,000
Cash, September 28, 1995 - - 41 3,000 - - - 3,000
Acquisition of assets,
September 1995 - - 35,000 1,750,000 - - - 1,750,000
Return of assets, CIPI
September, 1995 - - (27,700) (1,950,000) - - - (1,950,000)
Net loss for the year - - - - - - (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 - - 1,389 152,779 - - - 152,779
Debt repayment, February 1996 - - 10,000 612,000 - - - 612,000
Services, February, 1996 - - 3,160 205,892 - - - 205,892
Cash, March, 1996 - - 179 25,000 - - - 25,000
The accompanying notes are an integral part of these consolidated financial statements.
7
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 September 30, 2000
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B Stock During the Shareholders'
Class A No Par Value Stock Subscript. Development Equity
Shares Value Shares Value Options Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares returned and canceled,
March, 1996 - $ - (15,000)$ - $ - $ - $ - $ -
Services, April, 1996 - - 13 2,069 - - - 2,069
Services, September, 1996 4,155 4,155 586 36,317 - - - 40,472
Services, October, 1996 - - 6,540 327,000 - - - 327,000
Debt repayment, November, 1996 - - 2,350 64,330 - - - 64,330
Net loss for the year - - - - - - (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 - - 228 6,879 - - - 6,879
Services, April, 1997 - - 800 13,120 - - - 13,120
Services, July, 1997 - - 1,500 16,200 - - - 16,200
Cash, July, 1997 - - 15,000 300,000 - - - 300,000
Services, August, 1997 - - 5,958 56,000 - - - 56,000
Adjustment for partial shares due
to reverse stock split (1:20) - - 113 - - - - -
Services, October, 1997 - - 1,469,666 587,865 - - - 587,865
Debt repayment, October, 1997 - - 1,540,267 620,507 - - - 620,507
Cash, October, 1997 - - 1,500,000 281,250 - - - 281,250
Services, November, 1997 - - 4,950 10,538 - - - 10,538
Net loss for the year - - - - - - (2,739,268) (2,739,268)
--------- ---------- ---------- ----------- ---------- ---------- ----------- -----------
Balance,
November 30, 1997 20,500 20,500 4,677,268 8,349,580 - - (8,352,211) 17,869
The accompanying notes are an integral part of these consolidated financial statements.
8
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 September 30, 2000
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B Stock During the Shareholders'
Class A No Par Value Stock Subscript. Development Equity
Shares Value Shares Value Options Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, December, 1997
through November, 1998 - $ - 2,551,610 $ 2,338,264 $ - $ - - $ 2,338,264
Debt repayment, April, 1998
through September, 1998 - - 250,000 129,960 - - - 129,960
Cash, January, 1998 through
July, 1998 - - 4,833,334 1,139,218 - - - 1,139,218
Acquisition of assets,
July, 1998 - - 300,000 421,478 - - - 421,478
Acquisition of remaining 20%
minority interest in
subsidiary, July, 1998 - - 50,000 59,247 - - - 59,247
Services, November, 1998 60,000 60,000 - - - - - 60,000
Net loss for the year - - - - - - (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 - - (1,350,000) (814,536) - - - (814,536)
Services, December, 1998
through September, 1999 - - 560,029 349,454 150,000 - - 499,454
Cash, December, 1998
through September, 1999 - - 1,155,800 129,537 - - - 129,537
Debt repayment, Sept., 1999 39,520 39,520 960,321 197,500 100,000 - - 337,020
Net loss for the period - - - - - - (1,323,831) (1,323,831)
--------- ---------- ---------- ----------- -------- ------------ ---------- -----------
Balance,
September 30, 1999 120,020 120,020 13,988,362 12,299,702 250,000 - (14,604,724) (1,935,002)
The accompanying notes are an integral part of these consolidated financial statements.
