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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, 2001.
[ ] 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
Suit 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 February 25, 2002: 36,696,568
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
The following is our plan of operation for the following 12 months.
We are in the process of the final development of an Automated Meter
Reading Network called H-Net. We have not begun to generate revenues, and
the report of our independent auditors on our financial statements as of
September 30, 2001 and 2000 contain an explanatory paragraph, which raises
substantial doubt about our ability to continue as a going concern. This
going concern exception to the auditors' report highlights our need to
actively pursue new debt and/or equity financing in order to continue
operations and achieve our goals.
During the next 12 months, we expect to spend an estimated:
$110,000 for the final hardware development and cost reduction of
our H-Net product design;
$20,000 for the initial beta testing and deployment of approximately
30 units and the operating network to manage them; this initial beta
testing includes Advanced Power and Energy Program at University of
California in Irvine and SMUD, the Sacramento Municipal District, a
testing area for evaluation of various energy products for the State
of California.
An estimated $250,000 to secure the further large scale testing
(1000 units each) in various parts of the country; and
Approximately $200,000 to manage, operate, and implement these field
tests.
As we develop our business, we expect to employ a yet undetermined number
of additional people in accordance with our business plan. Additionally, we
will be seeking to be qualified as a Meter Data Management Agent through
various utilities in the State of California, as well as a Meter Service
Provider.
We barrowed $340,000 in February 2002, in order to partially repay Laurus
Master Fund, Ltd.'s Convertible Promissory Note in the face amount of
$300,000 and used the rest of the procceds for the completion of the
H-Net-4 product.
We have additional notes payable with balances of approximately $524,058 as
of February 25, 2002. The notes bear interest at rates ranging between 10%
to 18%, and are payable on demand.
We have at times issued shares of our common stock to creditors in lieu of
monies, both principal and interest, owing to such creditors, and as
compensation for expenses incurred.
During April 2001, we issued a Convertible note in the amount of $300,000.
The note bears interest at the rate of 8% and maybe converted into our
shares of common stock at a rate of 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 and (b) conversion
date.
We have come to settlement terms for the satisfaction of the April 12, 2001
Promissory Note with Laurus Master Fund, Ltd. as follows:
(1) We paid Laurus Master Fund, Ltd. $100,000 on February 19, 2002;
(2) The Promissory Note majurity date was extended to March 22, 2002; and
(3) Within 35 days we shall file a Registration Statement for the remaining
balance of $200,000 plus interest and fees on the original Note date
4-12-01.
(4) Within 30 days we shall pay Laurus Master Fund, Ltd. $200,000 and issue
a New Promissory Note replacing the existing Note. The new Note shall
have a due date of December 31, 2002 in the principal amount of $75,000
and shall bear interest at 14% per annum; Terms of the new Note shall
require us beginning on April 1, 2002 minimum monthly payments of
$7,500 until the remaining principal and interest under the new Note
have been paid in full.
Upon of payment of $200,000 and issuance of the new Promissory Note:
a. The Registration Rights Agreement is immediately be canceled;
b. 1,000,000 Warrants of our common stock are immediately canceled;
and
c. Laurus Master Fund, Ltd. shall return to us all common stock held
as security for the previous original Note with the except that
Laurus Master Fund, Ltd. shall retain our common stock in the
aggregate amount of 811,770 shares as security for remaining
$75,000 principal amount due on new Note and to ensure timely
monthly payments of $7,500 per month.
If we are able to make the $200,000 payment due to Laurus Master Fund,
Ltd. by March 18, 2002 then we will not have any obligation to file a
registration statement for the remaining balance on April 12, 2001
convertible promissory note. There can be no assurance, however, that such
funds will be available. If we are not successful in raising additional
funds, we will be required to file a registration statement to satisfy the
Laurus Master Fund, Ltd. Promissory Note.
Registration Rights
Under the terms of the current Subscription Agreement, if we are required
to file a registration statement registering for resale at least 200% of
the shares of our common stock which would be issuable upon conversion of
the note, and such shares must be reserved and set aside solely for the
benefit of the note holder.
Dilution
As of February 20, 2002, we had issued and outstanding 36,696,568 shares of
common stock and had 50,000,000 shares of common stock reserved for
possible future issuances upon conversion of the note and the warrants.
The existence of the Promissory Note and Warrant issued to the selling
stockholder pursuant to the Subscription Agreement signed on April 12,
2001, may, if we are required to file a registartion statement, adversely
affect the terms on which we may obtain additional equity financing.
