U.S.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section10-Q/A
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities
Exchange Act of 1934.For the quarterly period ended March 31, 2000.
[ ] Transition report under sectionOF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2008
| | TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities
Exchange Act ofOF THE SECURITIES
EXCHANGE ACT OF 1934 [no fee required]FOR THE TRANSITION PERIOD FROM__________ TO ___________
Commission File Number 33-3560D33-3560 D
________________________
CONECTISYS CORP.CORPORATION
(Name of small business issuer in its charter)
Colorado 84-1017107
(state(State or other jurisdictionOther Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2473025115 Avenue TibbittsStanford, Suite 130320, Valencia, California 91355
(Address of principal executive offices)
Issuer's telephone number:Principal Executive Offices)
(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(Issuer's Telephone Number, Including Area Code)
Not applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the issuerregistrant (1) has filed all reports
required to be filed by Section 13 or 15(b)15(d) of the Securities Exchange Act
of 1934 during the pastpreceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: [X]Yes[ ]No
Common Stock, issueddays. Yes |X| No | |
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and outstanding as"smaller reporting company" in Rule 12b-2 of March 31, 2000:
17,563,347the Exchange Act. (Check one):
Large accelerated filer | | Accelerated filer | |
Non-accelerated filer | | Smaller reporting company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No | |
As of August 18, 2008, there were 28,821,560,267 shares of the issuer's
common stock, no par value, outstanding.
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statement
A financial statement, unaudited Statements.
Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited)and
included herein beginning on page
F-1 (Exhibit 99.0), is incorporated herein by this reference.September 30, 2007 (audited)........................................F-1
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 2008 (unaudited) and 2007 (unaudited)
and the Cumulative Period From December 1, 1990 (Inception)
Through June 30, 2008 (unaudited)......................................F-3
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Cumulative Period From
December 1, 1990 (Inception) Through June 30, 2008 (unaudited).........F-4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 2008 (unaudited) and 2007 (unaudited) and
the Cumulative Period From December 1, 1990 (Inception) Through
June 30, 2008 (unaudited).............................................F-17
Notes to Condensed Consolidated Financial Statements (unaudited)...........F-20
Item 2. Management's Discussion and Analysis or Plan of Operation
Except for disclosures that report the Company's historical results, the
statements set forth in this section are forward-looking statements.
Actual results may differ materially from those projected in the forward-
looking statements. Additional information concerning factors that may
cause actual results to differ materially from those in the forward-
looking statements are in the Company's Annual Report on form 10-KSB for
the fiscal year ending September 30, 1999Operations...........2
Item 3. Quantitative and in the Company's other
filings with the SecuritiesQualitative Disclosures About Market Risk...........9
Item 4. Controls and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes
no obligation to update any forward-looking statements or comments on
the reasons why actual results may differ therefrom.
Conectisys is the parent company of two subsidiaries; United Telemetry
Co., Inc.Procedures.............................................10
Item 4T. Controls and eEnergyServices.com, Inc. It is a commercial
telecommunications company primarily engaged in developing,
manufacturing and marketing proprietary telemetry equipment for use in
remote or automated meter reading (AMR) applications.
Results of operations
The Company realized a net loss from operations of $1,682,510 for the
2nd quarter ending March 31, 2000. The Company for the 2nd quarter
ending May 31, 1999 had a net loss from operations of $634,805. The
Company had no revenue for the quarter ending March 31, 2000 and $25,655
for the 2nd Quarter ending May 31, 1999.
Plan of operation
Loss on operations for the Company for the quarter March 31, 2000
increased 265% from the prior year for the same period. These losses
are attributed to the Company's development, marketing and general
expenses. The Company will, over the next 12 months, rely on additional
funding through the sale of common stock. The Company had 26,655.00
revenues in fiscal 1999.
Liquidity and Capital Resources
As of March 31, 2000, the Company had a negative working capital of
$1,719,105 consisting of $290,528 in current assets and $2,009,633 in
current liabilities. The Company had a negative working capital of
$1,759,529 at quarter ended May 31, 1999. The Company is dependent on
achieving profitable operations through the success of its subsidiaries
to continue as a going concern.
The Company had total assets of $379,793 as of March 31, 2000, and total
liabilities of $2,009,633. Shareholder deficit is $1,629,840, as
compared to a deficit of $1,288,173 fiscal 2nd quarter ended May 31,
2000. The Company issued 1,939,672 shares of common stock for cash and
services during the 2nd quarter ending March 31, 2000.
Cash Flows
The Company had a net loss for the 2nd quarter ending March 31, 2000 of
$1,682,510. The cash used in operations toward this loss was $486,482.
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
$1,458,784. The Company issued shares for $528,888 of stock restricted
under rule 144 and incurred $232,000 in debt to finance the operating
losses for the quarter ending March 31, 2000.
The Company's management plans for correcting these deficiencies include
the future sales of the licensed products and services. Working capital
to meet the Company's operating expenses will be raised through a
secondary offering of the Company's Common Stock expected to be filed
with the United States Securities & Exchange Commission this fiscal year.
The Company filing of a secondary offering of its common stock is for
the long term funding requirements of a large-scale deployment of the
HNet System. In the longer term, the Company plans to achieve
profitability through the subsidiaries operations; however there are no
assurances that profitability will be achieved. The Company has
experienced negative cash flow from operations since inception and
expects to continue to experience negative cash flow from operations for
the near term.
Effect of inflation
Inflation did not have any significant effect on the operations of the
Company during the quarter ended March 31, 2000. Further, inflation is
not expected to have any significant effect on future operations of the
Company.
The Financial Accounting Standards Board (FASB) Impact
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) issued by the FASB is effective
for financial statements with fiscal years beginning after December 15,
1997. Earlier adoption is permitted. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have an effect, if any, on its
financial position or its results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments Of An Enterprise And Related Information," (SFAS 131) issued by
the FASB is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is permitted.
SFAS No. 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in
which they operate and their major customers. The Company does not
expect adoption of SFAS No. 131 to have an effect on its financial
position or results of operations; however, additional disclosures may
be made relating to the above items.Procedures.............................................10
PART II Other Information- OTHER INFORMATION
Item 1. Legal Proceedings
On February 23, 2000 in the Company's 10-QSB for the first quarter 2000,
the Company disclosed that a disagreement existed between Braemar
Management, Ltd. and the Company regarding the removal of certain
restrictions on their stock, which they had purchased over two (2) years
ago, may escalate into litigation between the parties. On March 13, 2000
the parties settled the disagreement and pursuant to a formal agreement
between Braemar Management, Ltd. and Conectisys Corporation the
restriction on Braemar's 1.5 million shares were removed as follows:
600,000 shares on March 13, 2000; 600,000 shares on April 10, 2000, and
300,000 on April 20, 2000.Proceedings...................................................10
Item 1A. Risk Factors........................................................10
Item 2. Changes inUnregistered Sales of Equity Securities and Use of Proceeds
Options & Warrants Issued
On March 6, 2000 the Company issued warrants to purchase 563,500 shares
of common stock at an exercise price of $2.00 per share with an
expiration date of March 1, 2003.
Additionally, a 250,000 share Performance Award Option at an exercise
price of $.50 per share, with an expiration date of July 15, 2000 was
issued. The Performance Award Option was to a Consultant and all of the
250,000-share option was exercised during the 2nd quarter ending March
31, 2000 resulting in $125,000.00 in cash to the Company. (See alsoProceeds.........10
Item 5 below).
Stock Subscriptions
In January 2000 the Company received $75,000.00 in three Stock
Subscription Agreements for restricted common stock. The stock was sold
for $.25 per share, approximately 50% of the market price at the time of
the purchase, which management believes are exempt from registration
under 4(2) of the 1933 Securities Act.
On February 2, 2000 the Company's Board of Directors issued 412,000
shares of restricted common stock for $103,000.00 in services rendered
by Lawrence Muirhead pursuant to his Employment Agreement and previously
accrued consulting fees prior to the execution of his Employment
Agreement; specifically $13,000.00 in consulting fees and $90,000 in
accrued compensation through February 1, 2000. All stock is restricted
and issued at $.25 per share.
On February 22, 2000 the Company's Board of Directors issued 100,000
shares of restricted common stock for $86,00.00 for all past services to
the Company's former CFO, Richard Dowler.
On March 6, 2000 the Company's Board of Directors issued 135,000 shares
of restricted common stock for $89,041.00 in cash to its CTO, Lawrence
Muirhead.
506 Private Placement Offering
On February 1, 2000 the Company began a Private Placement Offering under
Regulation D, Rule 506 in two (2) year, 10% interest bearing Convertible
Notes. The Notes are convertible to restricted common stock at a rate
of 50% of the market price at the date of conversion. THESE NOTES WILL
ONLY BE 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 UNDER THE 1933 ACT WITH A
MINIMUM INVESTMENT OF $25,000.00. The Private Placement Memorandum is
available from the Company upon request or it can be viewed in its
entirety on the Company's web site www.conectisys.net.
The Company has 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 $75,000.00.3. Defaults Upon Senior Securities.....................................10
Item 4. Submission of Matters to a Vote of Security Holders
Shareholders Meeting
The annual meeting of the shareholders of Conectisys Corporation was
held at One World Trade Center, Long Beach, California in the 2nd Floor
Auditorium on March 15, 2000, at 10:00 a.m. Pursuant to a vote of the
shareholders of the Corporation at the Annual Meeting the current Board
of Directors were elected for another term, until the Annual Meeting of
the Shareholders expected in March 2001.
Report of Annual Shareholders Meeting
March 15, 2000
World Trade Center
2nd Floor Auditorium
Long Beach, California
Meeting Called to Order
A quorum was present:
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 are entitled to one vote
for each share held as of the Record Date. The presence, in person or
by proxy, of holders of at least a majority of the outstanding Common
Stock entitled to vote at the Meeting constituted a quorum for the
transaction of business as indicated in the following table:
Needed for Quorum 7,804,944
Proxy Votes Received by Mail for current Board of Directors 6,471,000
Shares/Votes Held by Board of Directors & Officers of Conectisys
Robert A. Spigno 740,347
Patricia A. Spigno 201,062
Lawrence P. Muirhead 135,000
Melissa Weger 44,981
--------------
Total Directors and Officers as a whole 1,121,390
S.W. Carver Corp. 1,034,000
Total Towards Quorum 8,626,390
Class A Preferred Stock
Number of Shares
Robert A. Spigno 120,020 x 100 votes =
12,002,000
Vote on Board of Directors Nominees:
Robert Spigno
Lawrence Muirhead
Melissa Weger
The Board of Directors received 20,628,390 out of 27,611,888 possible
votes for retention of the current Board of Directors. (74.7%). The
Board of Directors was elected until the next annual meeting of
shareholders.Holders.................12
Item 5. Other Information
eEnergyServices Division Incorporated
On January 11, 2000 the Company incorporated its division eEnergy
Services. The new, wholly owned subsidiary is a Nevada corporation
called eEnergyServices.com, Inc. The current Board of Directors of
Conectisys Corporation is also acting as eEnergyServices.com, Inc.'s
DirectorsInformation...................................................12
Item 6. Exhibits............................................................12
Signatures...................................................................13
Exhibits Filed with Robert A. Spigno as President, Melissa Weger as Treasurer
and Patricia A. Spigno as Secretary.
Conectisys is the parent company of two subsidiaries, United Telemetry
Co., Inc. and eEnergyServices.com., Inc. During the current 2nd quarter,
the Company consolidated the business enterprises of Primelink, Inc. and
United Telemetry Co., Inc. with all operations now being conducted under
United Telemetry Co., Inc. The Company further consolidated the
operations of Technilink Technology Manufacturing, Inc. into
eEnergyServices.com. The Company believes this will streamline
operations and allow for further delineation of its intra-company
operational tasks and better public understanding of the Company.
Conectisys and its subsidiaries have developed systems and products for
the wireless telemetry markets with a focus on several specific
communication technologies.
In furtherance of this consolidation, on March 15, 2000, after unanimous
approval of the shareholders at their respective Annual Meetings, the
Company officially dissolved its two older subsidiaries, Technilink
Technology Manufacturing, Inc. and Primelink, Inc. as corporations.
Form S-8 Registration Filed
In December, 1999, the Company filed a Form S-8 registration statement
for the Conectisys Corporation Non-Qualified Stock and Stock Bonus Plan
(the "Plan"). The purpose of the Plan is to compensate independent
consultants of the Company through the granting of non-qualified stock
options (as described in Sections 83 and 421 of the Internal Revenue
Code). Shares of stock covered by stock options and stock bonuses
consist of 1,000,000 shares of the common stock of the Company. The
entire registration has been filled. 600,000 shares were issued to
consultants under the Plan for past services rendered, 150,000
represented retainers on ongoing consulting contracts, and 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.
HNet 1st Generation Pilot
On February 15, 2000 the Company successfully launched its HNet Pilot in
Los Angeles, California. Although the initial pilot is small, it is a
working model of the capabilities of the HNet System. The Company's
much-awaited deployment of the HNet Automatic Meter Reading (AMR) pilot
demonstrates HNet's technology which acquires real time data1 from an
electric meter, processes this data to show power usage and cost, and
can display this information via the Internet. Ultimately, the HNet
System will be capable of preparing bills and real-time power usage
summaries suitable for power purchasing.
Based upon HNet's initial pilot success in proving the HNet System as a
viable system of administration and reporting for the AMR market place,
the Company is expecting to release a larger and more substantial 2nd-
generation pilot by July 2000. Additionally, the Company has engineered
a portable HNet System that is capable of demonstrating the HNet System
anywhere in the country from the street to a utility company's boardroom
or corporate facility.
Item 13. Exhibits and ReportsReport on Form 8-K
(a) Exhibit 99.0 Financial Statement (Unaudited)
(b) During the Registrant's fiscal quarter ending March 31, 2000, the
registrant filed no current reports on Form 8-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned hereunto duly authorized.