9
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 September 30, 2000
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B Stock During the Shareholders'
Class A No Par Value Stock Subscript. Development Equity
Shares Value Shares Value Options Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares re-acquired and
canceled, October, 1999 - $ - (17,500)$ (12,000)$ - $ - $ - $ (12,000)
Shares issued in exchange for:
Services, October, 1999 through
September, 2000, valued from
$0.25 to $0.80 per share - - 2,405,469 990,949 - - - 990,949
Retainers, debt and accrued
liabilities, October, 1999
through September, 2000, valued
from $0.25 to $1.57 per share - - 2,799,579 1,171,638 - - - 1,171,638
Cash, October, 1999 through
September, 2000, with subscription
prices ranging from $0.25 to
$0.66 per share - - 2,295,482 839,425 - (15,450) - 823,975
Reduction of exercise prices
on officer and employee common
stock options, March, 2000, to
$0.38 and approximately $0.39
per share - - - - 1,113,610 - 1,113,610
Exercise of officer stock
options, May, 2000, with
common stock strike prices
ranging from $0.15 to approx.
$0.39 per share, in exchange
for officer debt 20,000 20,000 2,056,346 897,707 (407,735) - - 509,972
Issuance of consultant stock
options, September, 2000, with
floating exercise prices
set at 15% below current market - - - - 43,900 - - 43,900
Net loss for the year - - - - - - (3,576,910) (3,576,910)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2000 140,020 $ 140,020 23,527,738 $16,187,421 $ 999,775 $ (15,450)$(18,181,634)$( 869,868)
========= ========== ========== =========== ========== ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
10
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2000,
the Ten Month Period Beginning December 1, 1998 and Ending
September 30, 1999, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 2000
Year Ten Months Dec. 1, 1990
Ended Ended (Inception)
September 30, September 30, Through
2000 1999 Sept. 30, 2000
----------- ------------ -------------
Cash flows from operating
activities:
Net loss $(3,576,910) $ (1,323,831) $(17,103,892)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services 2,136,459 (315,082) 6,283,837
Stock issued for interest - - 535,591
Provision for bad debt
write-offs - - 1,422,401
Minority interest - - (62,500)
Settled damages - (25,000) (25,000)
Write-off of intangible
assets - 283,133 1,299,861
Depreciation and
amortization 86,701 121,413 1,610,588
Changes in:
Accounts receivable - - (4,201)
Accrued interest
receivable - - (95,700)
Prepaid exp. and deposits (18,000) (7,000) (25,000)
Accounts payable (16,305) (13,096) 246,036
Accrued compensation 286,835 478,440 1,236,740
Due to officer 154,683 555,193 709,876
Other current liabilities 12,676 161,088 371,566
----------- ------------ -------------
Total adjustments 2,643,049 1,239,089 13,504,095
----------- ------------ -------------
Net cash used in
operating activities (933,861) (84,742) (3,599,797)
----------- ------------ -------------
The accompanying notes are an integral part of these consolidated
financial statements.
11
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2000,
the Ten Month Period Beginning December 1, 1998 and Ending
September 30, 1999, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 2000
Year Ten Months Dec. 1, 1990
Ended Ended (Inception)
September 30, September 30, Through
2000 1999 Sept. 30, 2000
----------- ------------ -------------
Cash flows from investing
activities:
Issuance of
notes receivable $ - $ - $ (1,322,500)
Costs of license rights
and technology - - (94,057)
Purchase of equipment (44,933) (12,255) (181,109)
----------- ----------- -------------
Net cash used in
investing activities (44,933) (12,255) (1,597,666)
----------- ----------- -------------
Cash flows from financing
activities:
Common stock issuance 823,975 129,537 2,953,385
Preferred stock issuance - - 16,345
Proceeds from debt, other 182,000 - 1,852,691
Proceeds from debt, related - - 206,544
Proceeds from stock purchase - - 281,250
Payments on debt, other (20,497) (11,270) (46,407)
Payments on debt, related - - (53,172)
Decrease in stock....................
