<pre>
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 33-3560D
---------------------------------
CONECTISYS CORPORATION
(Name of small business issuer in its charter)
COLORADO 84-1017107
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24730 AVENUE TIBBITTS, SUITE 130
VALENCIA, CALIFORNIA 91355
(Address of principal executive offices)
661-295-6763
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
-----------------------------------
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |
|
As of February 15, 2005, there were 2,135,319,217 shares of the issuer's
common stock, no par value, outstanding.
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of
December 31, 2004 (unaudited)...................................F-1
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 2004 (unaudited) and 2003 (unaudited)
and the Cumulative Period From December 31, 1990 (Inception)
Through December 31, 2004 (unaudited)...........................F-3
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Cumulative Period From
December 31, 1990 (Inception) Through December 31, 2004
(unaudited).....................................................F-4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 2004 (unaudited) and 2003 (unaudited)
and the Cumulative Period From December 31, 1990 (Inception)
Through December 31, 2004 (unaudited)..........................F-14
Notes to Condensed Consolidated Financial Statements (unaudited)....F-17
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 2
Item 3. Controls and Procedures............................................ 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......... 10
Item 3. Defaults Upon Senior Securities..................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................. 11
Item 5. Other Information................................................... 12
Item 6. Exhibits............................................................ 12
Signatures................................................................... 13
Exhibits Filed with this Report on Form 10-QSB............................... 14
ITEM 1. FINANCIAL STATEMENTS.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2004
Dec. 31
2004
Unaudited
Assets
Current assets
Cash and cash equivalents $ 192,410
Due from officer 12,293
Prepaid expenses 221,597
----------------
Total current assets 426,300
Property and equipment, net of accumulated
depreciation of $328,002 16,915
Other assets
License and technology, net of accumulated
amortization of $421,478 0
Loan fees, net of accumulated
amortization of $366,452 110,735
----------------
Total assets $ 553,950
================
The accompanying notes are an integral part of these consolidated financial
statements.
<page>F-1
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2004
Dec. 31
2004
Unaudited
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 170,734
Accrued compensation 1,609,692
Due to officers 35,685
Accrued interest payable 516,235
Other current liabilities 21,844
Notes payable and current portion of
long-term debt 2,465,157
----------------
Total current liabilities 4,819,347
Long-term debt, net of current 3,151,039
Commitments and contingencies
----------------
Total liabilities 7,970,386
Shareholders' equity
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized, 215,865 shares
issued and outstanding 215,865
Convertible preferred stock - Class B, $1.00
par value; 1,000,000 shares authorized,
-0- shares issued and outstanding 0
Common stock - 7,500,000,000 shares authorized,
no par value; 1,680,440,475
shares issued and outstanding 21,242,872
Additional paid in capital:
Convertible preferred stock - Class B $1.00 par
value, 1,000,000 stock options exercisable 100,000
Common stock options and warrants, no par value
17,643,654 stock options and warrants exercisable 1,362,958
Accumulated gain (deficit) during development stage (30,338,131)
----------------
Total shareholders' equity (7,416,436)
----------------
Total liabilities and shareholders' equity $ 553,950
================
The accompanying notes are an integral part of these consolidated financial
statements.