CONECTISYS CORPORATION
Date: May 12, 2000 By /S/ Robert A. Spigno
Robert A. Spigno, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Robert A. Spigno Chairman of the Board, May 12, 2000
(Robert A. Spigno) Chief Executive Officer,
and President10-Q
ITEM 1. FINANCIAL STATEMENTS.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET March 31, 2000
Total
Preferred Stock Common Stock Shareholders
Class AJune 30, 2008 and B No Par Value Accumulated Equity
Shares Value Shares ValueSeptember 30, 2007
June 30, Sept. 30,
2008 2007
Unaudited Audited
-------------- --------
Assets
Current assets
Cash and cash equivalents $ 123 40,834
Employee advance 42,056 1,000
Prepaid expenses 23,251 87,553
-------------- --------
Total current assets 65,430 129,387
Property and equipment, net of accumulated
depreciation of $394,919 82,729 98,183
Other assets
Deposits 4,698 4,698
Loan fees, net of accumulated
amortization of $512,056 19,724 25,392
---------- -------
Total assets $ 172,581 257,660
========== =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-1
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET June 30, 2008 and September 30, 2007
June 30, Sept. 30,
2008 2007
Unaudited Audited
------------------ ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 238,727 208,538
Accrued compensation 2,418,148 2,070,615
Due to officers 40,174 537
Accrued interest payable 498,132 360,614
Other current liabilities 144,677 14,352
Notes payable and current portion of
long-term debt 2,029,107 2,072,303
------------- ---------
Total current liabilities 5,368,965 4,726,959
Long-term debt, net of current portion 4,604,205 3,789,300
Commitments and contingencies - -
SHAREHOLDERS' DEFICIT
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized, 215,865 shares
issued and outstanding 215,865 215,865
Convertible preferred stock - Class B, $1.00
par value; 1,000,000 shares authorized,
-0- shares issued and outstanding 0 -
Common stock - no par value; 50,000,000,000
shares authorized, 28,820,358,267 and 23,177,633,821
shares issued and outstanding respectfully 30,198,397 29,538,421
Additional paid-in capital:
Convertible preferred stock - Class B, $1.00 par
value, 1,000,000 stock options exercisable 100,000 100,000
Common stock - no par value 67,620,000
warrants exercisable 1,373,082 1,372,514
Accumulated deficit during development stage (41,687,933) (39,485,399)
------------ ------------
Total shareholders' deficit (9,800,589) (8,258,599)
------------ ------------
Total liabilities and shareholders' deficit $ 172,581 257,660
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended June 30, 2008 and 2007
And the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2008
Dec. 1, 1990
(Inception)
Period
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended Through
Jun. 30 Jun. 30 Jun. 30 Jun. 30 Jun. 30
2008 2007 2008 2007 2008
Unaudited Unaudited Unaudited Unaudited Unaudited
Revenues $ 0 $ 6,922 $ 0 $ 6,922 $ 524,382
Cost of prototypes and samples 0 80,082 48,765 140,271 1,616,026
----------------- ----------------- ----------------- ----------------- -----------
Gross loss 0 (73,160) (48,765) (133,349) (1,091,644)
General and administrative expenses 290,627 425,617 1,052,539 1,086,076 26,595,254
Bad debt 0 0 0 0 1,680,522
Write-off of deposits
and intangible assets 0 10,000 0 10,000 1,331,714
----------------- ----------------- ----------------- ----------------- -----------
Loss from operations (290,627) (508,777) (1,101,304) (1,229,425) (30,699,134)
Other income (expenses)
Forgiveness of debt 0 0 0 0 504,462
Settlement 0 0 0 0 (125,000)
Other income 0 0 0 0 12,072
Interest income 0 397 0 4,150 111,542
Interest expense (266,280) (498,788) (1,101,230) (1,406,482) (11,554,375)
Minority interest 0 0 0 0 62,500
----------------- ----------------- ----------------- ----------------- -----------
Net loss $ (556,907) $ (1,007,168)$ (2,202,534) $ (2,631,757)$ (41,687,933)
================= ================= ================= ================= ============
Weighted-average shares outstanding 28,820,358,267 20,409,372,713 25,150,934,791 17,747,268,701
Net loss per share, basic and diluted (0.00) (0.00) (0.00) (0.00)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A and B No Par Value Paid in Subscription Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
---------- ---------- ----------- ---------- ---------- ----------- ----------- -----------
Balance, Dec. 1, 1990
(re-entry
development stage) 0 $ 0 10,609 $ 1,042,140 $ 0 $ 0 $(1,042,140)$ 0
Shares issued in exchange for:
Cash, Aug. 1993 0 0 1,000 1,000 0 0 0 1,000
Capital contribution,
Aug. 1993 0 0 2,000 515 0 0 0 515
Services, Mar. 1993 0 0 2,000 500 0 0 0 500
Services, Mar. 1993 0 0 1,200 600 0 0 0 600
Net loss for the year 0 0 0 0 0 0 (5,459) (5,459)
-------- ---------- ------------- -------- --------- ----------- ---------- ---------
Balance, November 30, 1993 0 0 16,809 1,044,755 0 0 (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1994 0 0 2,400 3,000 0 0 0 3,000
Cash, Sep. 1994 0 0 17,771 23,655 0 0 0 23,655
Services, Sep. 1994 0 0 8,700 11,614 0 0 0 11,614
Cash, Sep. 1994 0 0 3,000 15,000 0 0 0 15,000
Cash, Oct. 1994 16,345 A 16,345 0 0 0 0 0 16,345
Cash, Sep. and Oct. 1994 0 1,320 33,000 0 0 0 33,000
Net loss for the year 0 0 0 0 0 0 (32,544) (32,544)
---------- ---------- ------------- ---------- -------- ---------- ------------ ---------
Balance, November 30, 1994 16,345 $ 16,345 50,000 $ 1,131,024 $ 0 $ 0 $(1,080,143) $ 67,226
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital 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 condensed consolidated financial statements.
F-5
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital 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 condensed consolidated financial statements.
F-6
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital 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 condensed consolidated financial statements.
F-7
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital 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
Issuance of 563,500 consultant
stock options, March 2000,
at an exercise price of $2.00
per share - - - - 214,130 - - 214,130
Reduction of exercise prices
on 2,600,000 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 2,056,346 common and
20,000 preferred officer stock
options, May 2000, with
common stock exercise 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 500,000 consultant
stock options, September 2000,
with floating exercise prices
set at 15% below current market - - - - 65,000 - - 65,000
Net loss for the year - - - - - - (3,812,140) (3,812,140)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2000 140,020 $ 140,020 23,527,738 $16,187,421 $1,235,005 $ (15,450)$(18,416,864)$( 869,868)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-8
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2000 through
September, 2001, valued from
$0.11 to $0.40 per share - $ - 3,471,007 $ 572,790 $ - $ - $ - $ 572,790
Retainers, debt and accrued
liabilities, October 2000
through September 2001, valued
from $0.11 to $0.43 per share - - 3,688,989 487,121 - - - 487,121
Cash, October 2000 through
March 2001, with subscription
prices ranging from $0.075 to
$0.083 per share - - 1,045,500 78,787 - - - 78,787
Collection of stock subscription
receivable, October 2000,
on 61,800 shares - - - - - 15,450 - 15,450
Exercise of 400,000 common
stock options, January 2001,
at a exercise price of $0.085 per
share, in exchange for debt - - 400,000 86,000 (52,000) - - 34,000
Issuance of 1,000,000 common
stock warrants, April 2001,
at an exercise price of $0.192
per share, in conjunction with
$300,000 principal value of
8% convertible debt - - - - 77,228 - - 77,228
Issuance of 2,000,000 consultant
stock options, September 2001,
at a exercise price of $0.13 per
share - - - - 115,000 - - 115,000
Beneficial conversion option,
April 2001 through September
2001, pertaining to $300,000
principal value and accrued
interest on 8% convertible debt - - - - 155,027 - - 155,027
Net loss for the year - - - - - - (2,154,567) (2,154,567)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2001 140,020 $ 140,020 32,133,234 $17,412,119 $1,530,260 $ - $(20,571,431)$(1,489,032)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-9
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October 2001 through
September 2002, valued from
$0.02 to $0.25 per share - $ - 2,180,000 $ 179,916 $ - $ - $ - $ 179,916
Debt and accrued liabilities,
October 2001 through September
2002, with common shares
valued from $0.01 to $0.15 per
share and preferred A shares
valued at $1.00 per share 60,000 60,000 10,948,077 428,563 - - - 488,563
Cash, October 2001 through
September 2001, with prices
ranging from $0.01 to $0.083
per share - - 5,833,334 200,000 - - - 200,000
Exercise of 550,000 common stock
options by a consultant at a
exercise price of $0.13 per share,
in exchange for debt - - 550,000 103,125 (31,625) - - 71,500
Issuance of 3,750,000 warrants,
April 2002 through June 2002,
at an exercise price of $0.045
per share, in conjunction with
$750,000 principal value of 12%
convertible debt - - - - 100,087 - - 100,087
Beneficial conversion option,
April 2002, through June 2002,
pertaining to $750,000 principal
value of 12% convertible debt - - - - 649,913 - - 649,913
Conversion of $93,130 principal
value of 12% convertible debt
along with $6,916 accrued
interest, net of $69,233
convertible debt discount - - 12,667,178 111,515 (80,702) - - 30,813
Net loss for the year - - - - - - (2,346,732) (2,346,732)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2002 200,020 $ 200,020 64,311,823 $18,435,238 $2,167,933 $ - $(22,918,163)$(2,114,972)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-10
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October 2002 through
July, 2003, valued from
$0.0012 to $0.0100 share - $ - 31,500,000 $ 134,000 $ - $ - $ - $ 134,000
Debt and accrued liabilities,
October 2002 through September
2003, valued from $0.0010 to
$0.0512 per share, including
transfer of $155,027
beneficial conversion option 162,134,748 704,774 (155,027) - - 549,747
Cash, November 2002 through
September 2003, with prices
ranging from $0.0010 to $0.100
per share - - 128,500,000 180,000 - - - 180,000
Issuance of 2,500,000 warrants,
November 2002 through May 2003,
at an exercise price of $0.005
per share, in conjunction with
$500,000 principal value of 12%
convertible debt - - - - 9,816 - - 9,816
Beneficial conversion option,
November 2002, through May 2003,
pertaining to $500,000 principal
value of 12% convertible debt - - - - 490,184 - - 490,184
Conversion of $193,665 principal
value of 12% convertible debt
along with $34,355 accrued
interest, net of $52,340
convertible debt discount - - 103,778,301 353,525 (177,845) - - 175,680
Net loss for the year - - - - - - (2,386,875) (2,386,875)
--------- ---------- ----------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2003 200,020 $ 200,020 490,224,872 $19,807,537 $2,335,061 $ - $(25,305,038)$(2,962,420)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-11
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October 2003 through
August 2004 valued from
$0.0008 to $0.0026 per share 0 $ 0 57,300,000 $ 78,400 $ 0 $ 0 $ 0 $ 78,400
Issuance of 7,000,000 warrants
November 2003 through
September 2004 at exercise
Prices ranging from $0.002 to
$0.005 per share, in
conjunction with $2,000,000
principal value of 12%
convertible debt 0 0 0 0 9,447 0 0 9,447
Debt and accrued liabilities
December 2003 with
preferred stock class A
valued at $1.00 per share 15,845 A 15,845 0 0 0 0 0 15,845
Debt and accrued liabilities
November 2003 to September
2004 with common shares
valued from $0.001 to $0.0025
per share 0 0 156,625,000 163,575 0 0 0 163,575
Cash, November 2003 through
March 2004 with prices of
approximately $0.0010 0 0 74,670,000 75,000 0 0 0 75,000
per share
Re-characterization of beneficial
conversion option as derivative
conversion option , October 2003
pertaining to $963,205 of
convertible debt at
September 30, 2003 0 0 0 0 (881,550) 0 0 (881,550)
Conversion of $218,115 principal
value of 12% convertible debt
$327,172 of derivative
conversion option
along with $49,008 accrued
interest, net of $28,571
convertible debt discount 0 0 352,352,250 565,724 0 0 565,724
Net loss for the year 0 0 0 0 0 0 (4,228,827)(4,228,827)
--------- ---------- ----------- ----------- ----------- ---------- ------------ -----------
Balance, September 30, 2004 215,865 $215,865 1,131,172,122 $20,690,236 $1,462,958 $ 0 $(29,533,865)$(7,164,806)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Shares issued in exchange for:
Cash, January 2005 with a price
of $0.00125 per share 0 $ 0 4,000,000 $ 5,000 $ 0 $ 0 $ 0 % 5,000
Debt, accrued liabilities
and prepaid retainer
October 2004 to September
2005 with common shares
valued from $0.0004 to $0.0010
per share 0 0 591,300,000 473,362 0 0 0 473,362
Services, December 2004 through
August 2005 valued from
$0.0006 to $0.0010 per share 0 0 52,000,000 46,200 0 0 0 46,200
Issuance of 2,800,000 warrants
November 2004 through
September 2005 at an exercise
price of $0.0039 per share, in
conjunction with $1,400,000
principle value of 12%
convertible debt 0 0 0 0 3,756 0 0 3,756
Conversion of $2,529,378 principal
value of convertible debt,
$3,794,067 of derivative
conversion option
along with $104,410 accrued
interest, net of $973,565
convertible debt discount 0 0 5,610,392,876 5,454,290 0 0 5,454,290
Net loss for the year 0 0 0 0 0 0 (3,132,683) (3,132,683)
----------- -------- ------------- ----------- --------- ---------- ---------- -----------
Balance, September 30, 2005 215,865 $215,865 7,388,864,998 $26,669,088 $1,466,714$ 0 $(32,666,548) $(4,314,881)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-13
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
-------- -------- ------------ ---------- --------- ---------- ----------- ------------
Shares issued in exchange for:
Cash, April through July 2006
with prices ranging from
$0.00015 to $0.00050 per share 0 $ 0 533,333,333 $125,000 $ 0 $ 0 $ 0 $ 125,000
Services, March 2006 valued
at approximately $0.00071 per share 0 0 4,368,872 3,100 0 0 0 3,100
Issuance of 20,320,000 warrants
September 2006 at an exercise
price of $0.0009 per share, in
conjunction with $1,270,000
principal value of 6%
convertible debt 0 0 0 0 4,551 0 0 4,551
Conversion of $547,376 principal
value of 8% and 12% convertible debt,
$821,065 of derivative conversion
option, along with $8,300 accrued
interest, net of $243,177
convertible debt discount 0 0 6,458,227,580 1,133,564 0 0 0 1,133,564
Net loss for the period 0 0 0 0 0 0 (3,052,297) (3,052,297)
---------- ---------- ------------- ----------- ---------- ------ ----------- ------------
Balance, September 30, 2006 215,865 $ 215,865 14,384,794,783 $27,930,753 $1,471,265 $ 0$(35,718,845) $(6,100,962)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-14
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
-------- -------- ------------ ---------- --------- ---------- ----------- ------------
Shares issued in exchange for:
Accrued liabilities, November
2006, at a price of
approximately $0.0005 per share 0 $ 0 250,000,000 $ 124,165 $ 0 $ 0 $ 0 $ 124,165
Services, February 2007, valued
