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 March 31, 2001: 25,715,929
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
General
Except for disclosures that report the Company' historical results, the statement
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.
Since 1995 the Company has been a developmental commercial telecommunications company.
ConectiSys has developed systems and products for the wireless telemetry markets.
Specifically, ConectiSys has developed a low-cost Automatic Meter Reading ("AMR") solution
for both residential and commercial markets. The product is called H-Net (H-Net is a
trademark of ConectiSys Corporation) and is marketed by UTC. H-Net utilizes a proprietary
communication protocol for two-way communication using a wireless radio network. This
technology enables the Company to deliver a low-cost wireless network, which is inexpensive
to deploy and operate. The technology may also be utilized for other remote data acquisition
and/or control applications, where traditional communication is not available because of cost.
The ConectiSys network architecture includes a second component, the Network Operating Center
or "NOC". The H-Net wireless network AMR data will be transmitted to the NOC. The NOC is a
state of the art operating center built to support one million wireless meter reading devices,
responding with readings four times an hour, twenty four hours a day. The H-Net Network will be
deployed with several up-link capabilities including ISM band or satellite.
Through the NOC, the Company will offer a full array of value added services to the utility
distribution industry in addition to the AMR data. These services will include energy management,
data archiving and e-commerce systems, which will allow an end-user access to real-time data for
evaluation and cost analysis via the Internet using standard web browsers. eEnergyServices.com
will provide accounting and financial transaction services. Energy suppliers, energy brokers and
energy service providers along with energy consumers are the potential customers for these services.
There is currently no dominant AMR technology in the market, today. The Company believes the UTC
and eEnergyServices.com wireless network model presents an effective, low-cost, total solution for the
AMR market.
Third Generation Product - ConectiSys' H-Net Wireless 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.
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 distributor 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
distributors could control power consumption in real time thus allowing the implementation of various
energy conservation programs. Access to use information and programmable controls of electrical loads
will be made available through an integrated Internet based control panel.
Corporate History
The Company was incorporated under the laws of Colorado on February 3, 1986, to analyze
and invest in business opportunities as they may occur.
In September 1995, the Company acquired 80% of the outstanding stock of Technilink, Inc.,
a California corporation, and 80% of the outstanding stock of Primelink, Inc., a Kansas
corporation, in exchange for an aggregate of 200,000 shares of the Company's common stock.
Both Primelink and Technilink were start-up companies with no material operating activity.
The acquisitions of these companies occurred in connection with the signing of the license
agreements. The Company issued a total of 700,000 shares of common stock and assumed a loan
of $400,000 to acquire the licenses and the Corporations. The only major assets acquired
from Primelink and Technilink were the licenses and technology. The stock issued was valued
at $1,750,000, the fair market value of common stock issued.
On July 15, 1998 United Telemetry Company, Inc. was incorporated in the State of Nevada as
a wholly owned subsidiary of the Company.
On July 22, 1998, the Company acquired the remaining 20% interest in Technilink, Inc. for
50,000 shares of the Company's common stock valued at $59,247.
On January 15, 2000 eEnergyServices.com, Inc. was incorporated in the State of Nevada as a
wholly owned subsidiary of the Company.
In March 2000 the Company consolidated Primelink and United Telemetry Co., Inc. with all
operations being conducted under United Telemetry Co., Inc., and consolidated Technilink and
eEnergyServices.com, Inc. with all operations being conducted under eEnergyServices.com, Inc.
Overview
H-Net Pilot Program
On February 15, 2000 the Company successfully launched its H-Net Pilot in Los Angeles,
California. Although the initial pilot was small, it was a working model showing the capabilities
of H-Net. The Company's much-awaited deployment of the H-Net Automatic Meter Reading (AMR) pilot
demonstrated H-Net's technology which acquires real time data from an electric meter, processes
this data to show power usage and cost, and can display this information via the Internet.
In September 2000 the Company a 2nd-generation pilot. Additionally, the Company engineered a
portable H-Net Wireless Network that is capable of demonstrating the H-Net System anywhere in
the country.
Based upon H-Net's success in its initial pilots in proving H-Net as a viable system of
administration and reporting for the AMR market place, the Company is currently releasing its
3rd-generation pilot for 2001. The Company expects to begin testing H-Net with third parties
(beta testing) in the 1st quarter of fiscal year 2002.