subscription receivable - - 20,000
Contributed capital - - 515
----------- ----------- -------------
Net cash provided by
financing activities 985,478 118,267 5,231,151
----------- ----------- -------------
Net increase in
cash and cash equivalents 6,684 21,270 33,688
Cash and cash equivalents
at beginning of period 27,004 5,734 -
------------ ----------- -------------
Cash and cash equivalents
at end of period $ 33,688 $ 27,004 $ 33,688
============ =========== =============
The accompanying notes are an integral part of these consolidated
financial statements.
12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2000,
the Ten Month Period Beginning December 1, 1998 and Ending
September 30, 1999, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 2000
Year Ten Months Dec. 1, 1990
Ended Ended (Inception)
September 30, September 30, Through
2000 1999 Sept. 30, 2000
----------- ----------- -------------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 45,020 $ 92 $ 175,937
=========== =========== =============
Cash paid for income taxes$ 1,600 $ - $ 3,250
=========== =========== =============
Non-cash investing and financing activities:
Common stock issued
in exchange for:
Note receivable $ - $ - $ 281,250
Prepaid expenses $ 133,546 $ - $ 133,546
Property and equipment $ - $ - $ 130,931
Licenses and technology $ - $ - $ 2,191,478
Acquisition of remaining
minority interest in
subsidiary $ - $ - $ 59,247
Repayment of debt and
interest $ 1,548,064 $ 197,500 $ 3,352,859
Services and interest $ - $ - $ 4,949,192
Preferred stock issued
in exchange for:
Services $ - $ - $ 60,000
Repayment of debt $ 20,000 $ 39,520 $ 59,520
Preferred stock options
issued in exchange for:
Repayment of debt $ - $ 100,000 $ 100,000
The accompanying notes are an integral part of these consolidated
financial statements.
13
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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.
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 10,000 shares of the Company's common
stock. The acquisitions were accounted for as purchases. At the
date of acquisition, both PrimeLink and TechniLink are start-up
companies with no material operating activity.
The acquisitions of these companies occurred in connection with
the signing of the license agreements discussed in Note 10. The
Company issued a total of 35,000 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 aggregate
transactions were valued at $1,750,000, the fair market value of
common stock issued, and recorded in licenses and technology on
the balance sheet.
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.
On July 15, 1998, United Telemetry Company, Inc. was incorporated
in the State of Nevada as a wholly-owned subsidiary of the
Company.
On July 22, 1998, the Company acquired the remaining 20% interest
14
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Organization (continued)
in TechniLink, Inc. for 50,000 shares of the Company's common
stock valued at $59,247.
On January 11, 2000, a new Nevada corporation,
eEnergyServices.com, Inc., was formed, which has no net assets and
which has not, as yet, commenced operations. PrimeLink, Inc. and
TechniLink, Inc. are in the process of winding down. Upon
dissolution, their assets will be distributed to Conectisys
Corporation. PrimeLink, Inc. will do its future business in
California as United Telemetry Company.
Basis of presentation and going concern uncertainty
The accompanying consolidated financial statements include the
accounts and transactions of Conectisys Corporation, its wholly-
owned subsidiaries TechniLink, Inc. and United Telemetry Company,
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 balances in the accompanying consolidated financial
statements have been reclassified to conform to the current year's
presentation.
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 September 30, 2000, the Company had a deficiency in working
capital of approximately $890,000, and had incurred continual net
losses since its return to the development stage ($2.2 million in
1996, $2.7 million in 1997, $4.9 million in 1998, $1.3 million in
1999 (ten months), and $3.6 million in 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 and from continued officer
advances to assist in providing the Company with the liquidity
necessary to retire its outstanding debt and meet operating
expenses (See Notes 14(a) and 14(b)). In the longer term, the
Company plans to achieve profitability through the operations
15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Basis of presentation and going concern uncertainty (continued)
of its 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 September 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, due to officer, other current
liabilities, and notes payable approximate fair value because of
the short maturity of these instruments. Long-term debt is
recorded at face value because the principal amount is convertible
into common stock.