<page>F-2
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2004 and 2003
And the Cumulative Period
From December 31, 1990 (Inception) Through December 31, 2004
<table>
Dec. 1, 1990
(Inception)
Period
3 Months Ended 3 Months Ended Through
Dec. 31 Dec. 31 Dec. 31
2004 2003 2004
Unaudited Unaudited Unaudited
Revenues $ 0 $ 0 $ 517,460
Cost of goods sold 61,962 0 947,904
---------------- ---------------- ----------------
Gross profit (61,962) 0 (430,444)
General and administrative 357,039 183,808 22,039,189
---------------- ---------------- ----------------
Loss from operations (419,001) (183,808) (22,469,633)
Non-operating income (expense) 0 0 (1,059,865)
Settlement 0 (150,000) (125,000)
Interest expense (385,265) (809,322) (5,543,391)
Minority interest 0 0 (62,500)
---------------- ---------------- ----------------
Net loss $ (804,266)$ (1,143,130)$ (29,260,389)
================ ================ ================
Weighted average shares outstanding 1,274,924,649 631,421,923
Net loss per share (0.00) (0.00)
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<page>F-3
<table>
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 December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
December 1, 1990
(re-entry
development stage) - $ - 10,609 $ 1,042,140 $ - $ - $ (1,042,140)$ -
Shares issued in exchange for:
Cash, May 31, 1993 - - 1,000 1,000 - - - 1,000
Capital contribution,
May 31, 1993 - - 2,000 515 - - - 515
Services, March 26, 1993 - - 2,000 500 - - - 500
Services, March 26, 1993 - - 1,200 600 - - - 600
Net loss for the year - - - - - - (5,459) (5,459)
--------- ---------- --------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1993 - - 16,809 1,044,755 - - (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1, 1994 - - 2,400 3,000 - - - 3,000
Cash, September 1, 1994 - - 17,771 23,655 - - - 23,655
Services, September 15, 1994 - - 8,700 11,614 - - - 11,614
Cash, September 26, 1994 - - 3,000 15,000 - - - 15,000
Cash, October 6, 1994 16,345 16,345 - - - - - 16,345
Cash, September and October,
1994 - - 1,320 33,000 - - - 33,000
Net loss for the year - - - - - - (32,544) (32,544)
--------- ---------- --------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1994 16,345 16,345 50,000 1,131,024 - - (1,080,143) 67,226
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-4
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 December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Cash, February 13, 1995 - $ - 1,160 $ 232,000 $ - $ - $ - $ 232,000
Debt repayment, February 13,
1995 - - 2,040 408,000 - - - 408,000
Debt repayment, February 20,
1995 - - 4,778 477,810 - - - 477,810
Acquisition of assets, CIPI
February, 1995 - - 28,750 1,950,000 - - - 1,950,000
Acquisition of assets, April 5,
1995 - - 15,000 - - - - -
Cash and services, April and
May 1995 - - 16,000 800,000 - - - 800,000
Cash, June 1, 1995 - - 500 30,000 - - - 30,000
Acquisition of assets and
services, September 26, 1995 - - 4,000 200,000 - - - 200,000
Cash, September 28, 1995 - - 41 3,000 - - - 3,000
Acquisition of assets,
September 1995 - - 35,000 1,750,000 - - - 1,750,000
Return of assets, CIPI
September, 1995 - - (27,700) (1,950,000) - - - (1,950,000)
Net loss for the year - - - - - - (2,293,867) (2,293,867)
--------- ----------- -------- ----------- -------- ------------ ---------- -----------
Balance,
November 30, 1995 16,345 16,345 129,569 5,031,834 - - (3,374,010) 1,674,169
Shares issued in exchange for:
Cash, February, 1996 - - 1,389 152,779 - - - 152,779
Debt repayment, February 1996 - - 10,000 612,000 - - - 612,000
Services, February, 1996 - - 3,160 205,892 - - - 205,892
Cash, March, 1996 - - 179 25,000 - - - 25,000
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-5
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 December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares returned and canceled,
March, 1996 - $ - (15,000)$ - $ - $ - $ - $ -
Services, April, 1996 - - 13 2,069 - - - 2,069
Services, September, 1996 4,155 4,155 586 36,317 - - - 40,472
Services, October, 1996 - - 6,540 327,000 - - - 327,000
Debt repayment, November, 1996 - - 2,350 64,330 - - - 64,330
Net loss for the year - - - - - - (2,238,933) (2,238,933)
--------- ---------- ---------- ----------- ---------- --------- ------------ -----------
Balance,
November 30, 1996 20,500 20,500 138,786 6,457,221 - - (5,612,943) 864,778
Shares issued in exchange for:
Services, March, 1997 - - 228 6,879 - - - 6,879
Services, April, 1997 - - 800 13,120 - - - 13,120