H-Net At Work
H-Net is new technology developed to allow energy companies to have a wireless network of
intelligent power meters, each unit talking to each other and passing date back and forth,
allowing real-time power consumption data and statistics to be generated. All this is done
using established Internet connections in conjunction with technology designed by the Company.
The Company believes that H-Net will save money all along the transmission line. Energy Service
Providers (ESPs) will save money by efficiently collecting accurate load profiles and using
this nearly real-time power usage data to competitively bid for energy in the newly deregulated
energy market.
Detailed information and charts can be easily generated and distributed to authorized readers.
Using a web browser, an Energy Service Provider can tell exactly how much power a metropolitan area,
a neighborhood, or even an individual house is using since each individual H-Net unit has a unique
identifier. Customers will have the ability to check their electric usage and billing rates in
real time through the e-commerce services of eEnergyServices.com, Inc., a wholly owned subsidiary
of the Company.
The H-Net Wireless Network Vision
H-Net will provide an energy or utility company with the ability to provide its customers with
information through the Internet. The site could provide energy usage data that would show when energy
is used every 15 minutes of every day and the related costs to each of its customers, allowing its
customers to analysis, identify and capture cost savings opportunities.
The H-Net System will open both educational and sales opportunities for the customer and energy
companies alike. The purchasing power produced by accurate historical and real time data facilitates
efficient and cost saving advanced power purchasing. The H-Net System will allow the monitoring of
energy levels of its customers and will ensure that the utility are aware of any delivery problems
including power outages and energy thefts. When a regional area suffers a heavy storm, the H-Net
System will provide a power company with the ability to determine which of its customers does not
have electric power, without the aid of customers' service phone calls allowing service crews can
be dispatched more efficiently. Using H-Net, the utility company knows precisely when each customer's
service is restored and the exact duration of the outage.
H-Net will not only enhance safety but also convenience, allowing energy to be remotely connected
and disconnected, with all billing transactions completely automated. With H-Net Internet connections,
customers can request energy service on-line and discover that there are alternatives for time-of-use
rates with incentives for managing energy consumption at different times. Since H-Net allows the
customer information system to link directly to the meter, orders initiated by the customer can be
automatically implemented. The H-Net is monitoring the customer's meter constantly and meter reads are
gathered and displayed on 15-minute intervals, 24 hours a day/ 7 days a week/ 365 days a year.
Energy companies will be able to implement innovative sales offerings of energy such as pre-pay status,
and provide detailed customer usage and pricing information, allowing customers to utilize the ability to
purchase additional energy via the Internet.
Energy prices are constantly changing, and energy purchasing and trading is a critical function of energy
companies. H-Net will provide customers and utilities with reliable and accurate energy usage records.
Customers could be offered special incentives to use energy at off-peak times improving energy utilization
and conservation during critical peak periods.
H-Net would allow the distribution of energy generation more simply and inexpensively with energy usage and
other vital information flowing directly, precisely and electronically through the entire energy supply line.
Energy purchasers can make precise forecasts of purchasing, eliminating volatile wholesale energy prices.
H-Net allows customers who are getting ready to terminate or switch energy service providers to use the
Internet to inform the current energy company of the change. At a precise time, selected by the customer,
H-Net reads the meter, passes the information to the current energy provider's system to produce a final bill,
and disconnects the meter. The new meter data from that point forward is automatically routed to the new energy
provider. Billing delays and settlement time lags are non-existent. A customer can pay the bills
electronically - all at a very low cost to the utility company. Low transaction costs will speed the path
towards an open, competitive market.
H-Net can provide lower energy costs; quicker transactions with less paperwork and less potential for
errors; increase asset utilization; customer satisfaction will be enhanced through choice and costs savings,
thus increasing customer loyalty.
Marketing
We have recently begun our effort to market our products and services. We have implemented a public relations
and marketing campaign along with establishing a relationship with the State of California in an attempt to
facilitate a long-term solution for the energy needs of the State. Public relations and certain marketing are
expected to cost $15,000 in cash and stock with a market value of approximately $300,000.
