U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended December 31, 2000.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934
[no fee required]
Commission File Number 33-3560D
CONECTISYS CORP.
(Name of small business issuer in its charter)
Colorado 84-1017107
(state or other jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
24730 Avenue Tibbitts
Suite 130
Valencia, California 91355
(Address of principal executive offices)
Issuer's telephone number: (661) 295-6763
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(b) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. [X]Yes[ ]No
Common Stock, issued and outstanding as of December 31, 2000: 23,996,938
PART I
Item 1. Financial Statement
A financial statement, unaudited and included herein beginning on page F-1 (Exhibit 99.0), is
incorporated herein by this reference.
Item 2. Management's Discussion and Analysis or Plan of Operation
Except for disclosures that report the Company's historical results, the statements set forth in this section
are forward-looking statements. Actual results may differ materially from those projected in the forward-
looking statements. Additional information concerning factors that may cause actual results to differ
materially from those in the forward-looking statements are in the Company's Annual Report on form 10-
KSB for the fiscal year ending September 30, 2000 and in the Company's other filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes no obligation to update any
forward-looking statements or comments on the reasons why actual results may differ therefrom.
Conectisys is the parent company of two subsidiaries, United Telemetry Co., Inc. and
eEnergyServices.com, Inc. It is a commercial telecommunications company primarily engaged in
developing, manufacturing and marketing proprietary telemetry equipment for use in remote or
automated meter reading (AMR) applications.
Third Generation Product- ConectiSys' H-Net Wireless Automated Meter Reading (AMR) Network has
released its third generation network designed exclusively for electrical meter reading. The H-Net
wireless network adds one more step to its commercial release for the utility industry at large.
The Company is planning a second pilot release of the H-Net Wireless AMR Network in Valencia,
California at one of the largest industrial parks in the Los Angeles County. This new test site is within five
miles of the Company's network operation center where meter data is archived and displayed over the
Internet. The third pilot release of the H-Net Wireless Network will be directly with one of the largest
utility companies in California.
ConectiSys also has plans for research and development to evolve its H-Net Wireless AMR Network into
an integrated, two-way, electric power telemetry and control system. The system under development is a
fourth generation product (H-Net-4) stemming from the Company's dedication to the development of
internet-based electric power metering solutions. H-Net-4 will combine a Real Time of Use electric
power metering system with demand response control capabilities and deliver the complete unified system
through high-performance web-based tools. With its third-generation H-Net-3 AMR system now in
testing, ConectiSys believes that its technology will enable the power disturber to selectively disable a
selected breaker(s) through a series of relays for electric load conservation/shedding requirements
without the necessity to disable an entire household or commercial facility. This would be accomplished
through the H-Net Wireless AMR Network and by the installation of simple wireless communication
control devices at the end user's electrical beaker panel. Through H-Net's two-way Wireless Network
energy disturbers could control power consumption in real time thus allowing the implementation of
various energy conservation programs. Access to use information and programmable controls of their
electrical loads will be all made available through an integrated Internet based control panel.
Results Of Operations
The Company realized a net loss from operations of $363,379 for the 1st quarter ending December 31,
2000 as compared with a $772,348 net loss for the same period last year ending December 31, 1999. The
Company had no revenue for the 1st quarter ending December 31, 2000.
Plan Of Operation
Loss on operations for the Company for the 1st quarter ending December 31, 2000 decreased 47% from
the same period last year. These losses are attributed to the Company's development, marketing and
general expense of the H-Net Wireless Network. The Company will, over the next 36 months, rely on
recently obtained debt financing of $15 million from a group of private investors which will be secured
through promissory notes convertible to common stock in conjunction with the sale of common stock
pursuant to a Form SB-2 Registration Statement to be filed this quarter with the United States Securities
and Exchange Commission ("SEC"). (See Part II, Item 5 below). The Company had no revenues in fiscal
2000.
Liquidity and Capital Resources
As of December 31, 2000, the Company had a negative working capital of $1,115,721 consisting of
$165,197 in current assets and $1,395,918 in current liabilities as compared to negative working capital
of $2,111,873 for the same period last year. 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 $250,243 as of December 31, 2000, and total liabilities of $1,395,918.
Shareholder deficit is $1,145,675, as compared to a deficit of $1,992,252 for the same period last year.
The Company issued 388,191 shares of common stock for cash and services during the 1st quarter ending
December 31, 2000.
Cash Flows
The Company had a net loss for the 1st quarter ending December 31, 2000, of $363,379. The cash used
in operations toward this loss was $109,987. The largest area of loss was the result of non-cash
transactions to the Company with services to the Company that were not paid with cash totaling $82,112.
The Company issued shares for $92,562 of restricted common stock to partially finance the operating
losses for the 1st quarter.
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 the debt and equity financing for the long term funding requirements of a large-scale deployment
of the H-Net 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
December 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.
PART II Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Stock Subscriptions
In October 2000, the Company issued 100,000 shares of restricted common stock for in house
accounting services at price of $.50 per share and 66,414 shares for outside consulting work at a price of
$.29 per share. 141,777 shares of restricted common stock were issued for accrued compensation earned
during the fourth quarter of 2000 for $.22 per share to three officers of the Company.
In December 2000 the Company issued 10,000 shares of restricted common stock as part of the
termination of a pre-existing consulting agreement with an outside consultant in May 2000.
In January 2001 the Company received a $75,000.00 Stock Subscription Agreement for restricted
common stock. The stock was sold for $.075 per share; approximately 50% of the market price at the
time of the purchase, which management believes is exempt from registration under 4(2) of the 1933
Securities Act. Additionally, the Company issued 300,000 shares of restricted common stock for $.25
per share pursuant to an election to convert three (3) Convertible Promissory Notes in an aggregate
amount of $75,000 issued on March 2, 2000 during an offering exempt from registration under Rule 506
of Regulation D of the 1933 Securities.
In January 2001 consultants to the Company elected to exercise options to purchase 400,000
shares of common stock pursuant to a Consulting Agreement at 15% below the market price or $.085 per
share.
Form S-8 Registration Filed
In September 2000, the Company filed a Form S-8 registration statement for the Conectisys
Corporation Amended Non-Qualified Stock and Stock Bonus Plan (the "Amended Plan"). The purpose
of the Amended 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 shall consist of 1,000,000 shares of the common
stock of the Company. Unless amended by the Board in writing, the Plan shall terminate at midnight,
January 31, 2003. To date, all the common shares have been issued to consultants under the Plan.
600,000 of these shares were for past services rendered and 400,000 represented options earned and
exercised by consultants.