Services, July, 1997 - - 1,500 16,200 - - - 16,200
Cash, July, 1997 - - 15,000 300,000 - - - 300,000
Services, August, 1997 - - 5,958 56,000 - - - 56,000
Adjustment for partial shares due
to reverse stock split (1:20) - - 113 - - - - -
Services, October, 1997 - - 1,469,666 587,865 - - - 587,865
Debt repayment, October, 1997 - - 1,540,267 620,507 - - - 620,507
Cash, October, 1997 - - 1,500,000 281,250 - - - 281,250
Services, November, 1997 - - 4,950 10,538 - - - 10,538
Net loss for the year - - - - - - (2,739,268) (2,739,268)
--------- ---------- ---------- ----------- ---------- ---------- ----------- -----------
Balance,
November 30, 1997 20,500 20,500 4,677,268 8,349,580 - - (8,352,211) 17,869
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-6
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, December, 1997
through November, 1998 - $ - 2,551,610 $ 2,338,264 $ - $ - - $ 2,338,264
Debt repayment, April, 1998
through September, 1998 - - 250,000 129,960 - - - 129,960
Cash, January, 1998 through
July, 1998 - - 4,833,334 1,139,218 - - - 1,139,218
Acquisition of assets,
July, 1998 - - 300,000 421,478 - - - 421,478
Acquisition of remaining 20%
minority interest in
subsidiary, July, 1998 - - 50,000 59,247 - - - 59,247
Services, November, 1998 60,000 60,000 - - - - - 60,000
Net loss for the year - - - - - - (4,928,682) (4,928,682)
--------- ---------- ---------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1998 80,500 80,500 12,662,212 12,437,747 - - (13,280,893) (762,646)
Shares issued in exchange for:
Shares returned and canceled,
December, 1998 - - (1,350,000) (814,536) - - - (814,536)
Services, December, 1998
through September, 1999 - - 560,029 349,454 150,000 - - 499,454
Cash, December, 1998
through September, 1999 - - 1,155,800 129,537 - - - 129,537
Debt repayment, Sept., 1999 39,520 39,520 960,321 197,500 100,000 - - 337,020
Net loss for the period - - - - - - (1,323,831) (1,323,831)
--------- ---------- ---------- ----------- -------- ------------ ---------- -----------
Balance,
September 30, 1999 120,020 120,020 13,988,362 12,299,702 250,000 - (14,604,724) (1,935,002)
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-7
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares re-acquired and
canceled, October, 1999 - $ - (17,500)$ (12,000)$ - $ - $ - $ (12,000)
Shares issued in exchange for:
Services, October, 1999 through
September, 2000, valued from
$0.25 to $0.80 per share - - 2,405,469 990,949 - - - 990,949
Retainers, debt and accrued
liabilities, October, 1999
through September, 2000, valued
from $0.25 to $1.57 per share - - 2,799,579 1,171,638 - - - 1,171,638
Cash, October, 1999 through
September, 2000, with subscription
prices ranging from $0.25 to
$0.66 per share - - 2,295,482 839,425 - (15,450) - 823,975
Issuance of 563,500 consultant
stock options, March, 2000,
at an exercise price of $2.00
per share - - - - 214,130 - - 214,130
Reduction of exercise prices
on 2,600,000 officer and employee
common stock options, March, 2000,
to $0.38 and approximately $0.39
per share - - - - 1,113,610 - 1,113,610
Exercise of 2,056,346 common and
20,000 preferred officer stock
options, May, 2000, with
common stock strike prices
ranging from $0.15 to approx.
$0.39 per share, in exchange
for officer debt 20,000 20,000 2,056,346 897,707 (407,735) - - 509,972
Issuance of 500,000 consultant
stock options, September, 2000,
with floating exercise prices
set at 15% below current market - - - - 65,000 - - 65,000
Net loss for the year - - - - - - (3,812,140) (3,812,140)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2000 140,020 140,020 23,527,738 16,187,421 1,235,005 (15,450) (18,416,864) ( 869,868)
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-8
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2000 through
September, 2001, valued from
$0.11 to $0.40 per share - $ - 3,471,007 $ 572,790 $ - $ - $ - $ 572,790
Retainers, debt and accrued
liabilities, October, 2000
through September, 2001, valued
from $0.11 to $0.43 per share - - 3,688,989 487,121 - - - 487,121
Cash, October, 2000 through
March, 2001, with subscription
prices ranging from $0.075 to
$0.083 per share - - 1,045,500 78,787 - - - 78,787
Collection of stock subscription
receivable, October, 2000,
on 61,800 shares - - - - - 15,450 - 15,450
Exercise of 400,000 common
stock options, January, 2001,
at a strike price of $0.085 per
share, in exchange for debt - - 400,000 86,000 (52,000) - - 34,000
Issuance of 1,000,000 common
stock warrants, April, 2001,
at an exercise price of $0.192