Raising Capital
Convertible Debenture
On April 12, 2001 the Laurus Master Fund, Ltd. loaned the Company $300,000 pursuant to a Subscription Agreement
and secured by a six (6) month, eight (8) percent Convertible Debenture. The Debenture conversion price is the
lower of 80% of the average of the three (3) lowest closing prices of the common stock during the thirty (30)
days immediately preceding the (a) Subscription Date (April 12, 2001) and (b) conversion date. The Subscription
Agreement requires the Company to file a Registration Statement to register 200% of the shares that maybe
required in anticipation of the Debenture being converted to common stock. On May 7, 2001 the Company filed
an Amended SB-2 Registration Statement with the Securities & Exchange Commission. Additionally, three of the
Company's officers further secured the loan through the use of their personal common stock holdings in the
Company. The officers provided an aggregate of 4,772,860 shares of restricted common stock as further collateral
for the loan pursuant to a Security Agreement.
Private Equity Credit Line Agreement ("PECL Agreement")
On May 1, 2001, the Company entered into a New 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 sale of restricted common stock for a period of thirty-six (36) months. This New PECL Agreement replaces
the previous PECL Agreement signed on February 1, 2001. The new PECL Agreement entitles the Company to sell restricted
common stock with registration rights, referred to as a "Put". The amount of the Put may not exceed the lesser of
$500,000 or ten percent (10%) of the daily volume weighted average price of the common stock for the twenty-two (22)
Trading Days after the Put date ("Valuation Period"), multiplied by the reported daily trading volume of the common
stock for each such day. Notwithstanding the maximum amount limits, the minimum Put amount is $250,000. There must
be at least 30 days between each Put and seven (7) days since the last closing of Put. The Purchase Price per Put
share of common stock shall be based on the Average Daily Price (the daily volume weighted average price of the
common stock) on each separate Trading Day during the Valuation Period. The number of Put shares to be purchased
by the Investors shall be determined on a daily basis during each Valuation Period and settled on two Closing
Dates defined as the thirteenth (13th) Trading Day following the Put date and the second Trading Day following
the Valuation Period. The sale price of the stock is 84% of each Average Daily Price during the Valuation Period.
If the daily volume of shares of common stock traded on any Trading Day during the Valuation Period is fewer than
100,000 shares of common stock ("Low Volume Day), the Investor shall not be required to purchase the Put shares
otherwise to be purchased for such Low Volume Day. In such case, one-twenty-second (1/22nd) of the Investment
Amount shall be withdrawn from the Investment Amount for each such Low Volume Day, the Valuation Period will be
extended one additional Trading Day for each such Low Volume Day and the withdrawn Investment Amount shall be
applied to the corresponding extended day. The maximum number of Low Volume Days for which such extensions
shall be permitted is five days. The Investors may elect not to have such amount withdrawn from the Investment
Amount and instead purchase Put Shares corresponding to any Low Volume Day. The Company has 45 days after close
of the Put sale to file and have effective a registration statement in place for the Put shares purchased.
Warrants - The investors are also entitled to purchase common stock from the Company through Warrants. The
investors have the right to purchase one (1) share common stock for every $2.00 in common stock purchased pursuant
to a Put by the Company. The exercise price of the Warrants shall be equal to 120% of the lowest closing bid price
during the Valuation Period of the Put. The Warrants are exercisable for four (4) years from the date of issuance.
Limitations And Conditions Precedent To A Put - The Company must cancel a particular Put if
the Company discovers an undisclosed material fact relevant to PELC Agreement; the registration
statement registering of the previously issued common shares becomes ineffective or shares
are delisted from the then primary exchange.
Ten Percent (10%) Limitation - The Company can not request a Put from the Investors if the
number of shares of common stock in the Put amount would cause the number of shares that,
when aggregated with all other shares of common stock then owned by the Investor beneficially
or deemed beneficially owned by the Investor, would result in the Investor owning more than
9.9% of all of such Common Stock of the Company, as determined in accordance with Section 16
of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.
Shareholder Approval - The Company may issue more than 20% of our outstanding shares. If we
become listed on the Nasdaq Small Cap Market or Nasdaq National Market, then it must get
shareholder approval to issue more than 20% of our outstanding shares. Since it is currently
a bulletin board company, it does not need shareholder approval.