Item 4. Submission of Matters to a Vote of Security Holders
Shareholders Meeting
The annual meeting of the shareholders of Conectisys Corporation will be held at One World
Trade Center, Long Beach, California in the 2nd Floor Auditorium on April 27, 2001, at 10:00 a.m.
Details of the business to be conducted at the annual meeting are given in the Notice of Annual Meeting
and Proxy Statement. The Notice and Proxy Statement will be mailed out to each shareholder of record
as of March 1, 2001 and also available on the Company's web site www.conectisys.net.
Item 5. Other Information
In January 2001 the Company submitted an H-Net Wireless Network proposal to the State of California's
Public Interest Energy Research ("PIER"). The Company also submitted a request for product
development funding through the State of California's Energy Innovation Small Grant (EISG), as well as
the PIER program, for short and long term funding. The California Energy Commission (CEC), a
California State agency dedicated to the development of new energy technologies and the management of
existing energy resources, manages these programs which funding pool exceeds $60 million each year
through California's electricity ratepayers.
New Advisory Board Formed
The Company has approved an Advisory Committee to advise the Board of Directors, its
executive officers and its technical staff, from time to time on various industry related issues. The
Company's President, Rod Lighthipe, heads the Advisory Committee. Additional members of the
Advisory Committee will be announced shortly.
Private Equity Credit Line
On February 1, 2001, the Company entered into a Private Equity Credit Line Agreement ("PECL
Agreement") with a group of private investors ("Investors") to provide financing to the Company in an
aggregate amount of $15.0 million through the issuance of one year Convertible Promissory Notes
("Notes") bearing interest at a rate of 8% per year for thirty-six (36) months. The Notes are convertible
at any time to the Company's Common Stock. The Notes may not be prepaid without the Investors'
consent. The PECL Agreement entitles the Company to borrow funds, referred to as a "Put", each
month in an amount up to a maximum of $750,000. This amount is limited by the Company's common
stock's trading volume during the previous month, and a minimum period of time must elapse between
each Put. In order to invoke a Put, the Company must have an effective registration statement on file with
the SEC registering the resale of the common shares, which may be issued as a consequence of the
invocation of a Put. The amount of the Put may not exceed ten percent (10%) of the daily volume
weighted average price of the common stock for the thirty calendar days prior to but not including the
Put date, multiplied by the reported daily trading volume of the common stock for each such day. The
Investor shall receive within seven (7) days of the Put notice date a Note for the Put amount. There must
be at least 30 days between each Put. The Investors may at any time during the one (1) year of the Notes
elect to convert some or all of the money owing under the Notes issued pursuant to Puts made by the
Company, to common stock. The conversion price is 84% of the average of the three (3) lowest closing
prices of the common stock during the ten (10) days immediately preceding the conversion date.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit
99.0 Financial Statement (Unaudited)
(b) During the Registrant's fiscal quarter ending December 31, 2000, the registrant filed the following
current reports on Form 8-K:
September 22, 2000.
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: February 14, 2001 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 /S/ Robert A. Spigno
(Robert A. Spigno)
Title Chairman of the Board and Chief
Executive Officer
Date February 14, 2001
1
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2000
Dec. 31 Dec. 31 Sep. 30
2000 1999 2000
Unaudited Unaudited Audited
ASSETS
Current assets
Cash and cash equivalents 6,651 (15,401) 33,688
Prepaid expenses 158,546 0 158,546
Total current assets 165,197 (15,401) 192,234
Property and equipment, net 85,046 82,621 93,304
License and technology, net 0 30,000 0
Other asset 0 7,000 0
TOTAL ASSETS 250,243 104,220 285,538
Dec. 31 Dec. 31 Sep. 30
2000 1999 2000
Unaudited Unaudited Audited
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable 143,922 423,060 97,827
Accrued compensation 540,020 731,336 438,647
Due to officer 150,000 0 75,000
Other current liabilities 178,539 181,447 152,995
Notes payable
Related 0 344,195 0
Other 383,437 416,434 390,937
Total current liabilities 1,395,918 2,096,472 1,155,406
TOTAL LIABILITIES 1,395,918 2,096,472 1,155,406
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - Class A 1,000,000 shares authorized
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized,
140,020 shares issued and
outstanding 140,020 120,020 140,020
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000
shares authorized, no shares
issued and outstanding 0 0 0
Stock options exercisable, convertible
preferred stock - Class B, stock
options issued and outstanding, common
stock - 4,663,500 and 3,600,000 stock
options issued and outstanding 999,775 250,000 999,775
Common stock, no par value;
250,000,000 shares authorized,
23,985,429 for Dec. 31, 2000 and
15,609,958 for Dec. 31, 2000 shares
issued and outstanding 16,269,533 13,077,299 16,187,421
Stock subscription receivable (15,450)
Accumulated (deficit) (18,555,003) (15,439,571) (18,181,634)
TOTAL STOCKHOLDERS' (DEFICIT) (1,145,675) (1,992,252) (869,868)
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT 250,243 104,220 285,538
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2000 and 1999 and the Cumulative Period
From December 1, 1990 (Inception) Through December 31, 2000
Dec. 1, 1990
(Inception)
Three Months Three Months Through
Dec. 31 Dec. 31 Dec. 31
2000 1999 2000
Unaudited Unaudited Unaudited
Revenues 0 0 517,460
Cost of goods sold 0 17,536 529,791
Gross profit (loss) 0 (17,536) (12,331)
General and administrative 365,659 754,813 13,711,482
Bad debt write-offs 0 0 1,680,522
(Loss) from operations (365,659) (772,349) (15,404,335)
Non-operating income (expense) (7,710) 1 (2,135,426)
Minority interest 0 0 62,500
Net (loss) (373,369) (772,348) (17,477,261)
Weighted average shares
outstanding -
basic and diluted 23,963,478 15,382,154
Net (loss) per share (0.02) (0.05)
Dec. 1, 1990
(Inception)
Three Months Three Months Through
Dec. 31 Dec. 31 Dec. 31
2000 1999 2000
Net income (loss) (373,369) (772,348) (17,477,261)
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Provision for bad debt 8,258 0 1,430,659
Depreciation and amortization 0 22,451 1,610,588
Stock issued for services 82,112 672,178 6,365,949
Stock issued for interest 0 0 535,591
Minority interest 0 0 (62,500)
Write-off of intangibles 0 0 1,299,861
Settlements 0 0 (25,000)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 0 0 (4,201)
Interest receivable 0 0 (95,700)
Deposits 0 0 (25,000)
Increase (decrease) in liabilities
Accounts payable 46,095 160,719 292,131
Accrued compensation 101,373 (156,047) 1,338,113
Due to officer 0 0 709,876
Other current liabilities 25,544 (12,778) 397,110
Net cash provided (used) by
operating activities (109,987) (85,825) (3,709,784)
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Balance, Dec. 1, 1990
(re-entry
development stage) 0 0 10,609 1,042,140 (1,042,140) 0
Shares issued in exchange for:
Cash, Aug. 1993 0 0 1,000 1,000 0 1,000
Capital contribution,
Aug. 1993 0 0 2,000 515 0 515
Services, Mar. 1993 0 0 2,000 500 0 500
Services, Mar. 1993 0 0 1,200 600 0 600
Net loss for the year 0 0 0 0 (5,459) (5,459)
Balance, Sep. 30, 1993 0 0 16,809 1,044,755 (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1994 0 0 2,400 3,000 0 3,000
Cash, Sep. 1994 0 0 17,771 23,655 0 23,655
Services, Sep. 1994 0 0 8,700 11,614 0 11,614
Cash, Sep. 1994 0 0 3,000 15,000 0 15,000
Cash, Oct. 1994 16,345 A 16,345 0 0 0 16,345
Cash, Sep. and Oct. 1994 0 1,320 33,000 0 33,000
Net loss for the year 0 0 0 0 (32,544) (32,544)
Balance, Sep. 30, 1994 16,345 16,345 50,000 1,131,024 (1,080,143) 67,226
Shares issued in exchange for:
Cash, Feb. 1995 0 0 1,160 232,000 0 232,000
Debt repayment, Feb. 1995 0 0 2,040 408,000 0 408,000
Debt repayment, Feb. 1995 0 0 4,778 477,810 0 477,810
Acquisition of assets, CIPI
Feb. 1995 0 0 28,750 1,950,000 0 1,950,000
Acquisition of assets,
Apr. 1995 0 0 15,000 0 0 0
Cash and services, Apr.