at $0.0003 per share 0 0 75,000,000 22,500 0 0 0 22,500
Issuance of 19,000,000 warrants
February 2007 through September
2007, at an exercise price of
$0.0009 per share, in conjunction
with $950,000 principal value of 6%
convertible debt 0 0 0 0 1,249 0 0 1,249
Conversion of $409,864 principal
value of 8% and 12% convertible
debt, $614,795 of derivative
conversion option, along with
$436,344 accrued interest 0 0 8,467,839,038 1,461,003 0 0 0 1,461,003
Net loss for the year 0 0 0 0 0 0 (3,766,554) (3,766,554)
--------- --------- -------------- ---------- --------- ------- ----------- -----------
Balance, September 30, 2007 215,865 $ 215,865 23,177,633,821 $29,538,421 $1,472,514 $ 0 $(39,485,399)$(8,258,599)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through June 30, 2008
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A & B No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
-------- -------- ------------ ---------- --------- ---------- ------------ ------------
Shares issued in exchange for:
Cash, October through March 2008
with prices ranging from
$0.00005 to $0.00050 per share 0 $ 0 1,000,000,000 $ 60,000 $ 0 $ 0 $ 0 $ 60,000
Services, November 2007, valued
at $0.0003 per share 0 0 25,000,000 2,500 0 0 0 2,500
Issuance of 16,000,000 warrants
October 2007 through March
2008, at an exercise price of
$0.0009 per share, in conjunction
with $415,000 principal value of 6%
convertible debt 0 0 0 0 568 0 0 568
Conversion of $220,838 principal
value of 8% and 12% convertible
debt, $331,256 of derivative
conversion option, along with
$45,383 accrued interest 0 0 4,617,724,444 597,476 0 0 0 597,476
Net loss for the year 0 0 0 0 0 0 (2,202,534) (2,202,534)
--------- --------- -------------- ---------- --------- ------- ----------- -----------
Balance, June 30, 2008 215,865 $ 215,865 28,820,358,267 $30,198,397 $1,473,082 $ 0 $(41,687,933) $(9,800,589)
========= ========= ============== =========== ========== ======== ============= ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2008 and 2007
And the Cumulative Period
From December 1, 1990 (re-entry development stage)
0 0 10,609 1,042,140 (1,042,140) 0
Shares issued in exchange for:
Cash, May 31, 1993
0 0 1,000 1,000 0 1,000
Capital contribution, May 31, 1993
0 0 2,000 515 0 515
Services, March 26, 1993
0 0 2,000 500 0 500
Services, March 26, 1993
0 0 1,200 600 0 600
Net loss for the year
0 0 0 0 (5,459) (5,459)
Balance, November(Inception) Through June 30, 1993
0 0 16,809 1,044,755 (1,047,599) (2,844)
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Services, May 1, 1994
0 0 2,400 3,000 0 3,000
Cash, September 1, 1994
0 0 17,771 23,655 0 23,655
Services, September 15, 1994
0 0 8,700 11,614 0 11,614
Cash, September 26, 1994
0 0 3,000 15,000 0 15,000
Cash, October 6, 1994
16,345(A) 16,345 0 0 0 16,345
Cash, September and October, 1994
0 0 1,320 33,000 0 33,000
Net loss for the year
0 0 0 0 (32,544) (32,544)
Balance, November2008
Dec. 1, 1990
(Inception)
9 Months Ended 9 Months Ended Through
June 30, June 30, June 30,
2008 2007 2008
Unaudited Unaudited Unaudited
--------------- --------------- --------------
Cash flows from operating activities:
Net loss $ (2,202,534)$ (2,631,757)$ (41,687,933)
Adjustments to reconcile net (loss)
to net cash used in (provided by)
operating activities:
Provision for bad debt write-offs 0 0 1,422,401
Depreciation and amortization
of property 17,894 16,339 1,784,520
Stock issued for services 2,500 22,500 7,673,473
Stock issued for interest 0 0 535,591
Settled damages 0 0 (25,000)
Minority interest 0 0 (62,500)
Write-off of deposits and
intangible assets 0 0 1,331,714
Amortization of loan fees
and note discounts 585,720 729,525 5,551,237
Mark-to-market of derivative
conversion option 370,146 326,017 3,762,407
Forgiveness of debt 0 0 (504,462)
Changes in:
Accounts/employee advances
receivable 5,201 0 (95,700)
Prepaid expenses and deposits 22,217 109,478 162,861
Increase (decrease) in liabilities
Accounts payable 47,787 (36,353) 2,526,358
Accrued compensation 347,533 73,041 3,590,156
Due to/from officers 39,637 65 670,935
Accrued interest and other current
liabilities 250,245 354,690 1,680,693
----------------- ----------------- -----------------
Total adjustments 1,688,880 1,595,302 30,004,684
----------------- ----------------- -----------------
Net cash used in
operating activities (513,654) (1,036,455) (11,683,249)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2008 and 2007
And the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2008
Dec. 1, 1990
(Inception)
9 Months Ended 9 Months Ended Through
June 30, June 30, June 30,
2008 2007 2008
Unaudited Unaudited Unaudited
---------------- ---------------- --------------
Investing activities:
Increase in notes receivable $ 0 $ 0 $ (1,322,500)
Cost of license & technology 0 0 (94,057)
Purchase of cds 0 430,733 0
Purchase of equipment (2,441) (14,284) (344,466)
----------------- ----------------- -----------------
Net cash provided by (used in)
investing activities (2,441) 416,449 (1,761,023)
Cash flows from financing activities:
Common stock issuance 60,000 0 3,677,172
Stock warrant issuance 568 1,017 206,702
Preferred stock issuance 0 0 16,345
Proceeds from stock purchase 0 0 281,250
Loan fees from debt, other 0 (20,000) (599,555)
Proceeds from debt, related 0 0 206,544
Proceeds from debt, other 414,816 649,520 10,277,681
Payments on debt, related 0 0 (53,172)
Payments on debt, other 0 0 (604,536)
Decrease in stock
subscription receivable 0 0 35,450
Contributed capital 0 0 515
----------------- ----------------- -----------------
Net cash provided by
financing activities 475,384 630,537 13,444,396
----------------- ----------------- -----------------
Net increase (decrease) in cash and
cash equivalents (40,711) 10,531 123
Cash and cash equivalents at
beginning of period 40,834 19,936 0
----------------- ----------------- -----------------
Cash and cash equivalents at end
of period $ 123 $ 30,467 $ 123
================= ================= =================
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2008 and 2007
And the Cumulative Period
From December 1, 1990 (Inception) Through June 30, 2008
Dec. 1, 1990
(Inception)
9 Months Ended 9 Months Ended Through
June 30, June 30, June 30,
2008 2007 2008
Unaudited Unaudited Unaudited
-------------- -------------- --------------
Supplemental disclosures of
Cash flow information:
Cash paid for interest $ 3,422 $ 5,040 $ 709,719
Cash paid for income Taxes 0 0 20,050
Non-cash investing and financing activities
Common stock issued for:
Note receivable 0 0 281,250
Prepaid expenses 0 0 264,748
Property and equipment 0 0 130,931
Licenses & technology 0 0 2,191,478
Acquisition of remaining
minority interest in subsidiary 0 0 59,247
of debt 552,094 584,537 14,590,223
Accrued services & interest 2,500 516,051 5,778,511
Preferred stock issued for
services - 0 75,845
Repayment of debt 0 0 119,520
Preferred stock options issued for
repayment of debt 0 0 100,000
Re-characterize beneficial
conversion option as debt 0 0 881,550
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
16,345 16,345 50,000 1,131,024 (1,080,143) 67,226
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Cash, February 13, 1995
0 0 1,160 232,000 0 232,000
Debt repayment, February 13, 1995
0 0 2,040 408,000 0 408,000
Debt repayment, February 20, 1995
0 0 4,778 477,810 0 477,810
Acquisition of assets, CIPI February, 1995
0 0 28,750 1,950,000 0 1,950,000
Acquisition of assets, April 5, 1995
0 0 15,000 0 0 0
Cash and services, April and May 1995
0 0 16,000 800,000 0 800,000
Cash, June 1, 1995
0 0 500 30,000 0 30,000
Acquisition of assets and services, September 26, 1995
0 0 4,000 200,000 0 200,000
Cash, September 28, 1995
0 0 41 3,000 0 3,000
Acquisition of assets, September 1995
0 0 35,000 1,750,000 0 1,750,000
Return of assets, CIPI September, 1995
0 0 (27,700) (1,950,000) 0 (1,950,000)
Net loss for the year
0 0 0 0 (2,293,867) (2,293,867)
Balance, November 30, 1995
16,345 16,345 129,569 5,031,834 (3,374,010) 1,674,169
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Cash, February, 1996
0 0 1,389 152,779 0 152,779
Debt repayment, February 1996
0 0 10,000 612,000 0 612,000
Services, February, 1996
0 0 3,160 205,892 0 205,892
Cash, March, 1996
0 0 179 25,000 0 25,000
Shares returned and canceled, March, 1996
0 0 0 (15,000) 0 0 $ 0
Services, April, 1996
0 0 13 2,069 0 2,069
Services, September, 1996
4,155(A) 4,155 586 36,317 0 40,472
Services, October, 1996
0 0 6,540 327,000 0 327,000
Debt repayment, November, 1996
0 0 2,350 64,330 0 64,330
Net loss for the year
0 0 0 0 (2,238,933) (2,238,933)
Balance, November 30, 1996
20,500 20,500 138,786 6,457,221 (5,612,943) 864,778
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Services, March, 1997
0 0 228 6,879 0 6,879
Services, April, 1997
0 0 800 13,120 0 13,120
Services, July, 1997
0 0 1,500 16,200 0 16,200
Cash, July, 1997
0 0 15,000 300,000 0 300,000
Services, August, 1997
0 0 5,958 56,000 0 56,000
Adjustment for partial shares due to reverse stock split (1/20)
0 0 113 0 0 0
Services, October, 1997
0 0 1,469,666 587,865 0 587,865
Debt repayment, October, 1997
0 0 1,540,267 620,507 0 620,507
Cash, October, 1997
0 0 1,500,000 281,250 0 281,250
Services, November, 1997
0 0 4,950 10,538 0 10,538
Net loss for the year
0 0 0 0 (2,739,268) (2,739,268)
Balance, November 30, 1997
0 20,500 4,677,268 8,349,580 (8,352,211) 17,869
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Services, December, 1997 through November, 1998
0 0 2,551,610 2,338,264 0 2,338,264
Debt repayment, April, 1998 through September, 1998
0 0 250,000 129,960 0 129,960
Cash, January, 1998 through July, 1998
0 0 4,833,334 1,139,218 0 1,139,218
Acquisition of assets, July, 1998
0 0 300,000 421,478 0 421,478
Acquisition of 20% minority interest in subsidiary, July, 1998
0 0 50,000 59,247 0 59,247
Services, November, 1998
60,000(A) 60,000 0 0 0 60,000
Net loss for the year
0 0 0 0 (4,928,682) (4,928,682)
Balance, November 30, 1998
80,500 80,500 12,662,212 12,437,747 (13,280,893) (762,646)
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares returned and canceled, December, 1998
0 0 (1,350,000) (814,536) (814,536)
Services, December, 1998 through September, 1999
0 0 560,029 349,454 349,454
Cash, December, 1998 through September, 1999
0 0 1,155,800 129,537 129,537
Debt repayment, Sept., 1999
39,520(A) 39,520 960,321 197,500 237,020
Services, December, 1998 through September, 1999
150,000(B) 150,000(B) 0 0 150,000
Debt repayment, Sept., 1999
100,000(A) 100,000 0 0 100,000
Net loss for the period
0 0 0 0 (1,323,831) (1,323,831)
Balance, September 30, 1999
370,020 $ 370,020 13,988,362 $12,299,702 $(14,604,724) $(1,935,002)
Total
Preferred Stock Common Stock Shareholders
Class A and B No Par Value Accumulated Equity
Shares Value Shares Value Deficit (Deficit)
Shares issued in exchange for:
Services, October, 1999 through March, 2000
0 0 2,454,924 1,458,784 1,458,784
Cash, October, 1999 through March, 2000
0 0 1,120,061 528,888 528,888
Net loss for the period
0 0 0 0 (1,682,510) (1,682,510)
Balance, March 31, 2000
370,020 $ 370,020 17,563,347 $14,287,374 $(16,287,234) $(1,629,840)2008
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Conectisys Corporation (the "Company") was incorporated under the laws
of Colorado on February 3, 1986, to analyze and invest in business
opportunities as they may occur.
TechniLink has developed the Cube 2001 series for the monitoring and
controlling of various devices in the petroleum and gas industry.
PrimeLink has developed a product line that uses cutting edge
communications to assist in the monitoring of meters for utility
companies and the petroleum industry. This technology, while
eliminating the need for a meter reader, is more significant in enabling
the utility companies to utilize energy conservation and, in the case
of power companies, re-routing of electrical power to areas where it is
needed. The devices are also in use in vending machines to monitor
sales and functions of the vending machine without the physical
inspection usually needed.
Effective December 1, 1994, the Company agreed to acquire all of the
outstanding shares of Progressive Administrators, Inc. ("PAI") in
exchange for 300,000 shares of its no par value common stock. The
transaction was to be accounted for as a purchase transaction. The
shares to be issued by the Company were to be "restricted securities"
within the meaning of Rule 144 of the Securities Act of 1933, as amended.
Accordingly, PAI would have been a wholly-owned subsidiary of the
Company as of December 1, 1994. PAI was formed in the state of Colorado
on September 14, 1994 and is engaged in the records storage business.
Effective December 1, 1994, the Company also agreed to acquire all of
the outstanding shares of Creative Image Products, Inc. ("CIPI") in
exchange for 575,000 shares of its no par value common stock. The
shares were issued in February of 1995. The shares issued by the
Company were "restricted securities" within the meaning of Rule 144 of
the Securities Act of 1933, as amended. Accordingly, CIPI was a wholly-
owned subsidiary of the Company as of December 1, 1994. CIPI was formed
in the state of Kansas on April 29, 1994 and is engaged in the
insecticide business and, through its wholly-owned subsidiary, ADA
Signature Distributors, Inc., the sign manufacturing business. During
1995, the Company'sonly operations consisted of CIPI's manufacturing of
organic insecticides prior to its disposal. On September 28, 1995, the
Company entered into an agreement to unwind the acquisition of CIPI.
CIPI issued a promissory note to the Company in the amount of $1,302,500
to reimburse the Company for cash advances. In accordance with the
agreement, the shares issued to CIPI were exchanged for all shares issued
to the Company. The shares outstanding carry no value on the financial
statements. In 1997, the Company wrote-off this note receivable as it
was deemed uncollectible.
On February 15, 1996, PrimeLink entered into a Joint Marketing and
Development Agreement (the "Agreement") with SkyTel Corp. pursuant to
which PrimeLink agreed to customize and develop a paging technology
based receiver for use in connection with SkyTel's two-way wireless
messaging services and system (the "SkyTel Network") and both parties
agreed to assist each other in the marketing of the Primelink product
and the SkyTel Network. The Company believes that the joint marketing
of its product with the SkyTel System could have significant potential
for the Company. However, the Agreement does not require any purchases
of the PrimeLink product by SkyTel, and may not necessarily result in
any significant revenues for the Company. The Agreement is for a two-
year term, and will automatically renew for additional one-year terms
until terminated by either party.
In September 1995, the Company acquired 80% of the outstanding stock of
TechniLink, Inc., a California corporation, and 80% of the outstanding
stock of PrimeLink, Inc., a Kansas corporation, in exchange for an
aggregate of 200,000 shares of the Company's common stock. The
acquisitions were accounted for as purchases. Both PrimeLink and
TechniLink are start-up companies with no material operating activity
and therefore no pro forma statements of operations were provided.