16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Fiscal year
Effective December 1, 1998, the Company changed its fiscal year-
end from November 30 to September 30.
Research and development costs
The Company has been engaged in researching, engineering, and
developing its HNet technologies since August 1995, and has
recently begun deployment of a pilot project, which did not
generate any revenue during the past fiscal year. Although still
a development stage company, the Company plans to engage large-
scale cost reduction runs for the production and subsequent sale
of the HNet System in 2001.
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 was fully amortized at September 30, 2000.
17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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. At September 30, 2000, no deferred technology costs were
recognized.
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) has been effective for financial
statements for fiscal years beginning after December 15, 1995.
The standard established 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. The
Company wrote-off the balance of the carrying value of older
licenses and deferred technology during the year ended November
30, 1998, as a consequence of persistent competitive pressure.
The expense incurred was $632,257.
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
18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Accounting for stock-based compensation (continued)
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 files a consolidated income tax return. 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. The Company has recognized a
valuation allowance covering 100% of the net deferred tax assets
(primarily tax benefits from net operating loss carryforwards),
because it is more likely than not that the tax benefits
attributable to the deferred tax assets will not be realized in
the future.
19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Net loss per common share - basic and 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.
Recent 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. 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
adoption of SFAS No. 130 did not have a material effect on the
Company's 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. 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. Adoption of SFAS
No. 131 did not have an effect on the Company's financial position
or its results of operations; however, additional disclosures may
have to be made in the future relating to the above items.
Statement of Financial Accounting Standard No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits,"
SFAS No. 132) issued by the FASB is also effective for financial
statements with fiscal years beginning after December 15, 1997.
It revises employers' disclosure requirements for pensions and
other postretirement benefits and eliminates certain disclosures
that are no longer as useful as they were when SFAS No. 87, SFAS
No. 88, and SFAS No. 106 were issued. Adoption of SFAS No. 132
did not have an effect on the Company's financial position or
results of operations.
20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
New accounting pronouncements
The Financial Accounting Standards Board has established the
following new pronouncements, none of which have (will) materially
affect the Company: SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities (effective for years beginning
after June 15, 2000)," SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise - an
amendment of SFAS No. 65 (effective for fiscal quarters beginning
after December 15, 1998)," SFAS No. 135, "Rescission of SFAS No.
75 and Technical Corrections (effective for fiscal years ending
after December 15, 1999)," SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust That Raises
Contributions for Others (generally effective for financial
statements issued for fiscal periods beginning after December 15,
1999)," SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No.
133 - an amendment of SFAS No. 133 (effective June 1999)," SFAS
No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of SFAS No. 133
(effective for years beginning after June 15, 2000)," SFAS No.
139, "Rescission of SFAS No. 53 and amendments to SFAS No. 63, 89,
and 121 (effective for fiscal years beginning after December 15,
2000)," and SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities - a
replacement of SFAS No. 125 (effective for certain disclosures for
fiscal years ending after December 15, 2000)."
21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 2. RELATED PARTY TRANSACTIONS
Until recently, the Company leased office space in Agua Dulce,
California from S.W. Carver Corporation, a company owned by a
major shareholder of the Company. The lease was for a period of
one year, renewable annually in April at the option of the lessee.
Effective April, 1998, the monthly rent was increased from $2,000
to $2,500. Around September 1, 2000, the lease was terminated due
to the sale of the building. At that time the Company moved
certain property and equipment to its Valencia locations. Rent
expense for the year ended September 30, 2000 and the ten-month
period ended September 30, 1999 was $27,500 and $25,000,
respectively.