and May 1995 0 0 16,000 800,000 0 800,000
Cash, Jun. 1995 0 0 500 30,000 0 30,000
Acquisition of assets and
services, Sep. 1995 0 0 4,000 200,000 0 200,000
Cash, Sep. 1995 0 0 41 3,000 0 3,000
Acquisition of assets,
Sep. 1995 0 0 35,000 1,750,000 0 1,750,000
Return of assets, CIPI
Sep. 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, Sep. 30, 1995 16,345 16,345 129,569 5,031,834 (3,374,010) 1,674,169
Shares issued in exchange for:
Cash, Feb. 1996 0 0 1,389 152,779 0 152,779
Debt repayment, Feb. 1996 0 0 10,000 612,000 0 612,000
Services, Feb. 1996 0 0 3,160 205,892 0 205,892
Cash, Mar. 1996 0 0 179 25,000 0 25,000
Shares returned and
cnaceled Mar. 1996 0 0 (15,000) 0 0 0
Services, Apr. 1996 0 0 13 2,069 0 2,069
Services, Sep. 1996 4,155 A 4,155 586 36,317 0 40,472
Services, Oct. 1996 0 0 6,540 327,000 0 327,000
Debt repayment, Nov. 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, Sep. 30, 1996 20,500 20,500 138,786 6,457,221 (5,612,943) 864,778
Shares issued in exchange for:
Services, Mar. 1997 0 0 228 6,879 0 6,879
Services, Apr. 1997 0 0 800 13,120 0 13,120
Services, Jul. 1997 0 0 1,500 16,200 0 16,200
Cash, Jul. 1997 0 0 15,000 300,000 0 300,000
Services, Aug. 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, Oct. 1997 0 0 1,469,666 587,865 0 587,865
Debt repayment, Oct 1997 0 0 1,540,267 620,507 0 620,507
Cash, Oct. 1997 0 0 1,500,000 281,250 0 281,250
Services, Nov. 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, Sep. 30, 1997 20,500 20,500 4,677,268 8,349,580 (8,352,211) 17,869
Shares issued in exchange for:
Services, Dec. 1997
through Nov. 1998 0 0 2,551,610 2,338,264 0 2,338,264
Debt repayment, Apr. 1998
through Sep. 1998 0 0 250,000 129,960 0 129,960
Cash, Jan. 1998 through
Jul. 1998 0 0 4,833,334 1,139,218 0 1,139,218
Acquisition of assets,
Jul. 1998 0 0 300,000 421,478 0 421,478
Acquisition of 20% minority
interest in subsidiary,
Jul. 1998 0 0 50,000 59,247 0 59,247
Services, Nov. 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, Sep. 30, 1998 80,500 80,500 12,662,212 12,437,747 (13,280,893) (762,646)
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Shares returned and canceled
Dec. 1998 0 0 (1,350,000) (814,536) (814,536)
Services, Dec. 1998
through Sep. 1999 0 0 560,029 349,454 349,454
Cash, Dec. 1998
through Sep. 1999 0 0 1,155,800 129,537 129,537
Debt repayment, Sep. 1999 39,520 A 39,520 960,321 197,500 237,020
Services, Dec. 1998
through Sep. 1999 150,000 B 150,000 0 0 150,000
Debt repayment, Sep. 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, Sep. 30, 1999 370,020 370,020 13,988,362 12,299,702 (14,604,724) (1,935,002)
Shares issued in exchange for:
Shares reacquired and canceled, Oct. 1999
Services, Oct. 1999 (17,500) (12,000) (12,000)
through Sep. 2000 0 0 2,405,469 990,949 990,949
Cash, Oct. 1999
through Sep. 2000 0 0 2,295,482 839,425 839,425
Stock subscription receivable,
Sep. 2000 0 0 0 (15,450) (15,450)
Reduction of exercise price on
officer and employee stock
options, Mar. 2000 B-Options 1,113,610 0 0 1,113,610
Exercise officer stock options
in exchange for officer's debt
May 2000 B-Options (407,735) 0 0 (407,735)
Consultant's stock options,
Sep. 2000 B-Options 43,900 43,900
Exercise officer stock options
in exchange for officer's debt
May 2000 20,000 20,000 2,056,346 897,707 917,707
Retainers, debt and accrued
liabilities, Oct. 1999
through Sep. 2000 0 0 2,799,579 1,171,638 1,171,638
Net loss for the period 0 0 0 0 (3,576,910) (3,576,910)
Balance, Sep. 30, 2000 390,020 1,139,795 23,527,738 16,171,971 (18,181,634) (869,868)
Shares issued in exchange for:
Services, Oct. 2000
through Dec. 2000 0 0 388,191 82,112 82,112
Stock subscription receivable,
Oct. 2000 0 0 0 15,450 15,450
Net loss for the period 0 0 0 0 (373,369) (373,369)
Balance, Dec. 31, 2000 390,020 1,139,795 23,915,929 16,269,533 (18,555,003) (1,145,675)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2000 and 1999 and the Cumulative Period
From December 1, 1990 (Inception) Through December 31, 2000
Dec. 1, 1990
(Inception)
Three Months Three Months Through
Dec. 31 Dec. 31 Dec. 31
2000 1999 2000
Net income (loss) (373,369) (772,348) (17,477,261)
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Provision for bad debt 8,258 0 1,430,659
Depreciation and amortization 0 22,451 1,610,588
Stock issued for services 82,112 672,178 6,365,949
Stock issued for interest 0 0 535,591
Minority interest 0 0 (62,500)
Write-off of intangibles 0 0 1,299,861
Settlements 0 0 (25,000)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 0 0 (4,201)
Interest receivable 0 0 (95,700)
Deposits 0 0 (25,000)
Increase (decrease) in liabilities
Accounts payable 46,095 160,719 292,131
Accrued compensation 101,373 (156,047) 1,338,113
Due to officer 0 0 709,876
Other current liabilities 25,544 (12,778) 397,110
Net cash provided (used) by
operating activities (109,987) (85,825) (3,709,784)
Investing activities
Increase in notes receivable 0 0 (1,322,500)
Cost of license & technology 0 0 (94,057)
Purchase of equipment 0 0 (181,109)
Net cash provided (used) by
investing activities 0 0 (1,597,666)
Financing activities
Common stock issued for cash 15,450 42,920 2,968,835
Preferred stock issued for cash 0 0 16,345
Proceeds from stock purchase 0 0 281,250
Proceeds from debts
Related party 75,000 500 281,544
Other 0 0 1,852,691
Payments on debt
Related party 0 0 (46,407)
Other (7,500) 0 (60,672)
Subscription receivable 0 0 20,000
Contributed capital 0 0 515
Net cash provided(used) by
financing activities 82,950 43,420 5,314,101
Dec. 1, 1990
(Inception)
Three Months Three Months Through
Dec. 31 Dec. 31 Dec. 31
2000 1999 2000
Net increase (decrease) in cash (27,037) (42,405) 6,651
Cash beginning of period 33,688 27,004 0
Cash end of period 6,651 (15,401) 6,651
Cash paid during the year for
Interest 0 0 175,937