The acquisitions of these companies occurred in connection with the
signing of the license agreements discussed in Note 8. The Company
issued a total of 700,000 shares of common stock and assumed a loan of
$400,000 to acquire the licenses and the Corporations. The only major
asset acquired from PrimeLink and TechniLink was the license and
technology. The stock issued was valued at $1,750,000, the fair market
value of common stock issued, and is included in licenses and technology
on the balance sheet.
On July 22, 1998, the Company acquired the remaining 20% interest in
TechniLink, Inc. for 50,000 shares of the Company's common stock valued
at $59,247.
Basis of presentation
and going concern uncertainty
The accompanying condensed consolidated financial statements includeshould be read in
conjunction with the
transactions of Conectisys Corporation, its wholly-owned subsidiary
TechniLink, Inc., and its 80% owned subsidiary PrimeLink, Inc. All
material intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements. Certain prior
period amounts in the accompanying consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the year ended September 30, 2007. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for the fair presentation have been reclassified to conform to the current period's presentation.included. 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 March 31, 2000, the Company had a deficiency in working capital of
approximately $1,720,000, and had incurred continual operating losses
since its return to the development stage ($1.8 million in 1996, $2.3
million in 1997, $4.2 million in 1998, $1.0 million in 1999 (ten months)
and 1.7 millionresults
for the sixnine months ended March 31, 2000), which raise
substantial doubt about the Company's ability to continue as a going
concern.
Management's plans for correcting these deficiencies include the future
sales of their newly licensed products and to raise capital through the
issuance of common stock to assist in providing the Company with the
liquidity necessary to retire the outstanding debt and meet operating
expenses (See Note 13(b)). In the longer term, the Company plans to
achieve profitability through the operations of the subsidiaries. The
accompanying consolidated financial statementsJune 30, 2008 do not include any
adjustments relating tonecessarily indicate the
recoverability and classification ofresults that may be expected for the recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.full year.
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 materially 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 March 31, 2000, the amounts that
will actually be realized or paid at settlement of the instruments could
be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the
fair value because of the liquidity of these instruments. Accounts
payable, accrued compensation, other current liabilities, and notes
payable approximate fair value because of the short maturity of these
instruments.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or
less. All funds on deposit are with one financial institution.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on
property and equipment using the straight-line method over the expected
useful lives of the assets, which are generally five years for vehicles
and office equipment and seven years for furniture and fixtures.
Licensing agreements
The costs of acquiring license rights are capitalized and amortized over
the shorter of the estimated useful life of the license or the term of
the license agreement. The licenses are being amortized over a period
of five years. During the year ended November 30, 1998, the Company
acquired additional license rights in the amount of $421,478 from
TechniLink. Although the license remains viable, the Company currently
lacks the resources to develop and market it. Accordingly, during the
ten month period ended September 30, 1999, the Company accelerated
amortization on this asset by writing it down to its net realizable
value of $40,000, incurring a charge of $283,133. The balance of the
carrying value of older licenses and deferred technology was written-off
during the year ended November 30, 1998, as a consequence of persistent
competitive pressure. The expense incurred was $632,257.
Technology
Deferred technology costs include capitalized product development and
product improvement costs incurred after achieving technological
feasibility and are amortized over a period of five years.
Impairment of long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of" (SFAS No. 121) issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements for fiscal years beginning
after December 15, 1995. The standard establishes new guidelines
regarding when impairment losses on long-lived assets, which include
plant and equipment, certain identifiable intangible assets and goodwill,
should be recognized and how impairment losses should be measured.
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" (SFAS No. 123) establishes a fair value method
of accounting for stock-based compensation plans and for transactions in
which an entity acquires goods or services from non-employees in
exchange for equity instruments. The Company adopted this accounting
standard on January 1, 1996. SFAS No. 123 also encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation. The Company has chosen to account for stock-based
compensation utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the
Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Also, in accordance with SFAS No. 123, the
Company has provided footnote disclosures with respect to stock-based
employee compensation. The cost of stock-based compensation is measured
at the grant date on the value of the award, and this cost is then
recognized as compensation expense over the service period. The value
of the stock-based award is determined using a pricing model whereby
compensation cost is the excess of the fair market value of the stock as
determined by the model at the grant date or other measurement date over
the amount an employee must pay to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in exchange for
goods or services are valued at the cost of the goods or services
received or at the market value of the shares issued, depending on the
ability to estimate the value of the goods or services received.
Income taxes
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, which requires the Company to recognize deferred tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's consolidated financial
statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax basis of assets using the enacted
rates in effect in the years in which the differences are expected to
reverse.
Net loss per common share - basic and diluted
Net loss per common share -basic and 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.
New accounting pronouncements
Statementanti-
dilutive.
As of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) issued byJune 30, 2008, the FASB is effectiveCompany had 28,820,358,267 shares of common stock
outstanding. If all of the Company's unexpired warrants and options were
exercised, and all the principal value and accrued interest on its outstanding
convertible debentures were converted, the Company's incremental common shares
(not included in the denominator of diluted loss per share because of their
anti-dilutive nature) would be as follows:
Class B preferred stock options 10,000,000
Convertible note holder - common stock warrants 57,620,000
--------------
Subtotal 67,620,000
Accrued officer compensation ($520,000),
convertible into common stock 616,823,358
Convertible note holder principal value
($3,072,634), accrued interest ($498,132)
assumed converted into common stock at
$0.000035 per share 102,021,885,714
---------------
Total potential common stock equivalents 102,706,329,072
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
year's presentation.
F-20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 2. GOING CONCERN UNCERTAINTY
As of June 30, 2008, the Company had a deficiency in working capital of
approximately $5,300,000 and had incurred cumulative net losses since inception
of approximately $41,700,000, 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
and licensing of the Company's products and technologies, the raising of capital
through the issuance of additional convertible debt securities and sales of
common stock, which are expected to help provide the Company with the liquidity
necessary to meet operating expenses. An investor group had previously advanced
the Company an aggregate amount of $7,285,000 through numerous similar funding
tranches occurring in April 2002 through June 30, 2008. During the year ended
September 30, 2007, the same investor group advanced the Company an additional
$1,250,000. The Company received $250,000 in February 2007, $100,000 in March
2007, $100,000 in April 2007, $100,000 in May 2007, $100,000 in June 2007,
$100,000 in July 2007, $100,000 in August 2007, $100,000 in September 2007,
$100,000 in October 2007, $100,000 in November 2007, $100,000 in December 2007,
and $115,000 in March 2008, including certain fees payable, in connection with
this additional financing. Over the longer term, the Company plans to achieve
profitability through its operations from the sale and licensing of its H-
Net(TM) automatic meter-reading system. The accompanying consolidated financial
statements with fiscal years beginning after December 15,
1997. Earlier adoption is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The
Company doesdo not expect adoption of SFAS No. 130 to have a material
effect on its financial position or its results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments of an Enterprise and Related Information," (SFAS No. 131)
issued by the FASB is effective for financial statements with fiscal
years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 131 requires that public companies report certain
information about operating segments, products, services and geographical
areas in which they operate and their major customers. The Company does
not expect adoption of SFAS No. 131 to have an effect on its financial
position or results of operations; however, additional disclosures may be
madeinclude any adjustments relating to the above items.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.
NOTE 2. RELATED PARTY TRANSACTIONS3. PREPAID EXPENSES
The Company leaseshas accrued a prepaid expense of $80,000 as a staying bonus for its
Chief Executive Officer as per his employment contract (see Note 5). The staying
bonus was amortized over the calendar year 2007. The unamortized balance at
June 30, 2008 was $0.
At June 30, 2008, the balance in prepaid expenses totaled $23,251. Included
in prepaid expenses is $20,000 in an escrow account designated for key man life
insurance, and $3,251 in prepaid taxes.
The company has paid a security deposit of $4,698 under its existing lease
agreement for office space from S.W. Carver Corporation, a company
owned by a major shareholder ofin Valencia, California (see Note 10).
F-21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 4. LOAN FEES
During the Company. The lease is for a period
of twelve months, renewable annually in April at the option of the
lessee. Effective April, 1998, the monthly rent was increased from
$2,000 to $2,500. Lease expense for the six month period ended March
31, 2000 and the ten monthsyear ended September 30, 19992006, the Company received an aggregate of
$1,270,000 from the same accredited investor group in exchange for 6%
convertible debentures maturing March 8, 2009, convertible at the lesser of
$0.003 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. These convertible debentures were accompanied by an
aggregate of 20,320,000 common stock warrants, exercisable over a five-year
period at an exercise price of $0.0009 per share. Loan fees associated with
these loans amounted to $20,000. As of September 30, 2006, aggregate loan fees
amounted to $539,555, and accumulated amortization of these loan fees was
$15,000 and
$25,000, respectively.
NOTE 3. NOTES RECEIVABLE
A note receivable from CIPI of $1,302,500 was deemed to be uncollectible
and was written-off in the fiscal year ended November 30, 1997, resulting
in a bad debt expense of $446,625. The Company had previously provided
a cumulative allowance for doubtful accounts of $855,875 in fiscal 1996
and 1995. Interest receivable on this note was also written-off
accordingly.
A promissory note was received on a stock purchase agreement for
1,500,000 shares in the amount of $281,250 during$511,315.
During the year ended NovemberSeptember 30, 1997. An initial payment2007, the Company received an aggregate of
$99,980 was received, leaving$950,000 from the same accredited investor group in exchange for 6% convertible
debentures maturing February 13, 2010, convertible at the lesser of $0.03 per
share and 40% of the average of the lowest three intra-day trading prices of a
balanceshare of $181,270 at year-end. The balance was collected in fullcommon stock during the year20 trading days immediately preceding
conversion. These convertible debentures were accompanied by an aggregate of
19,000,000 common stock warrants, exercisable over a seven-year period at an
exercise price of $0.0009 per share. Loan fees associated with these loans
amounted to $20,000.
During the nine months ended NovemberJune 30, 1998.2008, the Company received an aggregate of
$415,000 from the same accredited investor group in exchange for 6% convertible
debentures maturing February 13, 2010, and March 28, 2011, convertible at the
lesser of $0.03 per share and 40% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days immediately
preceding conversion. These convertible debentures were accompanied by an
aggregate of 16,000,000 common stock warrants, exercisable over a seven-year
period at an exercise price of $0.0009 per share. Loan fees associated with
these loans amounted to $25,000.
Total amortization of all loan fees during the nine months ended June 30, 2008
amounted to $10,668, leaving an unamortized loan fee balance at June 30, 2008
of $19,724.
NOTE 4. PROPERTY5. DUE TO/FROM OFFICERS
The aggregate amount due officers at June 30, 2008 was $40,174 and interest
expense on the officer loans amounted to $77 for the nine months ended June
30, 2008.
As of June 30, 2008, the Company owed its officers and former officers
$2,418,148 in accrued compensation. Of this amount, $520,000 was attributable
to aggregate staying bonuses payable to the President and former Chief Financial
Officer, Secretary and Treasurer of the Company as of January 31, 2006. An
additional $80,000 payable to the President on January 1, 2007 was amortized
over the 2007 calendar year. The staying bonuses are to be compensated for with
the Company's common stock, valued at the average bid and ask price for the
stock for the 30 days prior to each respective year-end issuance date. The
total common stock to be issued as staying bonuses amounted to 616,823,358 at
September 30, 2007, including 289,156,628 shares to pay the Chief Executive
Officer's January 1, 2006 staying bonus.
F-22
CONECTISYS CORPORATION AND EQUIPMENT
Property and equipmentSUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 6. CONVERTIBLE DEBENTURES
Convertible debentures at March 31, 2000June 30, 2008, including convertible debentures
previously entirely converted to equity, secured by substantially all the assets
of the Company, consisted of the following:
Office equipment $ 217,388
Furniture and fixtures 16,609
Vehicles 35,362
----------
Total cost 269,359
Accumulated depreciation (200,094)
----------
Net book value $ 69,265
==========
NOTE 5. DUE
Original Net Remaining Accrued Unexpired
Principal Proceeds to Principal (Unpaid) Warrants
Issuance Date Amount Company(1) Amount Interest(2) Issued
- ------------- ------------ ------------ ------------ ------------- ------------
March 29, 2002 $ 300,000 $ 225,000 $ -- $ -- --
May 10, 2002 150,000 129,000 -- -- --
June 17, 2002 300,000 238,000 -- -- --
November 27, 2002 200,000 144,000 -- -- 1,000,000
March 3, 2003 150,000 100,000 -- 27,720 750,000
May 12, 2003 150,000 100,000 -- 36,000 750,000
November 25, 2003 100,000 76,000 -- 24,000 500,000
December 3, 2003 50,000 31,000 -- 12,000 250,000
December 31, 2003 50,000 44,000 -- 12,000 250,000
February 18, 2004 50,000 35,000 -- 12,000 250,000
March 4, 2004 250,000 203,000 -- 59,048 1,250,000
April 19, 2004 250,000 165,000 -- -- 750,000
June 30, 2004 625,000 452,000 -- -- 1,875,000
September 9, 2004 625,000 482,000 -- -- 1,875,000
March 17, 2005 1,400,000 1,148,000 752,645 187,420 2,800,000
March 8, 2006 1,270,000 1,180,000 954,989 115,236 20,320,000
February 13, 2007 1,250,000 1,230,000 1,250,000 76,324 25,000,000
March 28, 2008 115,000 95,000 115,000 2,395 10,000,000
---------- ----------- ----------- ---------- ------------
Total $ 7,285,000 $ 6,077,000 $ 3,072,634 $ 564,143 67,620,000
========== =========== =========== ========== ============
F-23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO OFFICER
During the ten month period ended SeptemberCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, the Company
received cash advances from its president totaling $555,193. At
September 30,1999, $197,500 of these advances was exchanged for the
assumption of a promissory note to S.W. Carver, due on demand (and in
no event later than October 1, 2000) at an annual interest rate of 10%,
and another $287,020 of these advances was exchanged for equity. Also
at September 30, 1999, $62,522 in accrued compensation was transferred
to the advance account, resulting in a balance of $133,195. This balance
was converted into a promissory note due on demand (and in no event
later than October 1, 2000) at an annual interest rate of 10%. For2008
NOTE 6. NOTES PAYABLE
Notes payable at March 31, 2000 consistedCONVERTIBLE DEBENTURES (continued)
Subtotal - convertible debentures $ 3,636,777
Less reclassified accrued interest (498,132)
Less prepaid interest offset ( 66,011)
------------
Subtotal principal value 3,072,634
Derivative conversion option - 150 percent of the following:
Noteprincipal 4,608,952
Less unamortized note discount (1,173,295)
-----------
Net carrying value - convertible debentures $ 6,508,291
Convertible note payable to Devon Investment Advisors, $ 241,824Laurus Master Fund, Ltd.,
unsecured, due on demand,with interest payable at an annual rate
of 10%
Note payable to Black Dog Ranch LLC, 278,728
unsecured, due8%, conversion premium of 25% based on demand,
interest payable at an annual ratecurrent
market price of 18%
Note payable to Deauville Capital Partners, 75,000
unsecured, due two years from date of note
with an option to convert tothe Company's common stock interest payable at an annual rate of 10%
---------(as defined),
initially due October 12, 2001 and extended to
December 1, 2001. Currently in default. 10,021
-----------
Total - convertible debentures and notes payable $ 595,5526,518,312
Current portion (595,552)
---------2,029,107
-----------
Long-term portion $ 0
The maturity4,489,205
===========
As of long-term debt at March 31, 2000 wasJune 30, 2008, five-year maturities of the notes payable, including
convertible debentures, were as follows:
Year ended September
Derivative Unamortized Subsequent
Conversion Note Conversion Total
Principal Option Discount to Equity Due
---------- ---------- ---------- -------- --------
Year ended June 30, 2009 817,655 1,211,452 0 0 2,029,107
Year ended June 30, 2010 900,000 1,350,000 (296,075) 0 1,953,925
Year ended June 30, 2011 1,365,000 2,047,500 (877,220) 0 2,535,280
Subsequent conversions to equity 0 0 0 0 0
---------- ---------- ---------- ------ ---------
Total notes payable $ 3,082,655 $ 4,608,952 (1,173,295) $ 0 $ 6,518,312
========== ========== ========== ====== =========
F-24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000: $ 595,552
Thereafter 0
---------
Total notes payable $ 595,552
=========2008
NOTE 7. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT
In order to provide working capital and financing for the Company's continued
research and development efforts, the Company has entered into a series of
securities purchase agreements and related agreements with an accredited
investor group (the "Purchasers") for the purchase of one-year to three-year
convertible debentures, which bear interest ranging from 6% to 12% per annum,
payable quarterly. The debentures are currently convertible into common stock
at prices ranging from the lesser of a fixed price ($0.005 to $0.06 per share)
and 40% of the average of the lowest three intra-day trading prices of a share
of common stock during the 20 trading days immediately preceding conversion. The
debentures have also been accompanied by the issuance of three-year to seven-
year common stock warrants (in amounts numbering from three to 20 times each
dollar of the related convertible debt principal issued) and exercisable into
the Company's common stock at prices ranging from $0.0009 to $0.045 per share.