NOTE 3. PREPAID EXPENSES AND DEPOSITS
During the year ended September 30, 2000, the Company issued
462,487 shares of its common stock as retainers for consulting
services ($128,611) and accounting fees ($4,935). In addition,
the Company recorded the unearned portion of an engineering
contract ($25,000) as a prepaid asset, bringing the total prepaid
expense balance at September 30, 2000 to $158,546.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 consisted of the
following:
Office equipment $ 262,320
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 314,291
Accumulated depreciation (220,987)
-----------
Net book value $ 93,304
===========
22
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 5. LICENSE RIGHTS AND TECHNOLOGY
License rights and technology at September 30, 2000 consisted of
the following:
License rights $ 421,478
Accumulated amortization (421,478)
-----------
Net book value $ -
===========
NOTE 6. DUE TO OFFICER
During the ten month period ended September 30, 1999, the Company
received cash advances from its CEO totaling $555,193. At
September 30, 1999, $197,500 of these advances were 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 were exchanged
for equity. Also at September 30, 1999, $62,522 in accrued
compensation was transferred to the officer advance account,
resulting in a balance of $133,195 at that date. 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%.
During the first half of the year ended September 30, 2000, the
Company's CEO advanced the Company an additional $68,500 (net of a
$5,000 repayment) at an annual interest rate of 10%. Total
interest on the advances and promissory notes amounted to $21,766
through May 22, 2000 (including $10,583 on the S.W. Carver note),
at which time the total principal plus accrued interest on the
aggregate loans ($420,961) was effectively paid-off through the
exercise of 2,056,346 common stock options and 20,000 Preferred
Class A stock options. The total exercise price for these stock
options was $509,972. The balance of the proceeds of $89,011 was
applied against accrued officer compensation. During August and
September 2000, the Company's CEO advanced the Company another
$75,000, which remained unpaid through year-end. See Note 14(a).
23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 7. NOTES PAYABLE
Notes payable at September 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, semi-monthly payments of $2,500,
including interest at an annual rate
of 18%, with remaining balance due and
payable on June 1, 2001 74,113
Note payable to Deauville (now MMDS)
Capital Partners, unsecured,
convertible into common stock at
$1.00 per share through March 6, 2002,
at which time interest at an annual
rate of 10% begins to accrue 75,000
---------
Total notes payable 390,937
Current portion (315,937)
---------
Long-term portion $ 75,000
=========
The maturity of long-term debt at September 30, 2000 was as
follows:
Year ended September 30,: 2001 $ 315,937
Thereafter 75,000
---------
Total notes payable $ 390,937
=========
24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 8. 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, 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.
25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
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.
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 re-acquired and canceled 17,500
common shares from the former president of PrimiLink, in return
for a $12,000 consulting agreement.
During the months October, 1999 through March, 2000, the Company
issued a total of 241,200 shares of its common stock valued at
$52,919 in a private placement. In conjunction with this issuance
and the March through September, 1999 issuance noted above,
certain shareholders received warrants to purchase 506,500 shares
of common stock at $2.00 per share through November 1, 2001.
During the period October, 1999 through September, 2000, the
Company issued a total of 2,612,796 shares of its common stock to
various consultants for services rendered and to be rendered
(retainer of $128,611) totaling $1,051,932.
In November, 1999, the Company received cash of $66,927 to pay the
balance due on an old subscription for 300,000 shares of the
Company's common stock.
In November, 1999 through September, 2000, the Company issued
240,000 shares of its common stock to its outside accountant for
services rendered and to be rendered (retainer of $4,935) in the
amount of $130,000.
In December, 1999 and February, 2000, the Company issued 879,309
shares of its common stock to current and former officers for
accrued compensation in the amount of $419,747.
26
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In December, 1999, the Company issued an additional 19,804 shares
of its common stock valued at $7,195 (net of 6,283 canceled shares
valued at $10,805) in full settlement of a vendor dispute.