Taxes 0 0 3,250
Non-cash activities
Common stock issued for
Purchase of stock 0 0 281,250
Prepaid expenses 0 0 133,546
PP&E 0 0 130,931
Deposit 0 0 0
License & technology 0 0 2,191,478
Repayment of debt 0 0 1,804,795
Service & interest 82,112 672,178 5,051,304
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Conectisys Corporation (the "Company") was incorporated under the laws of
Colorado on February 3, 1986, to analyze and invest in business opportunities as
they may occur.
TechniLink has developed the Cube 2001 series for the monitoring and controlling
of various devices in the petroleum and gas industry.
PrimeLink has developed a product line that uses cutting edge communications to
assist in the monitoring of meters for utility companies and the petroleum
industry. This technology, while eliminating the need for a meter reader, is
more significant in enabling the utility companies to utilize energy
conservation and, in the case of power companies, re-routing of electrical power
to areas where it is needed. The devices are also in use in vending machines to
monitor sales and functions of the vending machine without the physical
inspection usually needed.
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 for 1995.
The acquisitions of these companies occurred in connection with the signing of
the license agreements discussed in Note 10. The Company issued a total of
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 aggregate transactions were
valued at $1,750,000, the fair market value of common stock issued, and recorded
in licenses and technology on the balance sheet.
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.
On January 11, 2000, a new Nevada corporation, eEnergyServices.com, Inc., was
formed, which has not, as yet, commenced operations. PrimeLink, Inc. and
TechniLink, Inc. are in the process of winding down. Upon dissolution, their
assets will be distributed to Conectisys Corporation. PrimeLink, Inc. will do
its future business in California as United Telemetry Company.
Basis of presentation and going concern uncertainty
The accompanying consolidated financial statements include the transactions of
Conectisys Corporation, its wholly-owned subsidiary TechniLink, Inc., and its
80% owned subsidiary PrimeLink, Inc. All material intercompany transactions
and balances have been eliminated in the accompanying consolidated financial
statements. Certain prior period amounts in the accompanying consolidated
financial statements have been reclassified to conform to the current year's
presentation.
The Company returned to the development stage in accordance with SFAS No. 7 on
December 1, 1990 and during the fiscal year ended November 30, 1995. The
Company has completed two mergers and is in the process of developing its
technology and product lines.
As of December 31, 2000, the Company had a deficiency in working capital of
approximately $1,231,000, 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), $3.5 million in 2000
and 0.37 million for the three months ended December 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 and from continued officer advances to assist in providing the
Company with the liquidity necessary to retire the outstanding debt and meet
operating expenses (See Notes 14(a), 14(b), and 14(c)). In the longer term, the
Company plans to achieve profitability through the operations of the
subsidiaries. The accompanying consolidated financial statements do not include
any adjustments relating to the recoverability and classification of the
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence.
Use of estimates
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values for its financial instruments. The following summary presents a
description of the methodologies and assumptions used to determine such amounts.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties, matters of judgment and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect the estimates.
Since the fair value is estimated at December 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. Long-term debt is recorded at face value because the principal
amount is convertible into common stock.
Fiscal year
Effective December 1, 1998, the Company changed its fiscal year-end from
November 30 to September 30.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and on deposit and highly liquid
debt instruments with original maturities of three months or less. All funds on
deposit are with one financial institution.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on property
and equipment using the straight-line method over the expected useful lives of
the assets, which are generally five years for vehicles and office equipment and
seven years for furniture and fixtures.
Licensing agreements
The costs of acquiring license rights are capitalized and amortized over the
shorter of the estimated useful life of the license or the term of the license
agreement. The licenses are being amortized over a period of five years.
During the year ended November 30, 1998, the Company acquired additional license
rights in the amount of $421,478 from TechniLink. Although the license remains
viable, the Company currently lacks the resources to develop and market it.
Accordingly, during the ten month period ended September 30, 1999, the Company
accelerated amortization on this asset by writing it down to its net realizable
value of $40,000, incurring a charge of $283,133. The balance was fully
amortized at September 30, 2000.
Technology
Deferred technology costs include capitalized product development and product
improvement costs incurred after achieving technological feasibility and are
amortized over a period of five years. At both September 30, 2000 and 1999,
respectively, no deferred technology costs were recognized.