As part of the recording of the convertible debt transactions, a derivative
conversion option and amortizable convertible debt discount have been
recognized. The carrying value of the debt is net of the principal value,
derivative conversion option, and unamortized convertible debt discount
components.
To the extent debentures issued by the Company are converted into shares of
common stock, the Company will not be obligated to repay the amounts converted.
The Company's convertible debentures and related warrants contain anti-dilution
provisions whereby, if the Company issues common stock or securities convertible
into or exercisable for common stock at a price less than the conversion or
exercise prices of the debentures or warrants, the conversion and exercise
prices of the debentures and/or warrants shall be adjusted as stipulated in the
agreements governing such debentures and warrants.
The cumulative history of the Company's convertible debt-related transactions
with the above accredited investor group is summarized as follows:
F-25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 7. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
Net Net
Derivative Convertible Debt
Principal Conversion Debt Carrying Warrants
Period/Transaction Amount Option Discount Amount Outstanding
- ------------------ ---------- ---------- ---------- --------- -----------
Issuances $ 750,000 $ -- $ (750,000) $ -- 3,750,000
Amortization -- -- 279,115 279,115 --
Conversions (93,130) -- 69,233 (23,897) --
---------- ---------- ----------- --------- -----------
Balance,
September 30, 2002 656,870 -- (401,652) 255,218 3,750,000
Issuances 500,000 -- (500,000) -- 2,500,000
Amortization -- -- 653,720 653,720 --
Conversions (193,665) -- 52,340 (141,325) --
---------- ---------- ---------- --------- -----------
Balance,
September 30, 2003 963,205 -- (195,592) 767,613 6,250,000
Re-characterize
Equity as Debt -- 881,550 -- 881,550 --
Bump-up Due to
Mark-to-Market -- 563,257 -- 563,257 --
Issuances 2,000,000 3,000,000 (2,000,000) 3,000,000 7,000,000
Amortization -- -- 673,705 673,705 --
Conversions (218,115) (327,172) 28,571 (516,716) --
---------- ---------- ----------- --------- -----------
Balance,
September 30, 2004 2,745,090 4,117,635 (1,493,316) 5,369,409 13,250,000
Issuances 1,400,000 2,100,000 (1,400,000) 2,100,000 2,800,000
Expirations -- -- -- -- (3,750,000)
Amortization -- -- 693,992 693,992 --
Conversions (2,529,378) (3,794,067) 973,565 (5,349,880) --
---------- ---------- ----------- --------- -----------
Balance,
September 30, 2005 1,615,712 2,423,568 (1,225,759) 2,813,521 12,300,000
Issuances 1,270,000 1,905,000 (1,270,000) 1,905,000 20,320,000
Amortization -- -- 715,748 715,748 --
Conversions (547,376) (821,065) 243,177 (1,125,264) --
---------- ---------- ----------- --------- -----------
Balance,
September 30, 2006 2,338,336 3,507,503 (1,536,834) 4,309,005 32,620,000
Issuances 950,000 1,425,000 (950,000) 1,425,000 19,000,000
Amortization -- -- 1,142,819 1,142,819 --
Conversions (409,864) (614,795) - (1,024,659) --
---------- ---------- ----------- --------- -----------
Balance,
September 30, 2007 $2,878,472 $4,317,708 $(1,344,015) $5,852,165 51,620,000
Issuances 300,000 450,000 (300,000) 450,000 6,000,000
Amortization -- -- 180,130 180,130 --
Conversions (148,338) (222,506) - (370,844) --
---------- ---------- ----------- --------- -----------
Balance,
December 31, 2007 $3,030,134 $4,545,202 $(1,463,885) $6,111,451 57,620,000
Issuances 115,000 172,500 (115,000) 172,500 10,000,000
Amortization -- -- 195,284 195,284 --
Conversions (72,500) (108,750) - (181,250) --
---------- ---------- ----------- --------- -----------
Balance,
March 31, 2008 $3,072,634 $4,608,952 $(1,383,601) $6,297,985 67,620,000
Issuances -- -- - -- 10,000,000
Amortization -- -- 210,306 210,306 --
Conversions -- -- - -- --
---------- ---------- ----------- --------- -----------
Balance,
June 30, 2008 $3,072,634 $4,608,952 $(1,173,295) $6,508,291 77,620,000
========== ========= =========== ========= ==========
F-26
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT)DEFICIT
The Company isCompany's authorized to issuecapital stock consists of 50,000,000,000 shares of
common stock, no par value per share and 50,000,000 shares of preferred stock,
$1.00 par value per share. On June 28, 2006, the shareholders of the Company
approved an increase in the amount of authorized shares of common stock from
15,000,000,000 to 50,000,000,000. Of the 50,000,000 authorized shares of
preferred stock, no liquidation preference. One million of the
preferred1,000,000 shares arehave been designated as Class A preferredPreferred
Stock and 1,000,000 shares which have super voting power wherein each share receives 100 votes and has anti-
dilution rights. One million of the preferred shares arebeen designated as Class B preferredPreferred Stock, and
the remaining 48,000,000 shares which have conversion rights wherein each share
may be converted into ten sharesare undesignated. As of common stock.
In December, 1997, the Company issued 4,550 shares of its common stock
in exchange for legal services valued at $2,733.
In January, 1998, the Company issued 133,334 shares of its common stock
to an investor for $167,730.
In February, 1998, the Company entered into a stock purchase agreement
with two subsidiaries of BVI Corporation, resulting in the purchase of
4,000,000June 30, 2008, there
were 28,820,358,267 shares of the Company's common stock at a subscription priceoutstanding held by
approximately 700 holders of $.158625record and 215,865 shares of the Company's Class A
Preferred Stock outstanding held by one holder of record and no shares of Class
B Preferred Stock outstanding.
Each share of Class A Preferred Stock is entitled to 100 votes per share with a total valueon all
matters presented to the Company's shareholders for action. The Class A
Preferred Stock does not have any liquidation preference, additional voting
rights, conversion rights, anti-dilution rights or any other preferential
rights.
Each share of $634,500.
In April, June, and September, 1998, 500,000 shares of common stock were
issued to a creditor in exchange for debt of $129,960.
In April and June, 1998, 80,023Class B Preferred Stock is convertible into 10 shares of the
Company's common stock
were issued in exchange for consulting services valued at $132,254.
In July, 1998, 450,000 shares of the Company's common stock were issued
to three investors for cash in the aggregate of $336,988.
In July, 1998,stock. The Class B Preferred Stock does not have any
liquidation preference, voting rights, other conversion rights, anti-dilution
rights or any other preferential rights.
During October 2007 through June 30, 2008, the Company issued 300,0004,617,724,446
shares of its common stock to
the minority interest shareholder of TechniLink, Inc. in exchange for
the acquisition of licensed technology valued at $421,478, and issued
another 50,000 shares in exchange for the remaining 20% minority interest
valued at $59,247.
In July, 1998, 120,000 shares of the Company's common stock were issued
to four Company directors for director fees totaling $246,186.
In July, 1998, the Company issued 3,000 of its common shares in exchange
for consulting fees of $4,325.
In July, 1998, the Company issued another 425,000 shares of its common
stock to two consultants for services valued at $832,868.
In July, 1998, the Company issued 6,283 shares of its common stock in
exchange for printing services valued at $10,805.
In August, 1998, the Company issued 58,637 shares of its common stock
for consulting services totaling $91,147.
In September, 1998, the Company issued 1,410,000 shares of its common
stock for market consulting services totaling $880,967.
In October and November, 1998, the Company issued 444,117 shares of its
common stock in exchange for consulting services of $136,979.
In November, 1998, the Company issued 60,000 shares of its Class A $1.00
par value preferred stock as officer compensation.
In December, 1998, the Company canceled 1,350,000 shares of its common
stock previously issued to a consultant and valued at $814,536, which
were contingent on the establishment of a $5,000,000 line of credit
(never achieved).
In December, 1998, the Company issued 750,000 shares of its common stock
valued at $50,000 to a consultant for services rendered.
In January and September, 1999, the Company issued a total of 152,548
shares of its common stock for consultant services rendered of $45,360.
During the months March, 1999 through September, 1999, the Company
issued a total of 405,800 shares of its common stock valued at $79,537
in a private placement.
In September, 1999, the Company issued 100,000 shares of its common
stock for consultant fees rendered of $84,644.
In September, 1999, the Company issued 960,321 shares of its common
stock to repay related party debt of $197,500.
In September, 1999, the Company issued a total of 47,481 shares of its
common stock valued at $15,957 as hiring bonuses for two employees.
In September, 1999, the Company issued 260,000 shares of its common
stock to its president as compensation for director fees of $203,493
and also issued him 39,520 of its Class A $1.00 par value preferred
stock to partially repay debt.
In September, 1999, the Company issued options to purchase 500,000
shares each (a total of 1,000,000) of its Class B convertible preferred
stock at a price of $5.00 per share in exchange for debt reduction of
$50,000 each (a total of $100,000) to a note holder and the Company's
president.
In September, 1999, the Company issued options to purchase 600,000
shares of the Company's common stock (500,000 options to its president
and 100,000 options to an employee) valued at $150,000.
In October, 1999, the Company placed 221,200 shares of the Company stock
for sale for $49,920.
In November, 1999, the Company issued 100,000 shares of the Company's
stock valued at $50,000 for accounting services rendered.
In December, 1999, the Company issued 40,000 shares of the Company's
stock valued at $30,000 for accounting services rendered.
In December, 1999, the Company issued 815,000 shares of the Company's
stock valued at $334,177 for consulting services rendered.
In December, 1999, the Company issued 139,770 shares of the Company's
stock valued at $80,000 for bonuses owed to the Secretary of the
Company.
In December, 1999, the Company issued 279,539 shares of the Company's
stock valued at $160,000 for bonuses owed to the President of the
Company.
In December, 1999, the Company issued 26,087 shares of the Company's
stock valued at $18,000 for advertising and promotional brochures.
In January, 2000, the Company cancelled 6,283 shares of the Company's
stock valued at $10,805 for advertising and promotional brochures.
In February, 2000, the Company issued 412,000 shares of the Company's
stock valued at $103,000 for consulting and accrued salary.
In February, 2000, the Company issued 100,000 shares of the Company's
stock valued at $53,767 for consulting services.
In February, 2000, the Company sold 250,000 shares of the Company's
stock for $125,000 in cash.
In February, 2000, the Company issued 100,000 shares of the Company's
stock valued at $89,747 for accrued salaries owed to the ex-Chief
Financial Officer.
In March, 2000, the Company sold 637,672 shares of the Company's stock
for $284,041 in cash.
In March, 2000, the Company issued 420,000 shares of the Company's stock
valued at $534,895 for consulting services.
In March, 2000, the Company issued 20,000 shares of the Company's stock
valued at $16,000 for legal services.
NOTE 8. INCOME TAXES
Deferred income taxes consisted of the following at March 31, 2000:
Deferred tax asset, benefit
of net operating loss
carryforward $ 5,500,000
Deferred tax liability -
Valuation allowance (5,500,000)
-----------
Net deferred taxes $ -
The valuation allowance offsets the net deferred tax asset, since it is
more likely than not that it would not be recovered.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into six employment agreements with key
Individuals, the terms of the agreements are as follows:
1) The President and CEO of PrimeLink entered into an agreement dated
September 15, 1995 for a period of three years. This agreement, along
with his royalty agreement, were mutually terminated. The separation
agreement, as of October 31, 1997, called for a settlement of $12,000 to
be paid $1,000 monthly for the following twelve months. As of March 31,
2000, $4,000 remained unpaid.
2) The President and CEO of TechniLink entered into an agreement dated
September 15, 1995 for a period of three years. He is entitled to
receive a base salary of $90,000 per year and an annual bonus equal to
15% of the net profits before taxes earned by TechniLink, Inc. He is
also granted an option to purchase up to 250,000 shares of the Company's
restricted common stock at a price equal to 50% of the average market
value of the stock on the date of purchase. In December, 1998, he
resigned from the Company.
3) The President and CEO of the Company entered into an agreement dated
October 2, 1995 (which was amended September 1, 1997 and September 1,
1999) for a period of five years, and he is entitled to receive a base
salary of $160,000 per year. The employee shall further receive a bonus,
paid at year-end, equal to 50% of the employee's salary, for continued
employment. The staying bonus will be compensated for with the Company's
restricted common stock. He is also granted an option to purchase up to
500,000 shares of the Company's restricted common stock at a price equal
to 50% of the average market value at the date of purchase.
4) The Chief Financial Officer of the Company entered into an agreement
dated October 2, 1995 (which was amended September 1, 1997) for a period
of three years, and he is entitled to receive a base salary of $80,000
per year and an annual bonus of 2% of the Company's pretax income. The
employee shall further receive a bonus, paid at year-end, equal to 50%
of the employee's salary, for continued employment. The staying bonus
shall be compensated for with the Company's restricted common stock.
He is also granted an option to purchase up to 500,000 shares of the
Company's restricted common stock at a price equal to 50% of the average
market value at the date of purchase. Effective February, 1999, he
resigned from the Company.