Moreover, the holders are likely to exercise their rights to acquire common
stock at a time when we would otherwise be able to obtain capital with more
favorable terms than we could obtain through the exercise of such
securities.
Dilution Effects Of The Securities Underlying The Subscription Agreement
The following table represents the number of shares of our common stock
issuable upon conversion of the note issued and the percentage of our
outstanding shares such number of shares would represent, assuming the
$200,000 note plus interest is fully converted, and assuming the purchase
price is 0%, 25%, 50% and 75% respectively, discounted from the current
trading price of our common stock. The conversion of note and/or exercise
of warrant may result in a change of control of Conectisys.
Percentage of
Conversion Price Company's Common
Market Price 80% of Market Price) Number of Shares Stock
$0.18 $.136 (1) 1,470,589 4.0%
$0.16 $.128 1,562,500 4.3%
$0.12 $.096 2,083,334 5.6%
$0.08 $.064 3,125,000 8.5%
$0.04 $.032 6,250,000 17.0% (2)
1. The 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 and (b) conversion date.
Any market price above $.17 would allow conversion price to be based
upon the Subscription Date market price of $.17, which is a $.136
conversion price.
2. Even though the selling shareholder may not convert the note into more
than 9.99% of the then outstanding common stock, the selling security
holders can waive the 9.99% limitation and thus allowing the conversion
of the note into common stock with no upper limit on the number of shares
that may be issued.
Private Equity Credit Line Agreement Canceled
On May 1, 2001, we entered into a Private Equity Credit Line Agreement 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.
In conjunction with the settlement of the Convertible Promissory Note with
Laurus Master Fund, Ltd. we have decided to cancel any future funding from
a previously approved Private Equity Line with Laurus Master Fund, Ltd.
We are now actively searching for new financing sources for the Company's
future H-Net deployment plans. We are currently reviewing proposals from
several funding groups.
Results of Operations
We realized a net loss of $706,930 for the three (3) months ending
December 31, 2001 as compared to a net loss of $373,369 for the same
three-month period in 2000. This increase was largely due to an increase
of $168,088 (from $82,112 in the first three months of fiscal 2000 to
$250,200 in the first three months of fiscal year 2001) of common stock
issued in connection with the performance of various services to the
Company. We had no revenue for the first three (3) months of the both
fiscal years 2001 and 2000.
We realized a net loss of $2,154,567 for the fiscal year 2001 the losses in
general are attributed to our continued research and development associated
with our H-Net Wireless Network, marketing and general expenses. We will
over the next 12 months, rely on additional funding through the sale of
common stock. We had no revenue for the fiscal years ending September 30,
2001 and 2000.
Our net losses will continue for through the fiscal year 2002 until the
acceptance of the H-Net product as a viable automated meter reading system.
However, we expect beta testing to begin in the 2nd and 3rd quarters of this
year.
Plan of Operation
We had losses for the three (3) month period ending December 31, 2001
increased by 89% from the same period last year. Our losses on operations
for the three-month period ending December 31, 2001 increased 86% from the
prior year for the same period. These losses are attributed to our
continued research and development associated with our H-Net Wireless
Network, marketing and general expenses. We will over the next 12 months,
rely on additional funding through the sale of common stock.
Liquidity and Capital Resources
To date, we have been unable to generate any significant cash flows from
our business operations. As a result, we have funded our operations through
investor financing. During the three months ended December 31, 2001 we used
debt to fund our operations in the amount of $254,688. Until such time as
we are able to generate significant cash flow from operations through
increased sales of our products, we will be required to continue our
reliance on investor financing and debt to fund our operations. At December
31, 2001, cash and cash equivalents totaled $9,673. Current liabilities at
December 31, 2001, consisting primarily of accounts payable, accrued
compensation, and short-term debt, exceeded current assets by $1,706,679.
At fiscal year end 2001, cash and cash equivalents totaled $6,111 with
current liabilities consisting primarily of accounts payable, accrued
compensation, and short-term debt, exceeding current assets for a working
capital deficit of $1,249,799.
We had total assets of $123,784 as of December 31, 2001, and total
liabilities of $2,072,546. Shareholder deficit was $1,948,762, as compared
to a deficit of $1,145,675 as of December 31, 2000.
We had total assets of $126,872 as of the fiscal year end September 30,
2001 and total liabilities of $1,615,904. Shareholder deficit was
$1,489,032 as compared to a deficit of $869,868 at the fiscal year end
2000. We issued 8,605,496 shares of common stock for cash, reduction of
debt and services during the fiscal year ending September 30, 2001.