per share, in conjunction with
$300,000 principal value of
8% convertible debt - - - - 77,228 - - 77,228
Issuance of 2,000,000 consultant
stock options, September, 2001,
at a strike price of $0.13 per
share - - - - 115,000 - - 115,000
Beneficial conversion option,
April, 2001 through September,
2001, pertaining to $300,000
principal value and accrued
interest on 8% convertible debt - - - - 155,027 - - 155,027
Net loss for the year - - - - - - (2,154,567) (2,154,567)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2001 140,020 140,020 32,133,234 17,412,119 1,530,260 - (20,571,431) (1,489,032)
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-9
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception) Through December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2001 through
September, 2002, valued from
$0.02 to $0.25 per share - $ - 2,180,000 $ 179,916 $ - $ - $ - $ 179,916
Debt and accrued liabilities,
October, 2001 through September,
2002, with common shares
valued from $0.01 to $0.15 per
share and preferred A shares
valued at $1.00 per share 60,000 60,000 10,948,077 428,563 - - - 488,563
Cash, October, 2001 through
September, 2001, with prices
ranging from $0.01 to $0.083
per share - - 5,833,334 200,000 - - - 200,000
Exercise of 550,000 common stock
options by a consultant at a
strike price of $0.13 per share,
in exchange for debt - - 550,000 103,125 (31,625) - - 71,500
Issuance of 3,750,000 warrants,
April, 2002 through June, 2002,
at an exercise price of $0.045
per share, in conjunction with
$750,000 principal value of 12%
convertible debt - - - - 100,087 - - 100,087
Beneficial conversion option,
April 2002, through June, 2002,
pertaining to $750,000 principal
value of 12% convertible debt - - - - 649,913 - - 649,913
Conversion of $93,130 principal
value of 12% convertible debt
along with $6,916 accrued
interest, net of $69,233
convertible debt discount - - 12,667,178 111,515 (80,702) - - 30,813
Net loss for the year - - - - - - (2,346,732) (2,346,732)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2002 200,020 200,020 64,311,823 18,435,238 2,167,933 $ - (22,918,163) (2,114,972)
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-10
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 December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2002 through
July, 2003, valued from
$0.0012 to $0.0100 share - $ - 31,500,000 $ 134,000 $ - $ - $ - $ 134,000
Debt and accrued liabilities,
October, 2002 through September,
2003, valued from $0.0010 to
$0.0512 per share, including
transfer of $155,027
beneficial conversion option 162,134,748 704,774 (155,027) - - 549,747
Cash, November, 2002 through
September, 2003, with prices
ranging from $0.0010 to $0.100
per share - - 128,500,000 180,000 - - - 180,000
Issuance of 2,500,000 warrants,
November, 2002 through May, 2003,
at an exercise price of $0.005
per share, in conjunction with
$500,000 principal value of 12%
convertible debt - - - - 9,816 - - 9,816
Beneficial conversion option,
November, 2002, through May, 2003,
pertaining to $500,000 principal
value of 12% convertible debt - - - - 490,184 - - 490,184
Conversion of $193,665 principal
value of 12% convertible debt
along with $34,355 accrued
interest, net of $52,340
convertible debt discount - - 103,778,301 353,525 (177,845) - - 175,680
Net loss for the year - - - - - - (2,386,875) (2,386,875)
--------- ---------- ----------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2003 200,020 $ 200,020 490,224,872 $19,807,537 $2,335,061 $ - $(25,305,038)$(2,962,420)
========= ========== =========== =========== ========== ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-11
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 December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October 2003 through
August 2004 valued from
$0.0008 to $0.0026 per share 0 $ 0 57,300,000 $ 78,400 $ 0 $ 0 $ 0 $ 78,400
Issuance of 7,000,000 warrants
November 2003 through
September 2004 at exercise
Prices ranging from $0.002 to
$0.005 per share, in
conjunction with $2,000,000
principal value of 12%
convertible debt 0 0 0 0 9,447 0 0 9,447
Debt and accrued liabilities
December 2003 with
preferred stock class A
valued at $1.00 per share 15,845 A 15,845 0 0 0 0 0 15,845
Debt and accrued liabilities
November 2003 to September
2004 with common shares
valued from $0.001 to $0.0025
per share 0 0 156,625,000 163,575 0 0 0 163,575
Cash, November 2003 through
March 2004 with prices of
approximately $0.0010 0 0 74,670,000 75,000 0 0 0 75,000