5) The Secretary and Treasurer of the Company entered into an Agreement
dated October 2, 1995 (which was amended September 1, 1997 and September
1, 1999) for a period of three years, and she is entitled to receive a
base salary of $80,000 per year. The employee shall further receive a
bonus, paid at year-end, equal to 50% of the employee's salary, for
continued employment. The staying bonus shall be compensated for with
the Company's restricted common stock. She is also granted an option to
purchase up to 500,000 shares of the Company's restricted common stock at
a price equal to 50% of the average market value at the date of purchase.
6) The Chief Technical Officer of the Company entered into an Agreement
dated August 1, 1998 for an initial term of three years, and he is
entitled to receive a base salary of $150,000 per year, with a minimum
of $90,000 to be paid annually in cash and the balance paid (at the
option of the Company) in cash or restricted common stock under rule
144. The employee shall receive a hire-on bonus of $75,000 worth of
the Company's restricted common stock under rule 144, at one-half market
price. The employee shall further receive performance bonuses (paid in
restricted common stock, as above) upon successful completion of specific
milestones pertaining to the implementation and deployment of certain
software (up to $862,500). If substantially all performance milestones
are met, he is also granted an option to purchase up to 500,000 shares of
the Company's restricted common stock at a price equal to 60% of the
average market value at the date of purchase.
License agreements
The Company has entered into license agreements with the Presidents of
both PrimeLink and TechniLink. The license agreements were entered into
on September 20, 1995, in connection with the acquisitionconversion of PrimeLink$220,838 of
principal, $381,256 of derivative conversion option and TechniLink (see Note 1 above), and are$45,383 of accrued
interest, for a period of five years.
As consideration for these license agreements, the Company issued each
licensee 250,000 shares of its restricted common stock and will pay each
licensee a royalty of 5% of net sales of the applicable product. In
addition, in the event of the sale or merger of TechniLink or PrimeLink,
a royalty sum of 20% of the sales price of the license shall be paid to
the licensee; the sales price shall not be less than $1,500,000. The
licenses were valued at the fair market value of the stock issued to
obtain the licenses. In 1997, there was a separation agreement between
the President of PrimeLink and the Company, whereby the President of
PrimeLink agreed to forfeit royalty rights for a $12,000 settlement.
Litigation
There have been three recent legal proceedings in which the Company has
been a party:
The first case, Securities and Exchange Commission (the "Plaintiff") vs.
Andrew S. Pitt, Conectisys Corp., Devon Investments Advisors, Inc., B&M
Capital Corp., Mike Aaman, and Smith Benton & Hughes, Inc. (Defendants)
Civil Case # 96-4164. The case alleges that a fraudulent scheme was
orchestrated and directed by the defendants to engage in the sale and
distribution of unregistered shares of Conectisys by creating the
appearance of an active trading market for the stock of Conectisys and
artificially inflating the price of its shares. In the suit, the SEC
sought permanent injunctions from violating securities laws. The SEC did
not seek any civil penalties from the Company. The courts, having
conducted a trial of this matter without jury and taken it under
submission, found for the plaintiff as follows: against Conectisys on
the claim that the defendant violated section 5(a), 5(c), and 17(a).
Conectisys was not found to have violated section 10(b), 10(b-5), or
15(c). The Company was subsequently ordered to disgorge profits
totaling $175,000. On March 5, 1999, the Company entered into an
Amended Final Judgment of Permanent Injunctive Relief with the Securities
and Exchange Commission ("SEC"). The Company and the SEC agreed on a
settlement in which the Company would dismiss its then pending appeal
and take a permanent injunction that it would not in the future violate
sections 5(a), 5(c), 17(a), 10(b), 10(b-5), or 15(c); in return the SEC
would not demand the previously ordered disgorgement of $175,000.
The second case was brought by Clamar Capital Corp. (the "Plaintiff")
against Smith Benton & Hughes; Michael Zaman; Claudia Zaman; Andrew Pitt
and Conectisys Corp. (collectively the "Defendants"). The case was
brought before the District Court of Arapahoe, State of Colorado, Case
# 97-CV-1442, Division 3. The Plaintiff did not specify antotal conversion 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$552,093 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.convertible
debentures.
NOTE 10. MAJOR CUSTOMERS
The Company, as a development stage enterprise, had no revenue during
the six months ended March 31, 2000. The Company had limited revenues
during the ten months ended September 30, 1999.
NOTE 11.9. STOCK OPTIONS AND WARRANTS
During the ten monthsfiscal 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 stockPreferred
Stock at an exercise price of $5.00 per share. As consideration, the Company
reduced its debt to the debtnote holder by $50,000 and received an extension of time
to pay-off its promissory note. The Company also issued to its presidentChief Executive
Officer options to purchase another 500,000 shares of the Company's Class B
preferred stockPreferred 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 betweenwere
initially exercisable through November 1, 19992002 and are exercisable into common
stock at the rate of 10 common shares for each Class B Preferred Share. In
September 2001, the exercise price on the Class B Preferred Stock options was
adjusted to $2.50 per share and the exercise period was extended to November 1,
2002.2005. In June 2002, the exercise price on the Class B Preferred Stock options
was adjusted to $0.50 per share. In January 2004, the exercise price on the
Class B Preferred Stock options was adjusted to $0.05 per share and the exercise
period was extended to November 1, 2009.
F-27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 9. STOCK OPTIONS AND WARRANTS (continued)
The Company's president currentlyChief Executive Officer owns 120,020215,865 shares of the Company's Class
A Preferred Stock, of which 15,845 shares were purchased during the year ended
September 30, 2004, and has options to purchase another 29,980234,155 shares for $1.00
per share through June 16, 2001.
The pro forma information required by SFAS No. 123 is not included as
there were no common stock options granted during the six months ended
March 31, 2000, and the disclosure for the 600,000 common stock options
issued during the ten month period ended September 30, 1999 would not be
materially different from the amounts and disclosures already presented.
During this period, 500,000 common stock options were issued to the
Company's president and another 100,000 common stock options were issued
to an employee. These options are all exercisable at a cost of 50% of
the average market value of the Company's stock during the prior 30 days
of trading before exercise, with the president's options remaining open
for a period of six years (including a three year option to renew) and
the employee's options remaining open for a period of four years
(including a two year option to renew).November 1, 2009.
The Company has granted various common stock options and warrants to employees;employees
and consultants. Generally, the options and warrants were granted at
approximately the fair market value of the Company's common stock at the date of
grant and vested immediately.immediately, except that when restricted common stock was
issued, the options and warrants were granted at an average discount to market
of 50% (ranging from between 20% to 75%).
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"),
on January 1, 2006. Accordingly, compensation costs for all share-based awards
to employees are measured based on the grant date fair value of those awards and
recognized over the period during which the employee is required to perform
service in exchange for the award (generally over the vesting period of the
award). The Company has no awards with market or performance conditions. Excess
tax benefits are defined by SFAS 123R (when applicable)and will be recognized as
an addition to additional paid-in capital. Effective January 1, 2006 and for
all periods subsequent to that date, SFAS 123R supersedes the Company's previous
accounting under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). In March 2005, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107")
relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its
adoption of SFAS 123R.
The Company adopted SFAS 123R using the modified prospective transition method,
which provides for certain changes to the method for valuing share-based
compensation. The valuation provisions in SFAS 123R apply to new awards and to
awards that are outstanding at the effective date and subsequently modified or
cancelled. Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes under SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with
the modified prospective transition method, the Company's consolidated financial
statements for prior periods were not restated to reflect, and do not include,
the effect of SFAS 123R.
No options were granted or vested during the interim periods presented, and all
options previously granted had completely vested before January 1, 2005.
Therefore no compensation costs were incurred under SFAS 123R and the actual net
loss equals the pro forma net loss for such interim periods.
All common stock options and warrants issued to consultants and other non-
employees have been recorded at the fair value of the services rendered and
equivalent to the market value (as discounted, if applicable) of the equity
instruments received in accordance with SFAS No. 123. The market value was
determined by utilizing an averaging convention of between 5 to 30 days of the
closing price of the Company's common shares as traded on the OTC Bulletin Board
(stock symbol CNES) through the grant date and applying certain mathematical
assumptions as required under the Black-Scholes model. Such assumptions were
generally the same as those mentioned above when making fair value disclosures
for the issuance of officer and employee stock options. These included the
risk-free annual rate of return, which ranged from 5% to 6% during the years
ended September 30, 2005 and 2004, and stock volatility, which is estimated to
be 190%.
At September 30, 2002, the Company had an aggregate of 8,807,154 common stock
options and a total of 1,000,000 Class B preferred stock options recorded as
additional paid-in capital at a value of $1,443,695. Of the common stock
options and warrants, 2,043,654 had been issued to officers and employees and
the remaining 6,763,500 had been issued to consultants and investors.
F-28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 9. STOCK OPTIONS AND WARRANTS (continued)
In November 2002 through May 2003, 2,500,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $500,000 12%
convertible debenture financing arrangement (see Note 7 above). The allocated
cost of these warrants amounted to $9,816, resulting in a recorded balance of
stock options and warrants exercisable at September 30, 2003 of $1,453,511
(including $100,000 attributable to 1,000,000 Class B preferred stock options
noted above).
As of September 30, 2003, the Company had an additional 4,852,205 common stock
options that had been granted to consultants and investors at exercise prices
ranging from $0.50 to $2.00 per share, expiring from November 1, 2003 through
January 16, 2005. Because these exercise prices were substantially above the
market price of the Company's common stock, no value was attributed to these
options at the time of grant. During the year ended September 30, 2004,
4,352,205 of these non-valued options expired, leaving a balance at September
30, 2004 of 500,000 options, exercisable at $1.00 per share and expiring January
16, 2005. The Company also granted a contingent issuance to its Chief Technical
Officer of 2,000,000 common stock options exercisable at $0.50 per share and
expiring December 31, 2004, which would not have vested until certain milestones
had been attained. These respective common stock options and contingent
issuances have been excluded from the summarized table below.
In November 2003 through December 2003, 1,000,000 seven-year common stock
warrants were issued to an accredited investor group in connection with a
$200,000 12% convertible debenture financing arrangement (see Note 6 above). The
allocated cost of these warrants amounted to $945.
In February 2004 and March 2004, 1,500,000 seven-year common stock warrants were
issued to an accredited investor group in connection with a $300,000 12%
convertible debenture financing arrangement (see Note 7 above). The allocated
cost of these warrants amounted to $1,417.
In April 2004, 750,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $250,000 12% convertible
debenture financing arrangement (see Note 7 above). The allocated cost of these
warrants amounted to $1,181.
In June 2004, 1,875,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $625,000 12% convertible
debenture financing arrangement (see Note 7 above). The allocated cost of these
warrants amounted to $2,952.
In September 2004, 1,875,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $625,000 12% convertible
debenture financing arrangement (see Note 7 above). The allocated cost of these
warrants amounted to $2,952, resulting in a recorded balance of stock options
and warrants exercisable at September 30, 2004 of $1,462,958 (including $100,000
attributable to 1,000,000 Class B preferred stock options noted above).
In March 2005 through September 2005, 2,800,000 five-year common stock warrants
were issued to an accredited investor group in connection with a $1,400,000 8%
convertible debenture financing arrangement (see Note 7 above). The allocated
cost of these warrants amounted to $3,756, resulting in a recorded balance of
stock options and warrants exercisable at September 30, 2005 of $1,466,714
(including $100,000 attributable to 1,000,000 Class B preferred stock options
noted above).
During the year ended September 30, 2005, the 500,000 non-valued common stock
options and the 2,000,000 contingently issuable common stock options noted above
both expired. In addition, 6,300,000 previously-valued common stock options and
warrants expired, consisting of 4,750,000 warrants issued to convertible note
holders at exercise prices ranging from $0.045 to $0.192 per share, 1,450,000
common stock options issued to a consultant at an exercise price of $0.13 per
share, and 100,000 common stock options issued to a director at an exercise
price of $0.38 per share.
F-29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development
Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 9. STOCK OPTIONS AND WARRANTS (continued)
In March through July 2006, 20,320,000 five-year common stock warrants were
issued to an accredited investor group in connection with a $1,270,000 6%
convertible debenture financing arrangement (see Note 6 above). The allocated
cost of these warrants amounted to $4,551, resulting in a recorded balance of
stock options and warrants exercisable at both September 30, 2006 of 1,471,265
(including $100,000 attributable to 1,000,000 Class B preferred stock options
noted above).
In February through September 2007, 19,000,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $950,000 6%
convertible debenture financing arrangement (see Note 8 above). The allocated
cost of these warrants amounted to $1,249, resulting in a recorded balance of
stock options and warrants exercisable at September 30, 2007 of $1,472,514.
In October through December 2007, 6,000,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $300,000 6%
convertible debenture financing arrangement (see Note 6 above). The allocated
cost of these warrants amounted to $229, resulting in a recorded balance of
stock options and warrants exercisable at both September 30, 2007 and December
31, 2007 of $1,471,743 (including $100,000 attributable to 1,000,000 Class B
preferred stock options noted above).
In January through March 2008, 10,000,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $115,000 6.5%
convertible debenture financing arrangement (see Note 6 above). The allocated
cost of these warrants amounted to $339, resulting in a recorded balance of
stock options and warrants exercisable at both September 30, 2007 and March
31, 2008 of $1,473,082 (including $100,000 attributable to 1,000,000 Class B
preferred stock options noted above).