In February and March, 2000, a consultant exercised 250,000 common
stock options at $125,000 ($0.50 per share)
In March, 2000, the Company issued 20,000 shares of its common
stock for $16,000 in legal services.
In March, 2000, the Company issued 500,672 shares of its common
stock in subscriptions and private placements totaling $195,000.
In March, 2000, the Company issued 135,000 shares of its common
stock to an officer for $89,042 in cash.
In March, 2000, the Company adjusted the exercise price on
2,600,000 common stock options previously issued to two officers
and an employee, resulting in an increase in compensation expense
of $1,113,610.
In April, 2000 through September, 2000, the Company issued
1,019,800 shares of its common stock through cash subscriptions
totaling $242,450, for which $15,450 (representing 61,800 shares)
had not yet been collected as of September 30, 2000.
During April, 2000 through September, 2000, an additional 242,560
shares of the Company's common stock were issued in a private
placement totaling $68,087. In conjunction with these and
previous issuances, certain shareholders received warrants to
purchase 446,305 shares of the Company's common stock at $2.00 per
share through September 1, 2002.
In May, 2000, the Company's CEO exercised 2,056,346 common stock
options and 20,000 Class A Preferred stock options in exchange for
debt and accrued compensation aggregating $509,972. $407,735 was
transferred from stock options exercisable to common stock as a
result of this transaction.
In June, 2000, a note holder converted $200,000 principal value of
debt into 800,000 shares of the Company's common stock (at $0.25
per share).
27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In August and September, 2000, three officers and an employee
received 539,389 shares of the Company's common stock as payment
for $229,693 of accrued compensation.
In September, 2000, old liabilities of $108,020 were transferred
to shareholders' equity (deficit) in recognition of additional
paid-in capital.
In September, 2000, the Company issued 500,000 common stock
options to a consultant valued at $43,900 (representing a floating
exercise price that was 15% below the current market price of the
Company's common stock).
NOTE 9. INCOME TAXES
Deferred income taxes consisted of the following at September 30,
2000:
Deferred tax asset, benefit
of net operating loss
carryforward $ 5,000,000
Valuation allowance (5,000,000)
-----------
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.
The Company has approximately $12,600,000 in respective federal
and California net operating loss carryforwards. The federal net
operating loss carryforwards expire as follows: $2,700,000 in the
year 2012, $5,300,000 in 2018, $1,200,000 in 2019, and $3,400,000
in 2020. The California net operating loss carryforwards expire
as follows: $2,700,000 in the year 2002, $5,300,000 in 2003,
$1,200,000 in 2004, and $3,400,000 in 2005.
28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into seven employment agreements with key
Individuals, the terms of the agreements are as follows:
1) The former 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 September 30, 2000, $4,000
remained unpaid.
2) The former 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,
releasing it from any further bonus and stock option obligations.
3) The CEO (now former President) 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
2,000,000 shares of the Company's restricted common stock at a
price equal to 50% of the average market value for the prior 30
trading days before exercise. On March 27, 2000, the exercise
price was adjusted to a flat $0.3864 per share, with an expiration
date of December 2, 2003. These stock options are fully vested and
irrevocable as of the commencement of the agreement, except in the
event the employee refuses to carry out the reasonable and lawful
directions of the employer or engages in proven fraud or dishonesty
in the performance of his duties, in which case the stock options
are automatically revoked upon discovery.
29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10. COMMITMENTS AND CONTINGENCIES (continued)
Employment agreements (continued)
4) The Acting President of the Company entered into an agreement
dated September 11, 2000 for a period of six months through
March 11, 2001, and he is entitled to receive a base salary
(consulting fees) of $120,000 per year, of which 50% shall be
paid in cash and 50% shall be paid in restricted common stock
at a rate equal to 50% of the average market closing price
for the last 5 trading days of each quarter. He shall be
issued 100,000 shares of restricted common stock as a hiring
bonus, at a per share price of $0.28415, equivalent to 50% of
the average market closing price for the prior 30 trading
days before the agreement date. He shall further receive
performance bonuses (paid in restricted common stock) upon
successful completion of specific milestones pertaining to
the implementation and deployment of the HNET System. The
incentive package could net him up to 650,000 shares of
restricted common stock. As of September 30, 2000, none of
these milestones were met. He is also granted an option
through March 11, 2001 to purchase up to 100,000 shares of
the Company's restricted common stock at a price of $0.38 per
share.