per share
Re-characterization of beneficial
conversion option as derivative
conversion option , October 2003
pertaining to $963,205 of
convertible debt at
September 30, 2003 0 0 0 0 (881,550) 0 0 (881,550)
Conversion of $218,115 principal
value of 12% convertible debt
$327,172 of derivative
conversion option
along with $49,008 accrued
interest, net of $28,571
convertible debt discount 0 0 352,352,250 565,724 0 0 565,724
Net loss for the year 0 0 0 0 0 0 (4,228,827) (4,228,827)
--------- ---------- ----------- ----------- ---------- ---------- ------------ -----------
Balance, September 30, 2004 215,865 $ 215,865 1,131,172,122$20,690,236 $1,462,958 $ 0 $(29,533,865)$(7,164,806)
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through December 31, 2004
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Debt and accrued liabilities
October 2004 to December
2004 with common shares
valued from $0.0004 to $0.001
per share 0 $ 0 $23,500,000 $ 11,000 $ 0 $ 0 $ 0 $ 11,000
Services, October 2004 through
December 2004 valued from
$0.001 to $0.01 per share 0 0 25,300,000 73,000 0 0 0 73,000
Conversion of $182,186 principal
value of 12% convertible debt
$273,279 of derivative
conversion option
along with $13,171 accrued
interest 0 0 500,468,353 468,636 0 0 468,636
Net loss for the year 0 0 0 0 0 0 (804,266) (804,266)
--------- ------------- ----------- ----------- ----------- ---------- ----------- -----------
Balance, December 31, 2004 215,865 $ 215,8651 680,440,475 $ 21,242,872$ 1,462,958 $ 0 $(30,338,131) $(7,416,436)
========= ============= ============ =========== =========== ========= ============ ============
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<page>F-13
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2004 and 2003
And the Cumulative Period
From December 31, 1990 (Inception) Through December 31, 2004
<table>
Dec. 1, 1990
(Inception)
Through
Dec. 31 Dec. 31 Dec. 31
2004 2003 2004
Unaudited Unaudited Unaudited
Operating activities
Net income (loss) $ (804,266)$ (1,143,130)$ (29,260,389)
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 6,442 3,566 1,717,602
Derivative conversion option 0 664,203 1,572,705
Stock issued for services 73,000 44,245 7,672,173
Stock issued for interest 13,170 548,761
Settlements 0 0 (25,000)
Minority interest 0 0 (62,500)
Intangibles 0 0 1,299,861
Amortization of loan fees
and note discounts 321,429 100,405 2,532,706
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 0 0 (4,201)
Prepaid expenses (44,630) (120,000) (39,251)
Interest receivable 0 0 (95,700)
Increase (decrease) in liabilities 0 0
Bank overdraft 0 0 0
Accounts payable (85,445) (28,407) 948,064
Accrued compensation 151,456 170,172 2,731,709
Due to officers (7,372) (32,749) 699,430
Other current liabilities 25,841 189,457 781,869
---------------- ---------------- ----------------
Net cash (used by) operating activities (350,375) (152,238) (7,559,760)
The accompanying notes are an integral part of these consolidated financial statements.
<page>14
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2004 and 2003
And the Cumulative Period
From December 31, 1990 (Inception) Through December 31, 2004
Dec. 1, 1990
(Inception)
Through
Dec. 31 Dec. 31 Dec. 31
2004 2003 2004
Unaudited Unaudited Unaudited
Investing activities
Collection of notes receivable $ 0 $ 0 $ 0
Increase in notes receivable 0 0 (1,322,500)
Cost of license & technology 0 0 (94,057)
Purchase of equipment 0 0 (211,734)
---------------- ---------------- ----------------
Net cash (used by) investing activities 0 0 (1,628,291)
Financing activities
Common stock issued for cash 0 55,000 3,487,172
Stock warrants 0 945 196,578
Preferred stock issued for cash 0 16,345
Proceeds from stock purchase 0 0 281,250
Loan fees 0 (42,421) (517,187)
Proceeds from debts
Related party 0 0 206,544
Other 0 241,633 6,236,261
Payments on debt
Related party 0 (53,172)
Other (7,259) (17,852) (509,295)
Decrease in subscription receivable 0 0 35,450
Contributed capital 0 0 515
---------------- ---------------- ----------------
Net cash provided from (used by) financing activities (7,259) 237,305 9,380,461
---------------- ---------------- ----------------
Net increase (decrease) in cash (357,634) 85,067 192,410
Cash beginning of period 550,044 2,282 0
---------------- ---------------- ----------------
Cash end of period $ 192,410 $ 87,349 $ 192,410
================ ================ ================
The accompanying notes are an integral part of these consolidated financial statements.