Right Of Indemnification - The Company is obligated to indemnify the Investors from all liability
and losses resulting from any misrepresentations or breaches the Company makes in connection with
the PECL Agreement, other related agreements, or the registration statement.
Fees - The Company also has to pay a Finders Fee of ten (10) percent of the amount of cash proceeds
of each Put to the Investors. This 10% fee also applies to all cash proceeds from the exercise of
any Warrants by the Investors. Additionally, the Company has to pay a legal fee to the Investor's
counsel in an amount of $5,500 in connection with each of the first and second closings and $1,000
for each closing thereafter. The Company paid $3,000.00 at the signing of the PECL Agreement.
Results Of Operations
The Company realized a net loss from operations of $710,402 for the 2nd quarter ending March 31, 2001 as compared
with a $2,797,342 net loss for the same period last year ending March 31, 2000. The Company had no revenue for
the 2nd quarter ending March 31, 2001.
Plan Of Operation
Loss on operations for the Company for the 2nd quarter ending March 31, 2001 decreased 134% 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 equity financing of
$15 million from a group of private investors to purchase common stock from the Company. (See Part II, Item 5 below).
The Company had no revenues in fiscal 2000.
Liquidity and Capital Resources
As of March 31, 2001, the Company had a negative working capital of $1,349,485 consisting of $147,644 in current
assets and $1,497,129 in current liabilities as compared to negative working capital of $1,727,994 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 $220,968 as of March 31, 2001, and total liabilities of $1,497,129. Shareholder deficit
is $1,276,161, as compared to a deficit of $1,631,362 for the same period last year. The Company issued 1,800,000 shares
of common stock for cash and services during the 2nd quarter ending March 31, 2001.
Cash Flows
The Company had a net loss for the 2nd quarter ending March 31, 2001, of $710,402. The cash used in operations toward
this loss was $208,811. 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 $134,888. The Company issued shares for $109,000 of common stock to
partially finance the operating losses for the 2nd 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 March 31, 2001.
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 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 Section 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.
In April 2001 the Company issued restricted common stock to various employees and consultants to the
Company including 400,000 shares of restricted common stock to the Advisory Board Members; 3,022,927 shares
of common stock as accrued compensation to Company employees; 696,317 shares of common stock to consultants
for services rendered.
The Company believes the shares issued in these transactions did not involve a public offering and were
made in reliance upon an exemption from registration provided by Regulation D and Section 4(2) of the
Securities Act of 1933, as amended.
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 May 30, 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 were mailed out to each shareholder of record as of April 20, 2001.
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 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 Advisory Committee is headed by
the Company's President, Rod Lighthipe and presently consists of the following energy industry experts:
Dr. Hugo Pomrehn
Dr. Pomrehn was nominated by President Bush on June 28, 1992 to serve as the Under Secretary of Energy, and
was confirmed by the United States Senate for that position on September 29, 1992. As Under Secretary to Admiral
James Watkins, Dr. Pomrehn was the third-ranking official at the U.S. Department of Energy, which employed
approximately 170,000 federal and contractor personnel and had an annual budget of $20 billion. Dr. Pomrehn's
professional career covers a broad spectrum of energy and environmental technologies. He has been engaged in
engineering and management consulting in the energy and nuclear fields for more than 30 years. He also was Vice
president of the Bechtel Corporation.
Aaron R. Sokol
Mr. Sokol is a Vice President at Deutsche Bank Alex Brown. Mr. Sokol's responsibilities include providing
innovative and customized solutions in order to preserve and enhance one's wealth. He is also responsible for
new business development as well as global financial advisory services for existing and prospective clients.
Mr. Sokol joined Deutsche Bank Alex Brown from Los Angeles-based Scudder Kemper Investments, Inc. Mr. Sokol
has also served as an Assistant Vice President at First Chicago Capital Markets, Inc., and prior to that, worked
in Corporate Finance at Nations Bank Capital Markets, Inc. Mr. Sokol earned a J.D. from Boston University School
of Law and a M.B.A. in Finance and New Venture Management from the University of Southern California.