As of December 31,2001 we have no capital expenditure obligations.
We anticipate that that we will need $100,000 per month from now until the
end of this calendar year to complete the final development of the H-Net
product.
Even if we are able to enter into a funding agreement for the future there
can be no assurance that the market for our stock will be such that
adequate funding will be available to us. The report of our independent
auditors on our financial statements for the years ended September 30, 2001
and 2000 contains an explanatory paragraph, which indicates that we have
incurred losses and have a working capital deficiency. This report raises
substantial doubt about our ability to continue as a going concern. This
report is not viewed favorably by analysts or investors and may make it
more difficult for us to raise additional debt or equity financing needed
to run our business, and may have a negative effect on the market for our
common stock.
Cash Flows
We had a net loss for the three (3) month period ending December 31, 2001
of $706,930. The cash used in operations toward this loss was $199,047.
We had a net loss for the fiscal year ended September 30, 2001 of
$2,154,567. The cash used in operations toward this loss was $491,932. The
largest area of loss was the result of non-cash transactions to the
Company. Services to the Company that were not paid with cash totaled
$687,790. We issued 1,045,500 shares of stock restricted under Rule 144
for $78,787 and incurred approximately $300,000 in additional debt to
finance the operating losses for the fiscal year ended September 30, 2001.
Effect Of Inflation
Inflation did not have any significant effect on the operations of the
Company during the quarter ended December 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 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, 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, due to officer, other
current liabilities, and notes payable approximate fair value because of
the short maturity of these instruments. Long-term debt is recorded at face
value because the principal amount is convertible into common stock.
PART II
Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Stock Subscriptions
In October 2001, the Company issued 1,200,000 shares of common stock valued
at $187,200 to consultants for services rendered.
In December 2001, the Company issued 60,000 shares of Class A Preferred
Stock valued at $60,000 to the Company's CEO for debt reduction.
In December 2001, the Company issued 300,000 shares of common stock for
$39,000 in cash to a consultant for exercise of an option.
In January 2001, the Company issued 200,000 shares of common stock for
$26,000 cash to a consultant for exercise of an option.
In January 2001, the Company issued 250,000 share of common stock valued at
$25,000 to a consultant for services rendered.
In February 2001, the Company issued 2,613,334 shares of common stock for
$209,000 in debt reduction.
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 or a previously filed S-8 Registration Statement.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Agreement With University of California at Irvine
In accordance our agreement for the evaluation of H-Net in the Advanced
Power and Energy Program at University of California in Irvine, California,
we will be providing the program with our cost reduced H-Net-4 product for
evaluation and testing. The evaluation program is a three level program of
extensive laboratory and field-testing consisting of the following:
Level I Platform: High Supervision Beta Test Laboratory
Level II Platform: Institutional Environment
Level III Platform: University Research Park Living Laboratory
The Advanced Power and Energy Program is engaged in the development of test
protocols for Distributed Resources including micro turbine generators,
fuel cells, and combined heat and power applications. The plans are to
undertake the development of test protocols for advanced metering and real
time-of-use metering under the auspices of stakeholder agencies such as the
California Energy Commission.
As part of this program, the University of California Irvine through the
Advanced Power and Energy Program will include technologies such as that
developed by ConectiSys with the understanding its mission is to accelerate
the market viability of energy related technologies and systems, and this
mission requires that the Advanced Power and Energy Program conduct
objective research and development programs.
The Advanced Power and Energy Program will give H-Net the national platform
upon which to prove itself out as a viable, efficient and reliable method
of automated meter reading at a cost that is comparable to the current
manual methods of meter reading.
In addition to University of California and the Advanced Power and Energy
Program, we plan to do beta field-testing with various utilities and energy
service providers across the country. Generally, we plan to begin in
California starting with SMUD, the Sacramento Municipal District, a testing
area for evaluation of various energy products for the State of California
and then moving on to other cities across the country.
SB-2 Registration Statement withdrawn with The Securities & Exchange
Commission
On January 29, 2002 the Company withdrew it previously filed SB-2
Registration Statement with the Securities & Exchange Commission to
register an offering of up to 4,411,765 common shares owned by an existing
shareholder. This withdrawal was none in conjunction with the settlement
reached concerning of our debt owed with Laurus Master Fund, Ltd. and our
cancelation of the Private Equity Credit Line.
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, 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.
CONECTISYS CORPORATION
Date: February 25, 2002 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 Title Date
/S/ Robert A. Spigno
(Robert A. Spigno) Chairman of the Board February 25, 2002
and CEO