Impairment of long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) has
been effective for financial statements for fiscal years beginning after
December 15, 1995. The standard established new guidelines regarding when
impairment losses on long-lived assets, which include plant and
equipment,certain identifiable intangible assets and goodwill, should be
recognized and how impairment losses should be measured. The Company wrote-off
the balance of the carrying value of older licenses and deferred technology
during the year ended November 30, 1998, as a consequence of persistent
competitive pressure. The expense incurred was $632,257.
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS No. 123) establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which an entity acquires
goods or services from non-employees in exchange for equity instruments. The
Company adopted this accounting standard on January 1, 1996. SFAS No. 123 also
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation. The Company has chosen to account for stock-
based compensation utilizing the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Also, in accordance with
SFAS No. 123, the Company has provided footnote disclosures with respect to
stock-based employee compensation. The cost of stock-based compensation is
measured at the grant date on the value of the award, and this cost is then
recognized as compensation expense over the service period. The value of the
stock-based award is determined using a pricing model whereby compensation cost
is the excess of the fair market value of the stock as determined by the model
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in exchange for goods
or services are valued at the cost of the goods or services received or at the
market value of the shares issued, depending on the ability to estimate the
value of the goods or services received.
Income taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
109, which requires the Company to recognize deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and tax basis of
assets using the enacted rates in effect in the years in which the differences
are expected to reverse.
Net loss per common share - diluted
Net loss per common share - diluted is based on the weighted average number of
common and common equivalent shares outstanding for the periods presented.
Common equivalent shares representing the common shares that would be issued on
exercise of convertible securities and outstanding stock options and warrants
reduced by the number of shares which could be purchased from the related
exercise proceeds are not included since their effect would be anti-dilutive.
Recent accounting pronouncements
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," (SFAS No. 130) issued by the FASB is effective for financial statements
with fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of SFAS
No. 130 did not have a material effect on the Company' financial position or its
results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About Segments
of an Enterprise and Related Information," (SFAS No. 131) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 131 requires that public companies report certain
information about operating segments, products, services and geographical areas
in which they operate and their major customers. Adoption of SFAS No. 131 did
not have an effect on the Company's financial position or its results of
operations; however, additional disclosures may have to be made in the future
relating to the above items.
Statement of Financial Accounting Standard No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," SFAS No. 132) issued by the
FASB is also effective for financial statements with fiscal years beginning
after December 15, 1997. It revises employers' disclosure requirements for
pensions and other postretirement benefits and eliminates certain disclosures
that are no longer as useful as they were when SFAS No. 87, SFAS No. 88, and
SFAS No. 106 were issued. Adoption of SFAS No. 132 did not have an effect on
the Company's financial position or results of operations.
New accounting pronouncements
The Financial Accounting Standards Board has established the following new
pronouncements, none of which have (will) materially affect the Company: SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities
(effective for years beginning after June 15, 2000)," SFAS No. 134, "Accounting
for Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise - an amendment of SFAS No.
65 (effective for fiscal quarters beginning after December 15, 1998)," SFAS No.
135, "Rescission of SFAS No. 75 and Technical Corrections (effective for fiscal
years ending after December 15, 1999)," SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust That Raises Contributions for
Others (generally effective for financial statements issued for fiscal periods
beginning after December 15, 1999)," SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133 - an amendment of SFAS No. 133 (effective June 1999)," SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS No. 133 (effective for years beginning after June 15,
2000)," SFAS No. 139, "Rescission of SFAS No. 53 and amendments to SFAS No. 63,
89, and 121 (effective for fiscal years beginning after December 15, 2000)," and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of SFAS No. 125 (effective for
certain disclosures for fiscal years ending after December 15, 2000)."
NOTE 2. RELATED PARTY TRANSACTIONS
Until recently, the Company leased office space in Agua Dulce, California from
S.W. Carver Corporation, a company owned by a major shareholder of the Company.
The lease was for a period of 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. Around September 1, 2000, the lease was terminated due
to the sale of the building. At that time the Company moved certain property
and equipment to its Valencia locations. Lease expense for the year ended
September 30, 2000.
NOTE 3. PREPAID EXPENSES AND DEPOSITS
During the year ended September 30, 2000, the Company issued 462,487 shares of
its common stock as retainers for consulting services ($128,611) and accounting
fees ($4,935). In addition, the Company recognized the unearned portion of an
engineering contract ($25,000) as a prepaid asset, bringing the total prepaid
expense balance at September 30, 2000 to $158,546.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 consisted of the following:
Office equipment $ 262,320
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 314,291
Accumulated depreciation (229,245)
-----------
Net book value $ 95,046
===========
NOTE 5. LICENSES AND TECHNOLOGY
Licenses and technology at December 31, 2000 consisted of the following:
License $ 421,478
Accumulated amortization (421,478)
-----------
Net book value $ -
===========
NOTE 6. DUE TO OFFICER
During the ten month period ended September 30, 1999, the Company received cash
advances from its CEO totaling $555,193. At September 30, 1999, $197,500 of
these advances 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%.
During the first half of the year ended September 30, 2000, the Company's CEO
advanced the Company an additional $68,500 (net of a $5,000 repayment) at an
annual interest rate of 10%. Total interest on the advances and promissory notes
amounted to $21,766 through May 22, 2000, at which time the total principal plus
accrued interest on the aggregate loans ($420,961) was effectively paid-off
through the exercise of 2,056,346 common stock options and 20,000 Preferred Class
A stock options. The total exercise price for these stock options was $509,972.
The balance of the proceeds of $89,011 was applied against accrued officer
compensation. During August and September 2000, the Company's CEO advanced the
Company another $75,000, which remained unpaid through year-end. During the three
months ended December 31, 2000, the officer advance the Company an additional
$15,000 bringing the total to $90,000 which has been converted to a note.
Another officer of the Company advanced the Company $60,000 during the three
months ended December 31, 2000 which has been converted to a note.
NOTE 7. NOTES PAYABLE
Notes payable at September 30, 2000 consisted of the following:
Note payable to Devon Investment Advisors,
unsecured, due on demand, interest payable
at an annual rate of 10% $ 241,824
Note payable to Black Dog Ranch LLC,
unsecured, semi-monthly payments of $2,500,
including interest at an annual rate
of 18%, with remaining balance due and
payable on June 1, 2001 66,613
Note payable to Deauville (now MMDS)
Capital Partners, unsecured,
convertible into common stock at
$1.00 per share through March 6, 2002,
at which time interest at an annual
rate of 10% begins to accrue 75,000
---------
Total notes payable 383,437
Current portion (383,437)
---------
Long-term portion $ -
=========
The maturity of long-term debt at September 30, 2000 was as follows:
Year ended September 30,: 2001 $ 383,437
---------
Total notes payable $ 383,437
=========
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 50,000,000 shares of $1.00 par value
preferred stock, no liquidation preference. One million of the preferred shares
are designated as Class A preferred shares which have super voting power wherein
each share receives 100 votes and has anti-dilution rights. One million of the
preferred shares are designated as Class B preferred shares which have
conversion rights wherein each share may be converted into ten shares of common
stock.