Larry W. Siler
Mr. Siler is currently Manager of Fuel Transportation for Edison Mission Energy in Chicago, Illinois. Mr. Siler
was the Coal Supply Superintendent for Commonwealth Edison Company in Chicago from 1988 to 1999. From 1986 to 1988
he was a Management & Engineering Consultant in Austin, Texas. He also held positions as the Fuels Manager,
Engineering Supervisor, Staff Engineer and Fuels Engineer for the Lower Colorado River Authority from 1973 to 1986.
Mr. Siler graduated with a Bachelors of Science degree from the University of Texas at Austin in 1970.
Tod O'Connor
Mr. O'Connor acted as Director of Government Relations for two Edison International Inc. subsidiaries, Southern
California Edison RD&D Department and Edison Technology Solutions from 1993 to 1999. He also worked with Pacific
Enterprises and its subsidiary, Southern California Gas Co. from 1989 to 1993, and MARC Associates' Status Group
in Washington DC, 1988-1989. He was a Legislative Aide in the United States House of Representatives where he
advised House Speaker Thomas P. (Tip) O'Neill on pending legislation and proposed federal regulations, as well
as the Democratic Steering and Policy Committee from 1980 to 1981. Mr. O'Connor is currently President of O'Connor
Consulting Services, Inc. in Woodland Hills, California. Mr. O'Connor has Masters of Law degree in Labor Law from
Georgetown University Law Center, Washington, DC, 1983 and a Juris Doctor from Suffolk University Law School in 1980.
The Advisory Board members received 100,000 shares of restricted common stock as compensation for their service.
SB-2 Registration Statement Filed with The Securities & Exchange Commission
On March 19, 2001 the Company filed a Form SB-2 Registration Statement with the Securities & Exchange Commission.
On May 7, 2001 an Amended SB-2 Registration Statementwas filed.
The Company's initial SB-2 filing was to register 5,000,000 shares of common stock for sale to the public;
56,000,000 shares for issuance pursuant to a Private Equity Line of Credit Agreement and 3,102,472 Selling Security
Holders for total of 64,102,472 shares to be registered.
On April 12, 2001 the Company received a bridge loan in the amount of $300,000 from Laurus Master Fund, Ltd. in
the form of a Convertible Debenture. Additionally, the original Private Equity Line of Credit Agreement was modified
and a new Private Equity Line of Credit Agreement was entered into on May 1, 2001. The new Agreement provides the
Company with access of up to $15 million in equity financing over the next 36 months.
The Company then filed a streamed lined Amended SB-2 Registration Statement to register only those shares that are
necessary for the conversion of the Convertible Debenture issued to Laurus Master Fund, Ltd., namely, 4,411,765 shares
of common stock. The Company hopes to have the Amended SB-2 Registration Statement approved by Securities & Exchange
Commission by June 1, 2001.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit
99.0 Financial Statement (Unaudited)
(b) During the Registrant's fiscal quarter ending March 31, 2001, the registrant filed the following
current reports on Form 8-K:
None.
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.
Date: May 15, 2001
CONECTISYS CORPORATION
By /S/ Robert A. Spigno
Robert A. Spigno, CEO
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: May 15, 2001
EXHIBIT 99.0 - FINANCIAL STATEMENT
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 2001
Mar. 31 Mar. 31 Sep. 30
2001 2000 2000
Unaudited Unaudited Audited
ASSETS
Current assets
Cash and cash equivalents (10,902) 290,528 33,688
Prepaid expenses 158,546 0 158,546
Total current assets 147,644 290,528 192,234
Property and equipment, net 73,324 76,932 93,304
License and technology, net 0 20,000 0
Other asset 0 0 0
TOTAL ASSTES 220,968 387,460 285,538
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 2001
Mar. 31 Mar. 31 Sep. 30
2001 2000 2000
Unaudited Unaudited Audited
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable 119,892 178,929 97,827
Accrued compensation 639,107 603,076 438,647
Due to officer 136,833 208,355 75,000
Other current liabilities 215,360 236,610 152,995
Notes payable
Related 0 344,195 0
Other 385,937 447,357 390,937
Total current liabilities 1,497,129 2,018,522 1,155,406
TOTAL LIABILITIES 1,497,129 2,018,522 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 1,363,310 999,775
Common stock, no par value;
250,000,000 shares authorized,