The common stock option wasand warrant activity during the nine-month period
ended June 30, 2008 and June 30, 2007 is summarized as follows:
Common Stock Weighted
Options WeightedAverage
and AverageExercise
Warrants Price
---------- ------------------
Balance outstanding, DecemberOctober 1, 1997 3,869,2002007 51,620,000 $ 1.42
Canceled and expired (869,200) $ (2.50)
----------
Balance outstanding, November 30, 1998 3,000,000 $ .370.0019
Granted 600,000 $ 0.54 (1)
Canceled and expired16,000,000 0.0009
Expired - -
---------- -----------------
Balance outstanding, SeptemberJune 30, 1999 3,600,0002008 67,620,000 $ 0.400.0016
Balance outstanding, October 1, 2007 14,243,654 $ 0.0056
Granted 563,500 $ 2.00
Canceled and expired - -
---------- ----------Expired (1,943,654) 0.3800
----------- -------
Balance outstanding, SeptemberJune 30, 1999 4,163,500 0.62
========= ========
Notes: (1) Floating strike price2008 12,300,000 $ 0.0050
========== =======
F-30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
The following table summarizes information about common stock options and
warrants at March 31, 2000:June 30, 2008:
Outstanding Exercisable
Common Weighted Weighted Common Weighted
Range of CommonStock Average Average CommonStock Average
Exercise StockOptions/ Life Exercise StockOptions/ Exercise
Prices OptionsWarrants (Months) Price OptionsWarrants Price
- ---------------------------- --------- ------- -------- ------------------- --------
$ .200.0050 - $.20$ 0.0050 1,000,000 1317 $ .200.0050 1,000,000 $ .200.0050
$ .460.0050 - $.46 100,000 47 $ .46 100,0000.0050 750,000 23 $ .460.0050 750,000 $ .460.0050
$ 0.0050 - $.46$ 0.0050 750,000 25 $ 0.0050 750,000 $ 0.0050
$ 0.0050 - $ 0.0050 500,000 29 $ 0.0050 500,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 29 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 30 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 32 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 1,250,000 32 $ 0.0050 1,250,000 $ 0.0050
$ 0.0020 - $ 0.0020 750,000 34 $ 0.0020 750,000 $ 0.0020
$ 0.0020 - $ 0.0020 1,875,000 39 $ 0.0020 1,875,000 $ 0.0020
$ 0.0020 - $ 0.0020 1,875,000 41 $ 0.0020 1,875,000 $ 0.0020
$ 0.0039 - $ 0.0039 316,066 41 $ 0.0039 316,066 $ 0.0039
$ 0.0039 - $ 0.0039 217,466 21 $ 0.0039 217,466 $ 0.0039
$ 0.0039 - $ 0.0039 1,087,330 21 $ 0.0039 1,087,330 $ 0.0039
$ 0.0039 - $ 0.0039 1,179,138 21 $ 0.0039 1,179,138 $ 0.0039
$ 0.0009 - $ 0.0009 5,920,000 32 $ 0.0009 5,920,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 32 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 32 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 32 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 9,600,000 32 $ 0.0009 9,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 5,000,000 67 $ 0.0009 5,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 7167 $ .460.0009 2,000,000 $ .460.0009
$ .550.0009 - $.55 500,000 59 $ .55 500,0000.0009 2,000,000 67 $ .550.0009 2,000,000 $ 2.00 563,500 350.0009
$ 2.00 563,5000.0009 - $ 2.000.0009 2,000,000 67 $ .200.0009 2,000,000 $ 0.0009
$ 0.0009 - $.55 4,163,500 50 $ .62 4,153,5000.0009 2,000,000 67 $ .62
=========0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 2,000,000 67 $ 0.0009 2,000,000 $ 0.0009
$ 0.0009 - $ 0.0009 10,000,000 67 $ 0.0009 10,000,000 $ 0.0009
- ------------------- ---------- -- -------- ---------- --------
$ 0.0009 - $ 0.0050 67,620,000 44 $ 0.0016 67,620,000 $ 0.0016
================== ========== == ======= ========= =============== ========== ========
F-31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
NOTE 10. INCOME TAXES
Deferred income taxes consisted of the following at June 30, 2008:
Deferred tax asset, benefit
of net operating loss
carryforwards $ 13,000,000
Valuation allowance (13,000,000)
-----------
Net deferred tax asset $ -
===========
The valuation allowance fully offsets the net deferred tax asset, since it is
more likely than not that it would not be recovered. During the year ended
September 30, 2007, the deferred tax asset and valuation allowance were both
increased by $1,200,000.
As of June 30, 2008, the Company has approximately $33,300,000 in federal
and $21,600,000 in 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, $3,500,000 in 2020, $2,300,000 in 2021,
$2,200,000 in 2022, $2,100,000 in 2023, $4,200,000 in 2024, $3,100,000 in 2025,
$3,000,000 in 2026, and $3,700,000 in 2027. The California net operating loss
carryforwards expire as follows: $3,300,000 in 2013, $8,500,000 in 2014,
$3,100,000 in 2015, $3,000,000 in 2016, and $3,700,000 in 2017.
F-32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. We intend that those forward-looking statements be subject to the
safe harbors created by those sections. These forward-looking statements
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance, and
can generally be identified by the use of the words "believe," "intend," "plan,"
"expect," "forecast," "project," "may," "should," "could," "seek," "pro forma,"
"estimates," "continues," "anticipate" and similar words. The forward-looking
statements and associated risks may include, relate to, or be qualified by other
important factors, including, without limitation:
o our ability to obtain FCC approval of our H-Net(TM) wireless
meter-reading products;
o the projected growth in the automated meter reading markets;
o our business strategy for establishing and expanding our
presence in these markets;
o our ability to successfully implement our business plans;
o our ability to hire and retain qualified personnel;
o anticipated trends in our financial condition and results of
operations;
o our ability to distinguish ourselves from our competitors; and
o uncertainties relating to economic conditions in the markets in
which we currently operate and in which we intend to operate in
the future.
These forward-looking statements necessarily depend upon assumptions and
estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the forward-
looking statements. We do not undertake to update, revise or correct any
forward-looking statements.
Any of the factors described above or in the "Risk Factors" section of
our most recent annual report on Form 10-KSB could cause our financial results,
including our net income (loss) or growth in net income (loss) to differ
materially from prior results, which in turn could, among other things, cause
the price of our common stock to fluctuate substantially.
Overview
Since 1995, we have been engaged in the development of a low-cost
automatic meter reading, or AMR, solution. We have developed a low-cost AMR
solution that includes a proprietary system employing specialized hardware and
software that will allow for residential and commercial applications. Our
proprietary system is called H-NET(TM), which is a trademark of ConectiSys. Our
H-NET(TM) system is currently comprised of two principal components: our
H-NET(TM) 5.0 product, which itself is comprised of circuitry and a radio
transmitter, and our H-NET(TM) BaseStation. Our H-NET(TM) 5.0 product is a
component that is designed to be part of a digital energy meter to read and
wirelessly transmit meter data to our H-NET(TM) BaseStation. Our H-NET(TM)
BaseStation is designed to receive and relay the meter data over standard phone
lines to a central location where the data is compiled and utilized.
We have not yet sold any H-NET(TM) systems. However, we are actively
pursuing sales of our H-NET(TM) systems with meter manufacturers and other
companies in the energy industry. We have a history of only inconsequential
2
revenues and have incurred significant losses since the beginning of the
development of our H-NET(TM) system. We have a significant accumulated deficit
and a deficiency in working capital. As a result of our financial condition, our
independent auditors have issued a report questioning our ability to continue as
a going concern.
We have completed and successfully demonstrated a significant update of
our H-NET(TM) system's hardware and software technologies in cooperation with
one of the major electric meter manufacturers. We believe that this update will
provide us with a product that has incorporated more advanced wireless
technologies with a more market-competitive and cost-effective design and
greater reliability. We are also pursuing different applications of our H-
NET(TM) technologies that may be synergistic with our current marketing plan in
markets in which we intend to compete.
Our continued operations are dependent on securing additional sources of
liquidity through debt and/or equity financing. We have received only minimal
funding during 2008 and through the filing of this report and we are in
immediate need of additional financing. If we are unable to obtain funding
soon, we will be unable to continue our operations and our development of our H-
NET(TM) system.
Critical Accounting Policies and Estimates
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
The following discussion and analysis is based upon our financial
statements, which have been prepared using accounting principles generally
accepted in the United States of America. The preparation of our financial
statements requires management to make estimates and assumptions that affect the
reported amounts of revenue and expenses, and assets and liabilities, during the
periods reported. Estimates are used when accounting for certain items such as
depreciation, likelihood of realization of certain assets, employee compensation
programs and valuation of intangible assets. We base our estimates on
historical experience and other assumptions that we believe are reasonable under
the circumstances. Actual results may differ from our estimates.
Going Concern Assumption
We have based our financial statements on the assumption of our
operations continuing as a going concern. As a result, we continue to
depreciate fixed assets and show certain debts as long-term. As of June 30,
2008, we had a deficiency in working capital of approximately $5.3 million and
had an accumulated deficit of approximately $41.7 million, which raise
substantial doubt about our ability to continue as a going concern. Our plans
for correcting these deficiencies include the future sales and licensing of our
products and technologies and the raising of capital through the issuance of
common stock, which are expected to help provide us with the liquidity necessary
to meet operating expenses. Over the longer-term, we plan to achieve
profitability through our operations from the sale and licensing of our H-NET
(TM) automatic meter-reading system. Our 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 we be unable to continue our existence.
Stock-Based Compensation
Our compensation of consultants and employees with our capital stock is
recorded and/or disclosed at estimated market value. The volatile nature of the
price of our common stock causes wide disparities in certain valuations.
3
Statement of Financial Accounting Standards, "Accounting for Stock-Based
Compensation," or SFAS No. 123, established 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. We 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.
We adopted the provisions of SFAS No. 123 (Revised 2004), "Share-Based
Payment," or SFAS 123R, on January 1, 2006. Accordingly, compensation costs for
all share-based awards to employees are measured based on the grant date fair
value of those awards and recognized over the period during which the employee
is required to perform service in exchange for the award (generally over the
vesting period of the award). We have no awards with market or performance
conditions. Excess tax benefits as defined by SFAS 123R (when applicable) will
be recognized as an addition to additional paid-in capital. Effective January
1, 2006 and for all periods subsequent to that date, SFAS 123R supersedes our
previous accounting under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," or APB 25. In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 107, or
SAB 107, relating to SFAS 123R. We have applied the provisions of SAB 107 in
our adoption of SFAS 123R.
We adopted SFAS 123R using the modified prospective transition method,
which provides for certain changes to the method for valuing share-based
compensation. The valuation provisions of SFAS 123R apply to new awards and to
awards that are outstanding at the effective date and subsequently modified or
cancelled. Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes under Financial
Accounting Standards Board, or FASB, Statement No. 123, "Accounting for Stock-
Based Compensation," or SFAS 123. In accordance with the modified prospective
transition method, our consolidated financial statements for prior periods were
not restated to reflect, and do not include, the effect of SFAS 123R.
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. Shares of our 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.
Results of Operations
Comparison of Results of Operations for the Three Months Ended June 30,
2008 and 2007
We did not generate any meaningful revenues for the three months ended
June 30, 2008 and 2007. Cost of prototypes and samples for the three months
ended June 30, 2008 was $0 as compared to $80,082 for the same period in 2007.
The decrease in cost of prototypes and samples was primarily due to a decrease
in production of models and prototypes of our H-Net(TM) products used for sales
and marketing purposes.
General and administrative expenses decreased by $134,990, or 32%, to
$290,627 for the three months ended June 30, 2008 as compared to $425,617 for
the same period in 2007. This decrease was primarily due to fewer business
activities as we have been unable to raise any significant funding during 2008
to fund our business activities.
4
Interest expense decreased by $232,508, or 47%, to $266,280 during the
three months ended June 30, 2008 as compared to $498,788 for the same period in
2007. This decrease in interest expense was primarily due to a decrease in net
borrowings outstanding under our convertible debentures and other debt during
the three months ended June 30, 2008 as compared to the same period in 2007,
resulting in a corresponding decrease in amortization of convertible debt
discount on these debentures.
Net loss for the three months ended June 30, 2008 decreased by $450,261,
or 45%, to $556,907 as compared to a net loss of $1,007,168 for the same period
in 2007. The decrease in net loss primarily resulted from the decreases in
general and administrative expenses and interest expense, as discussed above.
Comparison of Results of Operations for the Nine Months Ended June 30,
2008 and 2007
We did not generate any meaningful revenues for the nine months ended
June 30, 2008 and 2007. Cost of prototypes and samples for the nine months
ended June 30, 2008 was $48,765 as compared to $140,271 for the same period in
2007. The decrease in cost of prototypes and samples was primarily due to a
decrease in production of models and prototypes of our H-Net(TM) products used
for sales and marketing purposes.
General and administrative expenses decreased slightly by $33,537, or
3%, to $1,052,539 for the nine months ended June 30, 2008 as compared to
$1,086,076 for the same period in 2007.
Interest expense decreased by $305,252, or 22%, to $1,101,230 during the
nine months ended June 30, 2008 as compared to $1,406,482 for the same period in
2007. This decrease in interest expense was primarily due to a decrease in net
borrowings outstanding under our convertible debentures and other debt during
the nine months ended June 30, 2008 as compared to the same period in 2007,
resulting in a corresponding decrease in amortization of convertible debt
discount on these debentures.
Net loss for the nine months ended June 30, 2008 decreased by $429,223,
or 16%, to $2,202,534 as compared to a net loss of $2,631,757 for the same
period in 2007. The decrease in net loss primarily resulted from the decreases
in general and administrative expenses and interest expense, as discussed above.
Liquidity and Capital Resources
Our continued operations are dependent on securing additional sources of
liquidity through debt and/or equity financing. We have received only minimal
funding during 2008 and through the filing of this report and we are in
immediate need of additional financing. If we are unable to obtain funding
soon, we will be unable to continue our operations and our development of our H-
NET(TM) system.
During the nine months ended June 30, 2008, we financed our operations
solely through private placements of securities. We are actively pursuing sales
of our H-Net(TM) systems with meter manufacturers and other companies in the
energy industry. However, we have not yet sold any H-Net(TM) systems. We have a
history of only inconsequential revenues and have incurred significant losses
since the beginning of the development of our H-Net(TM) system. We have
significant accumulated and working capital deficits. As a result of our
financial condition, our independent auditors have issued a report questioning
our ability to continue as a going concern. Our consolidated financial
statements as of June 30, 2008 and for the years ended September 30, 2007 and
2006 have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business.
5
As of June 30, 2008, we had a working capital deficit of approximately
$5.3 million and an accumulated deficit of approximately $41.7 million. As of
that date, we had $123 in cash and cash equivalents. We had accounts payable
and accrued compensation expenses of approximately $2.7 million. We had other
current liabilities, including amounts due to officers, accrued interest and
current portion of convertible debentures of approximately $2.7 million,
including debts incurred prior to the beginning of fiscal year 2007. To the
extent convertible debentures or promissory notes that we have issued are
converted into shares of common stock, we will not be obligated to repay the
converted amounts.
Cash used in our operating activities totaled $513,654 for the nine
months ended June 30, 2008 as compared to $1,036,455 for the same period in
2007. Cash used in our investing activities totaled $2,441 for the nine months
ended June 30, 2008 as compared to cash provided by our investing activities of
$416,449 for the same period in 2007. Cash provided by our financing activities
totaled $475,384 for the nine months ended June 30, 2008 as compared to $630,537
in cash provided by our financing activities for the same period in 2007. We
raised all of the cash provided by our financing activities during the nine
months ended June 30, 2008 from the issuance of common stock, convertible notes
and warrants.
Unpaid principal and accrued and unpaid interest on our convertible
debentures and notes becomes immediately due and payable from one to three years
from their dates of issuance, depending on the debenture or note, or earlier in
the event of a default. The events of default under the convertible debentures
and notes are similar to those customary for convertible debt securities,
including breaches of material terms, failure to pay amounts owed, delisting of
our common stock from the OTC Bulletin Board or failure to comply with the
conditions of listing on the OTC Bulletin Board and cross-defaults on other debt
securities.