In December, 1998, the Company canceled 1,350,000 shares of its common stock
previously issued to a consultant and valued at $814,536, which were contingent
on the establishment of a $5,000,000 line of credit (never achieved).
In December, 1998, the Company issued 750,000 shares of its common stock valued
at $50,000 to a consultant for services rendered.
In January and September, 1999, the Company issued a total of 152,548 shares of
its common stock for consultant services rendered of $45,360.
During the months March, 1999 through September, 1999, the Company issued a
total of 405,800 shares of its common stock valued at $79,537 in a private
placement.
In September, 1999, the Company issued 100,000 shares of its common stock for
consultant fees rendered of $84,644.
In September, 1999, the Company issued 960,321 shares of its common stock to
repay related party debt of $197,500.
In September, 1999, the Company issued a total of 47,481 shares of its common
stock valued at $15,957 as hiring bonuses for two employees.
In September, 1999, the Company issued 260,000 shares of its common stock to its
president as compensation for director fees of $203,493 and also issued him
39,520 of its Class A $1.00 par value preferred stock to partially repay debt.
In September, 1999, the Company issued options to purchase 500,000 shares each
(a total of 1,000,000) of its Class B convertible preferred stock at a price of
$5.00 per share in exchange for debt reduction of $50,000 each (a total of
$100,000) to a note holder and the Company's president.
In September, 1999, the Company issued options to purchase 600,000 shares of the
Company's common stock (500,000 options to its president and 100,000 options to
an employee) valued at $150,000.
In October, 1999, the Company re-acquired and canceled 17,500 common shares from
the former president of PrimeLink, in return for a $12,000 consulting agreement.
During the months October, 1999 through March, 2000, the Company issued a total
of 241,200 shares of its common stock valued at $52,919 in a private placement.
In conjunction with this issuance and the March through September, 1999 issuance
noted above, certain shareholders received warrants to purchase 506,500 shares
of common stock at $2.00 per share through November 1, 2001.
During the period October, 1999 through September, 2000, the Company issued a
total of 2,612,796 shares of its common stock to various consultants for
services rendered and to be rendered (retainer of $128,611) totaling $1,051,932.
In November, 1999, the Company received cash of $66,927 to cover the balance due
on an old subscription for 300,000 shares of the Company's common stock.
In November, 1999 through September, 2000, the Company issued 240,000 shares of
its common stock to its outside accountant for services rendered and to be
rendered (retainer of $4,935) in the amount of $130,000.
In December, 1999 and February, 2000, the Company issued 879,309 shares of its
common stock to current and former officers for accrued compensation in the
amount of $419,747.
In December, 1999, the Company issued an additional 19,804 shares of its common
stock valued at $7,195 (net of 6,283 canceled shares valued at $10,805) in full
settlement of a vendor dispute.
In February and March, 2000, a consultant exercised 250,000 common stock options
at $125,000 ($0.50 per share)
In March, 2000, the Company issued 20,000 shares of its common stock for $16,000
in legal services.
In March, 2000, the Company issued 500,672 shares of its common stock in
subscriptions and private placements totaling $195,000.
In March, 2000, the Company issued 135,000 shares of its common stock to an
officer for $89,042.
In March, 2000, the Company adjusted the exercise price on 2,600,000 common
stock options previously issued to two officers and an employee, resulting in an
increase in compensation expense of $1,113,610.
In April, 2000 through September, 2000, the Company issued 1,019,800 shares of
its common stock through cash subscriptions totaling $242,450, for which $15,450
(representing 61,800 shares) had not yet been collected as of September 30,
2000.
During April, 2000 through September, 2000, an additional 242,560 shares of the
Company's common stock were issued in a private placement totaling $68,087. In
conjunction with these and previous issuances, certain shareholders received
warrants to purchase 446,305 shares of the Company's common stock at $2.00 per
share through September 1, 2002.
In May, 2000, the Company's CEO exercised 2,056,346 common stock options and
20,000 Class A Preferred stock options in exchange for debt and accrued
compensation aggregating $509,972. $407,735 was transferred from stock options
exercisable to common stock as a result of this transaction.
In June, 2000, a note-holder converted $200,000 principal value of debt into
800,000 shares of the Company's common stock (at $0.25 per share).
In August and September, 2000, three officers and an employee received 539,389
shares of the Company's common stock as payment for $229,693 of accrued
compensation.
In September, 2000, old liabilities of $108,020 were transferred to
shareholders' equity (deficit) in recognition of additional paid-in capital.
In September, 2000, the Company issued 500,000 common stock options to a
consultant valued at $43,900 (representing a floating exercise price that was
15% below the current market price of the Company's common stock).
In October, 2000, the Company issued 141,777 share of common stock valued at
$30,907 to the officers for compensation.
In October, 2000, the Company issued 66,414 share of common stock valued at
$19,200 to a consultant for services rendered.
In November, 2000, the Company issued 50,000 share of common stock valued at
$20,000 to a consultant for services rendered.
In December, 2000, the Company issued 110,000 share of common stock valued at
$12,005 to two consultants for services rendered.
NOTE 9. INCOME TAXES
Deferred income taxes consisted of the following at September 30, 2000:
Deferred tax asset, benefit
of net operating loss
carryforward $ 7,000,000
Deferred tax liability -
Valuation allowance (7,000,000)
-----------
Net deferred taxes $ -
===========
The valuation allowance offsets the net deferred tax asset, since it is more
likely than not that it would not be recovered.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into seven employment agreements with key
Individuals, the terms of the agreements are as follows:
1) The President and CEO of PrimeLink entered into an agreement dated
September 15, 1995 for a period of three years. This agreement, along
with his royalty agreement, were mutually terminated. The separation
agreement, as of October 31, 1997, called for a settlement of $12,000 to
be paid $1,000 monthly for the following twelve months. As of September
30, 2000, $4,000 remained unpaid.
2) The 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 CEO (now former President) of the Company entered into an agreement
dated October 2, 1995 (which was amended September 1, 1997 and September
1, 1999) for a period of five years, and he is entitled to receive a base
salary of $160,000 per year. The employee shall further receive a bonus,
paid at year-end, equal to 50% of the employee's salary, for continued
employment. The staying bonus will be compensated for with the Company's
restricted common stock. He is also granted an option to purchase up to
2,000,000 shares of the Company's restricted common stock at a price equal
to 50% of the average market value for the prior 30 trading days before
exercise. On March 27, 2000, the exercise price was adjusted to a flat
$0.3864 per share, with an expiration date of December 2, 2003.