<page>F-15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2004 and 2003
And the Cumulative Period
From December 31, 1990 (Inception) Through June 30, 2004
Dec. 1, 1990
(Inception)
Through
Dec. 31 Dec. 31 Dec. 31
2004 2003 2004
Unaudited Unaudited Unaudited
Cash paid during the year for
Interest $ 0 $ 0 $ 618,367
Taxes 0 0 14,450
Non-cash activities
Common stock issued for
Note receivable 0 0 281,250
Prepaids 0 0 182,346
PP&E 0 0 130,931
Deposit 0 0 0
License & technology 0 0 2,191,478
Minority interest 0 0 59,247
Repayment of debt 455,465 236,095 6,756,432
Service & interest 0 8,967 4,949,192
Preferred stock issued for
Services 0 75,845
Repayment of debt 0 0 119,520
Preferred stock options issued for
Repayment of debt 0 0 100,000
Re-characterize beneficial
conversion option as debt 0 0 881,550
The accompanying notes are an integral part of these consolidated financial statements.
</table>
<page>F-16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Conectisys Corporation (formerly Coastal Financial Corp.)(the "Company") was
incorporated under the laws of Colorado on February 3, 1986, to analyze and
invest in business opportunities as they may occur. The Company is a
development-stage entity developing automatic meter reading technologies and
products for remote reading of electronic energy meters located in residential
structures.
On July 15, 1998, United Telemetry Company, Inc. was incorporated in the State
of Nevada as a wholly-owned subsidiary of the Company.
On January 11, 2000, a new Nevada corporation, eEnergyServices.com, Inc., was
formed as a wholly-owned subsidiary of the Company, which, as yet, has no net
assets and has not commenced operations.
Basis of presentation
The accompanying consolidated financial statements include the accounts and
transactions of Conectisys Corporation, its wholly-owned subsidiaries
TechniLink, Inc., eEnergyServices.com, Inc., and United Telemetry Company,
Inc., and its 80% owned subsidiary PrimeLink, Inc. All material intercompany
transactions and balances have been eliminated in the accompanying
consolidated financial statements. Certain prior period balances have been
reclassified to conform to the current year's presentation.
The Company returned to the development stage in accordance with Statement of
Financial Accounting Standards ("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.
<page>F-17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Use of estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles 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
SFAS 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, 2004, 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/from officer, accrued interest,
other current liabilities, and notes payable approximate fair value because of
the short maturity of these instruments. Also, market rates of interest apply
on all officer advances and short-term promissory notes. Long-term debt is
recorded at face value because the principal amount is convertible into common
stock.
Fiscal year
Effective December 1, 1998, the Company changed its fiscal year-end from
November 30 to September 30.
<page>F-18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Research and development costs
The Company has been engaged in researching, engineering, and developing its
H-Net(TM) technologies since August 1995, and did not generate any revenue
during the past fiscal year. The Company hopes to complete additional large-
scale cost reduction runs for the production and subsequent sale of its H-Net
(TM) system in 2005.
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 three years for computer software,
five years for vehicles and office equipment, and seven years for furniture
and fixtures.
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 December 31, 2004, no deferred
technology costs were recognized.
<page>F-19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Accounting for stock-based compensation
SFAS No. 123, "Accounting for Stock-
based Compensation" 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.
In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of SFAS Statement No. 123," effective for fiscal years ending
after December 15, 2002, which provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. The adoption of SFAS No. 148 did not have a material
impact on the Company's consolidated financial statements, as the adoption of
this standard did not require the Company to change, and the Company did not
change, to the fair value based method of accounting for stock-based
compensation.
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.