As of August 18, 2008, we were in default under our obligations to
register for resale shares of our common stock underlying certain of our
outstanding convertible debentures and notes due to our failure to timely
register for resale a sufficient number of shares of our common stock upon
conversion of those convertible debentures and notes. Our registration
obligations require us to register for resale 200% of all registrable
securities, which are largely comprised of the shares of common stock issuable
upon conversion or exercise of our outstanding convertible debentures, notes and
warrants. We have historically been unable to register for resale the full
required amounts of shares of common stock due in part to limitations in our
available authorized capital. As we have increased our authorized capital from
time to time, we have often been reluctant to utilize all or nearly all
available authorized capital to satisfy our registration obligations. This
reluctance arises from our need to maintain available authorized capital for
other potential financing transactions that we may need to conduct to fund our
research and development and otherwise maintain sufficient capital resources to
fund our operations. In addition, because the number of registrable securities
is calculated based on a discount to the prevailing market price of our common
stock, and market prices for our common stock have generally declined throughout
the duration of our convertible debenture and note financings, the number of
registrable securities has substantially increased. Accordingly, although we
may have been in compliance initially, the decline in market prices for our
common stock has caused us to fall out of compliance with our registration
obligations.
As of August 18, 2008, we were also in default under our obligations to
make interest payments under nearly all of our outstanding convertible
debentures and notes due to our lack of liquidity to fund those interest
payments. Although we received substantial cash investments in connection with
our convertible debenture and note financing transactions, we have been
reluctant to make quarterly cash interest payments to our investors. This
reluctance arises from our need to maintain sufficient capital resources to fund
our research and development and our operations. However, on various occasions,
we have prepaid certain interest amounts in connection with convertible
debenture and note financing transactions. In these instances, we were able to
6
at least temporarily, and on occasion fully, comply with our interest payment
obligations until the convertible debentures or notes were fully converted into
shares of our common stock. In our most recent March 2008, February 2007 and
March 2006 convertible note financing transactions, we did not prepay any
interest amounts and we expect to continue indefinitely to be in default of our
obligations to make quarterly interest payments under those convertible notes as
well as numerous other convertible debentures and notes outstanding from prior
financing transactions.
As of August 18, 2008, we owed principal and unpaid interest on our
convertible debentures and notes in an aggregate amount of approximately $3.6
million, net of approximately $103,000 of prepaid interest, all of which we
believe would be immediately due and payable upon demand by the holders of our
secured convertible debentures and notes.
As a result of the above defaults, the holders of our secured
convertible debentures and notes are entitled to pursue their rights to
foreclose upon their security interest in all of our assets. In the event that
the holders of our secured convertible debentures and notes foreclose upon their
security interest in all of our assets, we could lose all of our assets,
including our intellectual property and other technology associated with our H-
NET(TM) system, which would have a material and adverse effect on our business,
prospects, results of operations and financial condition. In addition, the
holders of our secured convertible debentures and notes were entitled to demand
immediate repayment of the outstanding principal amounts of the debentures and
notes and any accrued and unpaid interest. The cash required to repay such
amounts would likely have to be taken from our working capital. Since we rely
on our working capital to sustain our day to day operations and the development
of our H-NET(TM) system, a default on the convertible debentures or notes could
have a material and adverse effect on our business, prospects, results of
operations or financial condition. However, as of that date, other than the
receipt of a notice of default, we were not aware of any action taken by the
holders of our secured convertible debentures and notes to pursue such rights,
and as of that date we also were not aware of any other legal or similar action
taken by those holders to enforce their rights or as a result of our defaults
under those secured convertible debentures and notes.
We plan to register for resale with the Securities and Exchange
Commission a portion of the shares of common stock underlying the convertible
debentures and notes under which we are in default and expect that the
convertible debentures and notes ultimately will be converted into shares of our
common stock and that we therefore will not be obligated to repay the
outstanding principal and accrued and unpaid interest amounts on those
debentures and notes.
As of August 18, 2008, we had issued the following secured convertible
debentures and notes, which provide for interest at the rate of 12% per annum,
except for the notes issued in March 2005 and March 2008, which provide for
interest at the rate of 8% per annum, and the notes issued in March 2006 and
February 2007, which provide for interest at the rate of 6% per annum, and
warrants to purchase common stock to various accredited investors in connection
with debenture and note offering transactions:
7
Unexpired
Original Net Remaining Accrued and Warrants
Principal Proceeds to Principal Unpaid Issued in
Issuance Date Amount($)(1) ConectiSys($)(2) Amount($) Interest($)(2) Offering(#)
- --------------- ------------- ----------------- ----------- ---------------- -----------
November 27, 2002 $ 200,000 $ 144,000 $ - $ - 1,000,000
March 3, 2003 150,000 100,000 - 27,720 750,000
May 12, 2003 150,000 100,000 - 36,000 750,000
November 25, 2003 100,000 76,000 - 24,000 500,000
December 3, 2003 50,000 31,000 - 12,000 250,000
December 31, 2003 50,000 44,000 - 12,000 250,000
February 18, 2004 50,000 35,000 - 12,000 250,000
March 4, 2004 250,000 203,000 - 59,048 1,250,000
April 19, 2004 250,000 165,000 - - 750,000
June 30, 2004 625,000 452,000 - - 1,875,000
September 9, 2004 625,000 482,000 - - 1,875,000
March 17, 2005 1,400,000 1,148,000 752,645 232,168 2,800,000
March 8, 2006 1,270,000 1,180,000 954,989 122,929 20,320,000
February 13, 2007 1,250,000 1,145,000 1,250,000 86,392 25,000,000
March 28, 2008 115,000 95,000 115,000 3,630 10,000,000
------------ ------------- ----------- --------- -----------
Total: $6,535,000 $ 5,400,000 $3,072,634 $ 627,887 67,620,000
________________ ============ ============= ========== ========= ===========
(1) Amounts shown do not include additional convertible debentures
issued prior to November 27, 2002 having an aggregate original
principal amount of $750,000 that were fully converted to
equity.
(2) Amounts are approximate and represent net proceeds after
deducting expenses incurred in connection with the offering as
well as expenses for legal fees incurred in connection with
preparation of reports and statements filed with the Securities
and Exchange Commission.
(2) Amounts are approximate and represent accrued (and unpaid)
interest outstanding as of August 18, 2008. The total amount of
accrued and unpaid interest does not account for approximately
$103,000 of outstanding pre-paid interest.
Each of the above outstanding secured convertible debentures or notes,
except for the convertible notes issued in March 2005 and 2006, February 2007
and March 2008, are due one year following their respective issuance dates. The
convertible notes issued in March 2005 are due two years following their
issuance dates. The convertible notes issued in March 2006, February 2007 and
March 2008 are due three years following their issuance dates. The conversion
price of our secured convertible debentures is the lower of 35% of the average
of the three lowest intra-day trading prices of a share of our common stock on
the OTC Bulletin Board during the 20 trading days immediately preceding the
conversion date, and either (a) $.06 for the June 2002 convertible debentures,
(b) $.01 for the November 2002, March and May 2003 convertible debentures, (c)
$.005 for the November and December 2003 and the February, March, April, June
and September 2004 convertible debentures and the March 2005 convertible notes,
or (d) $.03 for the March 2006, February 2007 and March 2008 convertible notes.
As of August 18, 2008, the applicable conversion price was approximately
$0.000035 per share.
As indicated above, our consolidated financial statements as of June 30,
2008 and for the years ended September 30, 2007 and 2006 have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As discussed in
this report and in the notes to our consolidated financial statements included
in this report, we have suffered recurring losses from operations and at June
30, 2008 had substantial net capital and working capital deficiencies. These
factors, among others, raised substantial doubt about our ability to continue as
a going concern and led our independent registered public accounting firm to
8
modify its unqualified report to include an explanatory paragraph related to our
ability to continue as a going concern. The consolidated financial statements
included in this document do not include any adjustments that might result from
the outcome of this uncertainty.
We have been, and currently are, working toward identifying and
obtaining new sources of financing. Our current convertible debenture and note
investors have provided us with an aggregate of approximately $7.3 million in
financing to date. No assurances can be given that they will provide any
additional financing in the future. Our current secured convertible debenture
and note financing documents contain notice and right of first refusal
provisions and the grant of a security interest in substantially all of our
assets in favor of the convertible debenture and note investors, all of which
provisions will restrict our ability to obtain debt and/or equity financing from
any investor other than our current investors.
Any future financing that we may obtain may cause significant dilution
to existing stockholders. Any debt financing or other financing of securities
senior to common stock that we are able to obtain will likely include financial
and other covenants that will restrict our flexibility. At a minimum, we expect
these covenants to include restrictions on our ability to pay dividends on our
common stock. Any failure to comply with these covenants would have a material
adverse effect on our business, prospects, financial condition, results of
operations and cash flows.
If adequate funds are not available, we may be required to delay, scale
back or eliminate portions of our operations and product and service development
efforts or to obtain funds through arrangements with strategic partners or
others that may require us to relinquish rights to certain of our technologies
or potential products or other assets. Accordingly, the inability to obtain such
financing could result in a significant loss of ownership and/or control of our
proprietary technology and other important assets and could also adversely
affect our ability to fund our continued operations and our product and service
development efforts that historically have contributed significantly to our
competitiveness.
Effect of Inflation
Inflation did not have any significant effect on our operations during
the three or nine months ended June 30, 2008. Further, inflation is not
expected to have any significant effect on our future operations.
Impact of New Accounting Pronouncements
The Financial Accounting Standards Board, or FASB, has established a
recent accounting pronouncement.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defined fair value, established a framework for
measuring fair value and expands disclosures about fair-value measurements
required under other accounting pronouncements, but does not change existing
guidance as to whether or not an instrument is carried at fair value. SFAS No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. We are currently evaluating the impact of adopting SFAS
No. 157.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
9
ITEM 4. CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) has concluded,
based on his evaluation as of June 30, 2008 (the "Evaluation Date"), that the
design and operation of our "disclosure controls and procedures" (as defined in
Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) are effective to ensure that information required to
be disclosed by us in the reports filed or submitted by us under the Exchange
Act is accumulated, recorded, processed, summarized and reported to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding whether or not disclosure is
required.
There were no changes in our internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our
most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 4T. CONTROLS AND PROCEDURES.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
None.
Dividend Policy
We have never paid cash dividends on our common stock and do not
currently intend to pay cash dividends on our common stock in the foreseeable
future. We are restricted from paying dividends on our common stock under state
law, and the terms of our secured convertible debentures. We currently
anticipate that we will retain any earnings for use in the continued development
of our business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Unpaid principal and accrued and unpaid interest on our convertible
debentures and notes becomes immediately due and payable from one to three years
from their dates of issuance, depending on the debenture or note, or earlier in
the event of a default. The events of default under the convertible debentures
and notes are similar to those customary for convertible debt securities,
including breaches of material terms, failure to pay amounts owed, delisting of
our common stock from the OTC Bulletin Board or failure to comply with the
conditions of listing on the OTC Bulletin Board and cross-defaults on other debt
securities.
10
As of August 18, 2008, we were in default under our obligations to
register for resale shares of our common stock underlying certain of our
outstanding convertible debentures and notes due to our failure to timely
register for resale a sufficient number of shares of our common stock upon
conversion of those convertible debentures and notes. Our registration
obligations require us to register for resale 200% of all registrable
securities, which are largely comprised of the shares of common stock issuable
upon conversion or exercise of our outstanding convertible debentures, notes and
warrants. We have historically been unable to register for resale the full
required amounts of shares of common stock due in part to limitations in our
available authorized capital. As we have increased our authorized capital from
time to time, we have often been reluctant to utilize all or nearly all
available authorized capital to satisfy our registration obligations. This
reluctance arises from our need to maintain available authorized capital for
other potential financing transactions that we may need to conduct to fund our
research and development and otherwise maintain sufficient capital resources to
fund our operations. In addition, because the number of registrable securities
is calculated based on a discount to the prevailing market price of our common
stock, and market prices for our common stock have generally declined throughout
the duration of our convertible debenture and note financings, the number of
registrable securities has substantially increased. Accordingly, although we
may have been in compliance initially, the decline in market prices for our
common stock has caused us to fall out of compliance with our registration
obligations.
As of August 18, 2008, we were also in default under our obligations to
make interest payments under nearly all of our outstanding convertible
debentures and notes due to our lack of liquidity to fund those interest
payments. Although we received substantial cash investments in connection with
our convertible debenture and note financing transactions, we have been
reluctant to make quarterly cash interest payments to our investors. This
reluctance arises from our need to maintain sufficient capital resources to fund
our research and development and our operations. However, on various occasions,
we have prepaid certain interest amounts in connection with convertible
debenture and note financing transactions. In these instances, we were able to
at least temporarily, and on occasion fully, comply with our interest payment
obligations until the convertible debentures or notes were fully converted into
shares of our common stock. In our most recent March 2008, February 2007 and
March 2006 convertible note financing transactions, we did not prepay any
interest amounts and we expect to continue indefinitely to be in default of our
obligations to make quarterly interest payments under those convertible notes as
well as numerous other convertible debentures and notes outstanding from prior
financing transactions.
As of August 18, 2008, we owed principal and unpaid interest on our
convertible debentures and notes in an aggregate amount of approximately $3.6
million, net of approximately $103,000 of prepaid interest, all of which we
believe would be immediately due and payable upon demand by the holders of our
secured convertible debentures and notes.
As a result of the above defaults, the holders of our secured
convertible debentures and notes are entitled to pursue their rights to
foreclose upon their security interest in all of our assets. In the event that
the holders of our secured convertible debentures and notes foreclose upon their
security interest in all of our assets, we could lose all of our assets,
including our intellectual property and other technology associated with our H-
NET(TM) system, which would have a material and adverse effect on our business,
prospects, results of operations and financial condition. In addition, the
holders of our secured convertible debentures and notes were entitled to demand
immediate repayment of the outstanding principal amounts of the debentures and
notes and any accrued and unpaid interest. The cash required to repay such
amounts would likely have to be taken from our working capital. Since we rely
on our working capital to sustain our day to day operations and the development
of our H-NET(TM) system, a default on the convertible debentures or notes could
have a material and adverse effect on our business, prospects, results of
operations or financial condition. However, as of that date, other than the
receipt of a notice of default, we were not aware of any action taken by the
holders of our secured convertible debentures and notes to pursue such rights,
11
and as of that date we also were not aware of any other legal or similar action
taken by those holders to enforce their rights or as a result of our defaults
under those secured convertible debentures and notes.
We plan to register for resale with the Securities and Exchange
Commission a portion of the shares of common stock underlying the convertible
debentures and notes under which we are in default and expect that the
convertible debentures and notes ultimately will be converted into shares of our
common stock and that we therefore will not be obligated to repay the
outstanding principal and accrued and unpaid interest amounts on those
debentures and notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits
--------
Exhibit No. Description
----------- -----------
31.1 Certification Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (*)
31.2 Certification Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (*)
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (*)
__________
(*) Filed herewith.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONECTISYS CORPORATION
Date: September 12, 2008 By: /s/ ROBERT A. SPIGNO
--------------------------
Robert A. Spigno,
Chairman of the Board, President,
Chief Executive Officer and Chief Financial Officer
(principal executive officer and principal
financial and accounting officer)
13
EXHIBITS FILED WITH THIS REPORT ON FORM 10-Q
Exhibit No. Description
----------- -----------
31.1 Certification Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
14