4) The Acting President of the Company entered into an agreement dated
September 11, 2000 for a period of six months through March 11, 2001, and
he is entitled to receive a base salary (consulting fees) of $120,000 per
year, of which 50% shall be paid in cash and 50% shall be paid in
restricted common stock at a rate equal to 50% of the average market
closing price for the last 5 trading days of each quarter. He shall be
issued 100,000 shares of restricted common stock as a hiring bonus, at a
per share price of $0.28415, equivalent to 50% of the average market
closing price for the prior 30 trading days before the agreement date. He
shall further receive performance bonuses (paid in restricted common
stock) upon successful completion of specific milestones pertaining to the
implementation and deployment of the HNET System. The incentive package
could net him up to 650,000 shares of restricted common stock. He is also
granted an option through March 11, 2001 to purchase up to 100,000 shares
of the Company's restricted common stock at a price of $0.38 per share.
5) The Chief Financial Officer of the Company entered into an agreement dated
October 2, 1995 (which was amended September 1, 1997) for a period of
three years, and he is entitled to receive a base salary of $80,000 per
year and an annual bonus of 2% of the Company's pretax income. The
employee shall further receive a bonus, paid at year-end, equal to 50% of
the employee's salary, for continued employment. The staying bonus shall
be compensated for with the Company's restricted common stock. He is also
granted an option to purchase up to 500,000 shares of the Company's
restricted common stock at a price equal to 50% of the average market
value at the date of purchase. Effective February, 1999, he resigned from
the Company.
6) The Secretary and Treasurer of the Company entered into an Agreement dated
October 2, 1995 (which was amended September 1, 1997, September 1, 1999,
and March 31, 2000) for a period of five years (extended through April 1,
2005), and she is entitled to receive a base salary of $80,000 per year.
The employee shall further receive a bonus, paid at year-end, equal to 50%
of the employee's salary, for continued employment. The staying bonus
shall be compensated for with the Company's restricted common stock. She
is also granted an option to purchase up to 500,000 shares of the
Company's restricted common stock at a price equal to 60% of the average
market value for the prior 180 trading days before exercise. On March 27,
2000, the exercise price was adjusted to a flat $0.38 per share, with an
expiration date of December 31, 2004.
7) The Chief Technical Officer of the Company entered into an agreement dated
August 1, 1998 for an initial term of three years, and he is entitled to
receive a base salary of $150,000 per year, with a minimum of $90,000 to
be paid annually in cash and the balance paid (at the option of the
Company) in cash or restricted common stock under rule 144. The employee
shall receive a hire-on bonus of $75,000 worth of the Company's restricted
common stock under rule 144, at one-half market price. The employee shall
further receive performance bonuses (paid in restricted common stock, as
above) upon successful completion of specific milestones pertaining to the
implementation and deployment of certain software (up to $862,500). If
substantially all performance milestones are met, he is also granted an
option to purchase up to 500,000 shares of the Company's restricted common
stock at a price equal to 60% of the average market value at the date of
purchase. As of September 30, 2000, none of the aforementioned milestones
had been successfully completed.
License agreements
The Company has entered into license agreements with the Presidents of both
PrimeLink and TechniLink. The license agreements were entered into on September
20, 1995, in connection with the acquisition of PrimeLink and TechniLink (see
Note 1 above), and are for a period of five years. As consideration for these
license agreements, the Company issued each licensee 250,000 shares of its
restricted common stock and will pay each licensee a royalty of 5% of net sales
of the applicable product. In addition, in the event of the sale or merger of
TechniLink or PrimeLink, a royalty sum of 20% of the sales price of the license
shall be paid to the licensee; the sales price shall not be less than
$1,500,000. The licenses were valued at the fair market value of the stock
issued to obtain the licenses. In 1997, there was a separation agreement
between the President of PrimeLink and the Company, whereby the President of
PrimeLink agreed to forfeit royalty rights and return all shares of the
Company's common stock obtained pursuant to the license agreement for a $12,000
settlement.
Litigation
There have been three recent legal proceedings in which the Company has been a
party:
The first case, Securities and Exchange Commission (the "Plaintiff") vs. Andrew
S. Pitt, Conectisys Corp., Devon Investments Advisors, Inc., B&M Capital Corp.,
Mike Aaman, and Smith Benton & Hughes, Inc. (Defendants) Civil Case # 96-4164.
The case alleges that a fraudulent scheme was orchestrated and directed by the
defendants to engage in the sale and distribution of unregistered shares of
Conectisys by creating the appearance of an active trading market for the stock
of Conectisys and artificially inflating the price of its shares. In the suit,
the SEC sought permanent injunctions from violating securities laws. The SEC
did not seek any civil penalties from the Company. The courts, having conducted
a trial of this matter without jury and taken it under submission, found for the
plaintiff as follows: against Conectisys on the claim that the defendant
violated section 5(a), 5(c), and 17(a). Conectisys was not found to have
violated section 10(b), 10(b-5), or 15(c). The Company was subsequently ordered
to disgorge profits totaling $175,000. On March 5, 1999, the Company entered
into an Amended Final Judgment of Permanent Injunctive Relief with the
Securities and Exchange Commission ("SEC"). The Company and the SEC agreed on a
settlement in which the Company would dismiss its then pending appeal and take a
permanent injunction that it would not in the future violate sections 5(a),
5(c), 17(a), 10(b), 10(b-5), or 15(c); in return the SEC would not demand the
previously ordered disgorgement of $175,000.
The second case was brought by Clamar Capital Corp. (the "Plaintiff") against
Smith Benton & Hughes; Michael Zaman; Claudia Zaman; Andrew Pitt and Conectisys
Corp. (collectively the "Defendants"). The case was brought before the District
Court of Arapahoe, State of Colorado, Case # 97-CV-1442, Division 3. The
Plaintiff did not specify an amount of damages that it sought from the
Defendants. On March 26, 1999, the District Court of Arapahoe, State of
Colorado, dismissed the civil case against Conectisys Corp. brought by Clamar
Capital Corp.
The third case was brought by Southern Arizona Graphic Associates, Inc. (the
"Plaintiff") against Conectisys Corporation (the "Defendant"). The case was
brought before the Superior Court of the State of Arizona, County of Pima, Case
# 333852. The claim was for goods, printing services, and funds advanced by the
Plaintiff. On December 8, 1999, the Company's Board of Directors approved the
issuance of 26,087 shares of the Company's common stock valued at $18,000 in
full settlement of the defendant's claim. The matter was subsequently dismissed
with prejudice.