25,735,429 for Mar. 31, 2001 and
17,563,347 for Mar. 31, 2000 shares
issued and outstanding 16,476,080 14,287,374 16,187,421
Stock subscription receivable (15,450)
Accumulated (deficit) (18,892,036) (17,402,066) (18,181,634)
TOTAL STOCKHOLDERS' (DEFICIT) (1,276,161) (1,631,362) (869,868)
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT 220,968 387,160 285,538
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended March 31, 2001 and 2000 and the Cumulative Period
From December 1, 1990 (Inception) Through March 31, 2001
Dec. 1, 1990
(Inception)
Six Months Six Months Through
Mar. 31 Mar. 31 Mar. 31
2001 2000 2001
Unaudited Unaudited Unaudited
Revenues 0 0 517,460
Cost of goods sold 0 0 529,791
Gross profit (loss) 0 0 (12,331)
General and administrative 694,982 2,744,762 14,040,805
Bad debt write-offs 0 0 1,680,522
(Loss) from operations (694,982) (2,744,762) (15,733,658)
Non-operating income (expense) (15,420) (52,580) (2,143,136)
Minority interest 0 0 62,500
Net (loss) (710,402) (2,797,342) (17,814,294)
Weighted average shares
outstanding -
basic and diluted 25,173,670 15,399,052
Net (loss) per share (0.03) (0.18)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
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
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Cash, 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 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
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Services, 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)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
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)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
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 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)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through March 31, 2001
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Services, Oct. 2000
through Mar. 2001 888,191 134,888 134,888
Stock subscription receivable,
Oct. 2000 0 0 0 15,450 15,450
Debt, Jan. 2001 0 300,000 75,000 75,000
Cash, Jan. 2001 1,000,000 78,771 78,771
Net loss for the period 0 0 0 0 (710,402) (710,402)
Balance, Mar. 31, 2001 390,020 1,139,795 25,715,929 16,476,080 (18,892,036) (1,276,161)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2001 and 2000 and the Cumulative Period
From December 1, 1990 (Inception) Through March 31, 2001
Dec. 1, 1990
(Inception)
Six Months Six Months Through
Mar. 31 Mar. 31 Mar. 31
2001 2000 2001
Unaudited Unaudited
Net income (loss) (710,402) (2,797,342) (17,814,294)
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Provision for bad debt 0 0 1,422,401
Depreciation and amortization 19,980 38,140 1,630,568
Stock issued for services 134,888 2,572,394 6,418,725
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 7,000 (25,000)
Increase (decrease) in liabilities
Accounts payable 22,065 (83,412) 268,101
Accrued compensation 200,460 (284,307) 1,437,200
Due to officer 61,833 75,160 771,709
Other current liabilities 62,365 42,385 433,931
Net cash provided (used) by
operating activities (208,811) (429,982) (3,808,608)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2001 and 2000 and the Cumulative Period
From December 1, 1990 (Inception) Through March 31, 2001
Dec. 1, 1990
(Inception)
Six Months Six Months Through
Mar. 31 Mar. 31 Mar. 31
2001 2000 2001
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 94,221 528,888 3,047,606
Preferred stock issued for cash 0 0 16,345
Proceeds from stock purchase 0 0 281,250
Proceeds from debts
Related party 0 177,000 1,852,691
Other 85,000 0 291,544
Payments on debt
Related party 0 0 (46,407)
Other (15,000) (12,382) (68,172)
Subscription receivable 0 0 20,000
Contributed capital 0 0 515
Net cash provided(used) by
financing activities 164,221 693,506 5,395,372
Net increase (decrease) in cash (44,590) 263,524 (10,902)
Cash beginning of period 33,688 27,004 0
Cash end of period (10,902) 290,528 (10,902)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2001 and 2000 and the Cumulative Period
From December 1, 1990 (Inception) Through March 31, 2001
Dec. 1, 1990
(Inception)
Six Months Six Months Through
Mar. 31 Mar. 31 Mar. 31
2001 2000 2001
Cash paid during the year for
Interest 0 23,117 175,937
Taxes 0 800 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 100,888 2,572,394 5,145,080
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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.