<page>F-20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Income taxes
The Company files a consolidated federal income tax return. The Company has
adopted SFAS No. 109, which
requires the Company to recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets using the enacted rates in effect in the years in which the differences
are expected to reverse. The Company has recognized a valuation allowance
covering 100% of the net deferred tax assets (primarily tax benefits from net
operating loss carryforwards), because it is more likely than not that the tax
benefits attributable to the deferred tax assets will not be realized in the
future.
Net loss per common share - basic and diluted
Net loss per common share - diluted is based on the weighted average number of
common and common equivalent shares outstanding for the periods presented.
Common equivalent shares representing the common shares that would be issued
on exercise of convertible securities and outstanding stock options and
warrants reduced by the number of shares which could be purchased from the
related exercise proceeds are not included since their effect would be anti-
dilutive.
As of December 31, 2004, the Company had 1,680,440,475 shares of common stock
outstanding. If all the Company's unexpired stock warrants and options
(including contingent issuances) were exercised, and all the principal value
and accrued interest on its outstanding convertible debentures were converted,
the Company's incremental common shares (not included in the denominator of
diluted earnings (loss) per share because of their anti-dilutive nature) would
be as follows:
Class B preferred stock options 10,000,000
Convertible note holder common stock warrants 13,250,000
Common stock warrants - other 500,000
Common stock options - officers 3,943,654
Common stock options - other 450,000
-------------
Subtotal 28,143,654
Accrued officer compensation ($480,000),
assumed converted into common stock at
prices ranging from $0.0028 to $0.2250
per share 69,602,215
Convertible note holder principal value
($2,562,904), accrued interest ($363,126)
less prepaid interest ($97,438),
assumed converted into common stock at
$0.0008 per share 3,535,740,000
-------------
Total potential common stock equivalents 3,633,485,869
<page>F-21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
If all currently outstanding potential common stock equivalents were
exercised, the Company would receive proceeds of approximately $1,716,000.
The following table illustrates the effect on net loss if we had
applied the fair value recognition provisions of SFAS No. 123 to
stock-based compensation:
Quarter Ended Quarter Ended
12/31/2004 12/31/2003
Net loss, as reported $ (804,266) $ (1,143,130)
Add: Total stock-based
compensation expense included
in net loss, as reported - -
Deduct: Total stock-based
compensation expense
determined under fair value based
method for all awards, net of
related tax effects - -
--------------- -----------------
Pro forma net loss $ (804,266) $ (1,143,130)
Advertising Costs
The Company expenses advertising costs in the year incurred.
Recently issued accounting pronouncements
The FASB has established new
pronouncements. The Company does not expect the adoption of these
pronouncements to have a material impact on its financial position,
results of operations or cashflows. This includes SFAS No. 144,
"Accounting for Impairment and Disposal of Long-Lived Assets."
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." FIN No. 46 clarified the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," and applies immediately to any variable interest entities created
after January 31, 2003 and to variable interest entities in which an interest
is obtained after that date. The Company holds no interest in variable
interest entities.
<page>F-22
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
Recently issued accounting pronouncements (continued)
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies the
accounting and reporting for derivative instruments, including certain
derivative instruments imbedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In particular, SFAS No. 149 clarifies under what circumstances a
contract with an initial net investment met the characteristic of a derivative
as described in SFAS No. 133. SFAS No. 149 also clarifies when a derivative
contains a financing component. SFAS No. 149 is generally effective for
derivative instruments entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The Company holds no
derivative instruments and does not engage in hedging activities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No.
150 requires certain financial instruments that have both equity and liability
characteristics to be classified as a liability on the balance sheet. SFAS
No. 150 is effective for the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on the
Company's consolidated financial statements.
In December 2003, the FASB issued a revised Interpretation No. 46,
"Consolidation of Variable Interest Entities." The interpretation clarifies
the application of "Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain types of variable interest entities. The
Company does not expect the adoption of this interpretation to have any impact
on its financial statements.
NOTE 2. GOING CONCERN UNCERTAINTY
As of December 31, 2004, the Company had a deficiency in working capital of
approximately $4,400,000 and had incurred continual net losses since its
return to the development stage in fiscal 1996, of approximately $30,000,000,
which raise substantial doubt about the Company's ability to continue as a going
concern.