The Company, during its normal course of business, may be subjected from time to
time to disputes and to legal proceedings against it. Both counsel and
management do not expect that the ultimate outcome of any current claims will
have a material adverse effect on the Company's financial statements.
NOTE 11. MAJOR CUSTOMERS
The Company, as a development stage enterprise, did not have revenues during
three months ended December 31, 2000 and the year ended September 30, 2000.
NOTE 12. STOCK OPTIONS
During the fiscal year ended September 30, 1999, the Company issued to a note
holder options to purchase 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share. As consideration, the Company
reduced the debt by $50,000 and received an extension of time to pay-off its
promissory note. The Company also issued to its CEO options to purchase another
500,000 shares of the Company's Class B preferred stock at an exercise price of
$5.00 per share in exchange for a reduction in debt of $50,000. Total
consideration received on the above issued options, as evidenced by debt
reduction, was $100,000. These options can be exercised through November 1,
2002 and can also be converted into common stock at the rate of 10 common shares
for each Class B preferred share.
The Company's CEO currently owns 140,020 shares of the Company's Class A
preferred stock, of which 20,000 shares were purchased during the year ended
September 30, 2000, and has options to purchase another 9,980 shares for $1.00
per share through June 16, 2001.
The Company accounts for stock-based compensation under the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25. Had
compensation cost for stock options granted during the year ended September 30,
2000 been determined based on the fair value at the grant dates consistent with
the method of FASB Statement No. 123 (utilizing the Black-Scholes model), the
Company's net loss would have increased by $260,230, of which $214,130 was
attributable to 563,500 common stock options issued to a consultant at an
exercise price of $2.00 per share, exercisable over an approximate three year
period, $25,000 was attributable to 100,000 common stock options issued to the
Company's acting president at an exercise price of $0.38 per share, exercisable
over a six month period, and $21,100 was attributable to 500,000 common stock
options issued to a consultant at an exercise price set at 15% below the current
market value of the Company's common stock, exercisable over a twelve month
period.
During the ten month period ended September 30, 1999, 500,000 common stock
options were issued to the Company's CEO and another 100,000 common stock
options were issued to an employee. These options were valued at $150,000 in
aggregate. No pro forma information required by SFAS No. 123 is included, as
the disclosure would not be materially different from the amounts and
disclosures already presented. On March 27, 2000, the Company fixed the
exercise prices of 2,600,000 common stock options previously issued at (higher)
floating exercise prices to the Company's CEO, the Company's secretary, and the
employee, resulting in an additional compensation cost of approximately
$1,113,610. The value of the total common stock options exercisable thereby
increased to $1,263,610. In May, 2000, the Company's CEO exercised 2,056,346
common stock options, resulting in the transfer of $407,735 of common stock
options exercisable to common stock, thereby reducing the balance of common
stock options exercisable to $855,875. In September, 2000, the Company issued
500,000 common stock options to a consultant, valued at $43,900 (corresponding
to a 15% discount from current market value), bringing the balance of common
stock options exercisable at September 30, 2000 to $899,775. The total balance
of stock options exercisable at September 30, 2000 was $999,775, including
$100,000 attributable to the Company's Class B preferred stock.
The Company has granted various common stock options and warrants to employees
and consultants; the options and warrants were granted at approximately the fair
market value at the date of grant and vested immediately. The common stock
option activity during the three months ended December 31, 2000 and fiscal year
ended September 30, 2000:
Common Stock
Options Weighted
and Average
Warrants Price
---------- --------
Balance outstanding, September 30, 1999 3,600,000 $ .64
Granted 1,913,500 .86
Exercised (2,306,346) .27
---------- --------
Balance outstanding, September 30, 2000 3,207,154 $ .69(1)
---------- --------
Balance outstanding, December 31, 2000 3,207,154 $ .69(1)
========== ========
(1) Due to floating strike prices, weighted average price upon issuance is $0.94,
upon exercise is $0.69.
The following table summarizes information about common stock options at
December 31, 2000:
Outstanding Exercisable
Weighted Weighted Weighted
Range of Common Average Average Common Average
Exercise Stock Life Exercise Stock Exercise
Prices Options (Months) Price Options Price
- ------------- --------- ------- ------- --------- -------
$ .38 - $ .38 100,000 2 $ .38 100,000 $ .38
$ .50 - $ .50 500,000 8 $ .50 500,000 $ .50#
$2.00 - $2.00 563,500 26 $ 2.00 563,500 $ 2.00
$ .39 - $ .39 1,443,654 35 $ .39 1,443,654 $ .39*
$ .38 - $ .38 100,000 48 $ .38 100,000 $ .38*
$ .38 - $ .38 500,000 60 $ .38 500,000 $ .38*
$ .38 - $2.00 3,207,154 32 $ .69 3,207,154 $ .69
============= ========= == ======= ========= =======
# Currently a floating exercise price
* Formerly a floating exercise price
The above table excludes 952,805 warrants exercisable at $2.00 per share, which
have nominal value and which were issued to certain stock subscription
investors. Of these warrants, 506,500 expire November 1, 2001 and 446,305
expire September 1, 2002. The table also excludes a contingent issuance to the
Company's Chief Technical Officer of 2,000,000 common stock options exercisable
at $0.50 per share and expiring December 31, 2002. These common stock options
will not vest until certain milestones have been attained.
NOTE 13. FORM S-8 FILING
In September 2000, the Company filed a Form S-8 registration statement for the
Conectisys Corporation Amended Non-Qualified Stock and Stock Bonus Plan (the
"Amended Plan"). The purpose of the Amended 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 shall consist of 1,000,000
shares of the common stock of the Company. Unless amended by the Board in
writing, the Plan shall terminate at midnight, January 31, 2003. To date, all
the common shares have been issued to consultants under the Plan. 600,000 of
these shares were for past services rendered and 400,000 represented options
earned and exercised by consultants.
NOTE 14. SUBSEQUENT EVENTS
The Company intends to register an offering of 20,000,000 new common shares via
Form SB-2. Additionally, approximately 3,102,472 shares owned by existing
shareholders will be registered for sale.
The Company has filed corporate certificates of dissolution with the California
Secretary of State for its 80%-owned subsidiary PrimeLink, Inc. and its wholly-
owned subsidiary TechniLink, Inc. These will become effective when valid tax
clearance certificates have been issued by the Franchise Tax Board. Upon
dissolution, the assets of the dissolved subsidiaries will be distributed to the
parent corporation.