5) 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, releasing it from any further bonus and stock option
obligations.
30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10. COMMITMENTS AND CONTINGENCIES (continued)
Employment agreements (continued)
6) The Secretary and Treasurer of the Company entered into an
Agreement dated October 2, 1995 (which was amended September
1, 1997, September 1, 1999, and March 31, 2000) for a period
of five years (extended through April 1, 2005), 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 60% of the
average market value for the prior 180 trading days before
exercise. On March 27, 2000, the exercise price was adjusted
to a flat $0.38 per share, with an expiration date of
December 31, 2004.
7) 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. As of September 30, 2000, none of the
aforementioned milestones had been successfully completed.
31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10. COMMITMENTS AND CONTINGENCIES (continued)
License agreements
The Company has entered into license agreements with the former
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 12,500
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 and return all shares of the Company's common stock
obtained pursuant to the license agreement 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 Zaman, 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
32
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
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,
alleging the defendants conspired to artificially inflate the
price of the Company's common stock and withheld material facts
from investors. 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.
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.
The Company, during its normal course of business, may be
subjected from time to time to disputes and to legal proceedings
against it. Both counsel and management do not expect that the
ultimate outcome of any current claims will have a material
adverse effect on the Company's financial statements.
33
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 11. MAJOR CUSTOMERS
The Company, as a development stage enterprise, did not have
revenues during the year ended September 30, 2000 and had limited
revenue during the ten months ended September 30, 1999; the
Company had sales to one customer comprising 100% of total sales.
The Company had no additional revenue during the ten months ended
September 30, 1999 other than the aforementioned sales.
NOTE 12. STOCK OPTIONS
During the fiscal year 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 its debt to the
note holder by $50,000 and received an extension of time to pay-
off its promissory note. The Company also issued to its CEO
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 through
November 1, 2002 and can also be converted into common stock at
the rate of 10 common shares for each Class B preferred share.
The Company's CEO currently owns 140,020 shares of the Company's
Class A preferred stock, of which 20,000 shares were purchased
during the year ended September 30, 2000, and has options to
purchase another 9,980 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 year ended September 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 $260,230, of which
$214,130 was 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, $25,000 was
attributable to 100,000 common stock options issued to the
34
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 12. STOCK OPTIONS (continued)
Company's acting president at an exercise price of $0.38 per
share, exercisable over a six month period, and $21,100 was
attributable to 500,000 common stock options issued to a
consultant at an exercise price set at 15% below the current
market value of the Company's common stock, exercisable over a
twelve month period. The pro forma effect on the net loss for the
year ended September 30, 2000 is indicated below:
As Reported Pro Forma
----------- -----------
Net loss $(3,576,910) $(3,837,140)
Net loss per share -
basic and diluted $(.20) $(.21)
During the ten month period ended September 30, 1999, 500,000
common stock options were issued to the Company's CEO 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 CEO, 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. In May, 2000, the
Company's CEO exercised 2,056,346 common stock options, resulting
in the transfer of $407,735 of common stock options exercisable to
common stock, thereby reducing the balance of common stock options
exercisable to $855,875. In September, 2000, the Company issued
500,000 common stock options to a consultant, valued at $43,900
(corresponding to a 15% discount from current market value),
bringing the balance of common stock options exercisable at
September 30, 2000 to $899,775. The total balance of stock
options exercisable at September 30, 2000 was $999,775, including
$100,000 attributable to the Company's Class B preferred stock.