Organization (continued)
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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 March 31, 2001, the Company had a deficiency in working capital of approximately
$1,349,000, 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 0.71 million for the six months ended March 31, 2001,
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 March 31, 2001, 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (
SFAS No. 123) establishes a fair value method of accounting for stock-based compensation plans and
for transactions in which an entity acquires goods or services from non-employees in exchange for
equity instruments. The Company adopted this accounting standard on January 1, 1996. SFAS No. 123
also encourages, but does not require, companies to record compensation cost for stock-based employee
compensation. The Company has chosen to account for stock-based compensation utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of
the fair market price of the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. Also, in accordance with SFAS No. 123, the Company has provided footnote
disclosures with respect to stock-based employee compensation. The cost of stock-based compensation
is measured at the grant date on the value of the award, and this cost is then recognized as compensation
expense over the service period. The value of the stock-based award is determined using a pricing model
whereby compensation cost is the excess of the fair market value of the stock as determined by the model
at the grant date or other measurement date over the amount an employee must pay to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in exchange for goods or services are valued at
the cost of the goods or services received or at the market value of the shares issued, depending on the
ability to estimate the value of the goods or services received.
Income taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, which requires the
Company to recognize deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax basis of assets using the enacted rates in effect in
the years in which the differences are expected to reverse.
Net loss per common share - diluted
Net loss per common share - diluted is based on the weighted average number of common and common equivalent
shares outstanding for the periods presented. Common equivalent shares representing the common shares that
would be issued on exercise of convertible securities and outstanding stock options and warrants reduced by
the number of shares which could be purchased from the related exercise proceeds are not included since their
effect would be anti-dilutive.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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)."
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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 March 31, 2001 consisted of the following:
Office equipment $ 262,320
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 314,291
Accumulated depreciation (240,967)
-----------
Net book value $ 73,324
===========
NOTE 5. LICENSES AND TECHNOLOGY
Licenses and technology at March 31, 2001 consisted of the following:
License $ 421,478
Accumulated amortization (421,478)
-----------
Net book value -
===========
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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 six months
ended March 31, 2001, 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 six months ended March 31, 2001
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 144,113
---------
Total notes payable 385,937
Current portion (385,937)
---------
Long-term portion $ -
=========
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 7. NOTES PAYABLE (continued)
The maturity of long-term debt at March 31, 2001 was as follows:
Year ended March 31,: 2001 $ 385,937
---------
Total notes payable $ 385,937
=========
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
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.
In January, 2001, the Company issued 400,000 share of common stock valued at $34,000 to a consultant for
services rendered.
In January 2001, the Company issued 1,000,000 share of common stock for $78,772 cash.
In January 2001, the Company issued 300,000 share of common stock to convert $75,000 of debt outstanding.
In March 2001, the company issued 100,000 shares of common stock valued at $18,776 to a consultant 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 10. COMMITMENTS AND CONTINGENCIES (continued)
Employment agreements (continued)
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
Litigation (continued)
The third case was brought by Southern Arizona Graphic Associates, Inc. (the "Plaintiff") against
Conectisys Corporation (the "Defendant"). The case was brought before the Superior Court of the
State of Arizona, County of Pima, Case # 333852. The claim was for goods, printing services, and
funds advanced by the Plaintiff. On December 8, 1999, the Company's Board of Directors approved
the issuance of 26,087 shares of the Company's common stock valued at $18,000 in full settlement
of the defendant's claim. The matter was subsequently dismissed with prejudice.
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 six months ended March 31,
2001 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 12. STOCK OPTIONS (continued)
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 six months ended March 31, 2001 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, March 31, 2001 3,207,154 $ .69(1)
========== ========
(1) Due to floating strike prices, weighted average price upon issuance is $0.94, upon exercise is $0.69.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 12. STOCK OPTIONS (continued)
The following table summarizes information about common stock options at March 31, 2001:
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 "Plan"). The purpose of the Plan is to compensate
independent consultants of the Company through the granting of non-qualified stock options (as described
in Sections 83 and 41 of the Internal Revenue Code). Shares of stock covered by stock options and stock
bonuses consist of 1,000,000 shares of the common stock of the Company.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE 14. SUBSEQUENT EVENTS
On May 7, 2001 the Company filed an Amended Form SB-2 Registration Statement for 4,411,765 shares of
common stock.
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.
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