35
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 12. STOCK OPTIONS (continued)
The Company has granted various common stock options and warrants
to employees and consultants; the options and warrants were
granted at approximately the fair market value at the date of
grant and vested immediately. The common stock option activity
during the fiscal years ended September 30, 2000 and September 30,
1999 was as follows:
Common Stock
Options Weighted
and Average
Warrants Price
---------- --------
Balance outstanding, December 1, 1998 3,000,000 $ .59
Granted 600,000 .89
---------- --------
Balance outstanding, September 30, 1999 3,600,000 .64
Granted 1,913,500 .86
Exercised (2,306,346) .27
---------- --------
Balance outstanding, September 30, 2000 3,207,154 $ .69 (1)
========== ========
(1) Due to floating strike prices, weighted average price upon
issuance is $0.94, upon exercise is $0.69.
The following table summarizes information about common stock
options at September 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 5 $ .38 100,000 $ .38
$ .50 - $ .50 500,000 11 $ .50 500,000 $ .50#
$2.00 - $2.00 563,500 29 $ 2.00 563,500 $ 2.00
$ .39 - $ .39 1,443,654 38 $ .39 1,443,654 $ .39*
$ .38 - $ .38 100,000 51 $ .38 100,000 $ .38*
$ .38 - $ .38 500,000 63 $ .38 500,000 $ .38*
$ .38 - $2.00 3,207,154 35 $ .69 3,207,154 $ .69
============= ========= == ======= ========= =======
36
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 12. STOCK OPTIONS (continued)
# Currently a floating exercise price
* Formerly a floating exercise price
The above table excludes 952,805 warrants exercisable at $2.00 per
share, which have nominal value and which were issued to certain
stock subscription investors. Of these warrants, 506,500 expire
November 1, 2001 and 446,305 expire September 1, 2002. The table
also excludes a contingent issuance to the Company's Chief
Technical Officer of 2,000,000 common stock options exercisable at
$0.50 per share and expiring December 31, 2002. These common
stock options will not vest until certain milestones have been
attained.
NOTE 13. FORM S-8 FILINGS
In December 1999, the Company filed a Form S-8 registration
statement for the Conectisys Corporation Non-Qualified Stock
Option 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 41 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 in the amount of $323,725 and
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.
In September 2000, the Company filed another S-8 registration
statement, amending its Non-Qualified Stock Option and stock Bonus
Plan for independent consultants to the Company. The Amended Plan
authorizes the issuance of up to 1,000,000 shares of common stock.
The purpose of the Amended Plan is to further 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). Through September 30, 2000,
500,000 shares under the Amended Plan had been issued as retainers
on ongoing consulting contracts, valued at $142,075. Subsequent
37
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 13. FORM S-8 FILINGS (continued)
to September 30, 2000, an additional 100,000 shares were issued to
consultants for services.
NOTE 14. SUBSEQUENT EVENTS
(a) Subsequent to September 30, 2000, the Company's CEO advanced
the Company an additional $15,000. On December 15, 2000,
this advance, along with prior advances totaling $75,000 were
consolidated into a $90,000 promissory note, due on demand,
with interest at the rate of 10% per annum. All unpaid
principal and interest is fully due and payable on June 1,
2001. Subsequent to September 30, 2000, the Company's Vice
President advanced the Company a total of $60,000. On
December 7, 2000, these advances were incorporated into a
promissory note, due on demand, with interest at the rate of
10% per annum. All unpaid principal and interest is fully
due and payable on June 1, 2001.
(b) The Company intends to register an offering of 10,000,000 new
common shares via Form SB-2. Additionally, approximately
2,450,000 shares owned by existing shareholders will be
registered for sale.
(c) The Company has filed corporate certificates of dissolution
with the California Secretary of State for its 80%-owned
subsidiary PrimiLink, 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.
38