Management's plans for correcting these deficiencies include the future sales
and licensing of the Company's products and technologies, the raising of
capital through the issuance of common stock and from continued officer
advances, which are expected to help provide the Company with the liquidity
necessary to meet operating expenses. An investor group had previously
advanced the Company an aggregate amount of $3,250,000 through fourteen similar
funding tranches occurring in April 2002, May 2002, June 2002, November 2002,
March 2003, May 2003, November 2003, December 2003, December 2003, February
2004, March 2004, April 2004, June 2004 and September 2004. Over the longer-
term, the Company plans to achieve profitability through its operations from
the sale and licensing of its H-Net(TM) automatic meter-reading system. The
accompanying consolidated financial statements 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.
<page>F-23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 3. RELATED PARTY TRANSACTIONS
The officers of the Company have continually advanced funds to the Company.
These advances have generally been in the form of revolving short-term
promissory notes at an annual interest rate of 18% (see Note 8 below).
NOTE 4. PREPAID EXPENSES AND DEPOSITS
The Company has accrued a prepaid expense of $120,000 as a staying bonus for
the Chief Executive Officer and the Chief Financial Officer and Secretary as
per their employment contracts (see note 8). The staying bonus is being
amortized over the calendar year 2005. For the year ended December 31, 2005,
$0 was amortized as officer salaries with a balance of $120,000 at December 31,
2004.
In connection with the convertible debenture financing obtained in April 2004,
June 2004 and September 2004, the Company prepaid $30,000, $75,000 and $75,000
dollars in interest, respectively (see note 10). The prepaid interest is being
amortized over a one year period. For the year ended September 30, 2004,
$13,562, $19,110 and $4,520 were amortized respectively for a total of $37,192.
The balances at September 30, 2004 are $16,438, $55,890 and $70,480 for a total
prepaid interest of $142,808. During the three months ended December 31, 2004,
an additional $7,562, $18,904 and $18,904 were amortized respectively for a
total of $45,370. The balances at December 31, 2004 are $8,877, $36,986 and
$51,575 for a total prepaid interest of $97,438.
Also included in prepaid expenses is a prepaid retainer in the amount of $4,159
to a law firm in connection with a suit brought forth by Devon Investment
Advisors Ltd. (see note 13). As of December 31, 2004, the balance in prepaid
expenses was $221,597.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 consisted of the following:
Office equipment $ 292,946
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 344,917
Accumulated depreciation (328,002)
-----------
Net book value $ 16,915
===========
NOTE 6. LICENSE RIGHTS AND TECHNOLOGY
License rights and technology at December 31, 2004 consisted of the following:
License rights $ 421,478
Accumulated amortization (421,478)
-----------
Net book value $ -
===========
<page>F-24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 7. LOAN FEES
In February 2002, the Company received $340,000 in short-term financing from
an investment group through the issuance of a promissory note maturing on May
15, 2002 and accruing interest at an annual rate of 18%. Included in the loan
was $40,000 in fees, consisting specifically of a $30,000 finder's fee and a
$10,000 legal fee. These loan fees were fully amortized at September 30,
2002, with the balances written-off at December 31, 2004 as a result of a
legal settlement.
In March through June 2002, the Company received $750,000 from an accredited
investor group in exchange for 12% convertible debentures, convertible at the
lesser of $0.06 per share and 50% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. The convertible debentures were accompanied
by 3,750,000 common stock warrants, exercisable over a three year period at
the lesser of $0.045 per share and the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. Loan fees associated with these
loans amounted to $147,500, of which $90,000 represented finder's fees and
$57,500 represented legal costs. These loan fees were fully amortized at
September 30, 2003.
In November 2002 through May 2003, the Company received another $500,000 from
the above accredited investor group in exchange for 12% convertible
debentures, convertible at the lesser of $0.01 per share and 50% of the
average of the lowest three intra-day trading prices of a share of common
stock during the 20 trading days immediately preceding conversion. The
convertible debentures were accompanied by 2,500,000 common stock warrants,
exercisable over a seven-year period at $0.005 per share. Loan fees
associated with these loans amounted to $83,069, consisting of $66,069 in
finder's fees and $17,000 in legal costs. Amortization of these fees over
the pro-rata portion of the one-year term of the loans amounted to $55,173
through September 30, 2003. Total amortization of all loan fees
during the year ended September 30, 2003 amounted to $144,276, including
$89,103 attributable to the unamortized balance at September 30, 2002. The
unamortized balance of the loan fees at September 30, 2003 was
$27,896.
In October 2003, the variable conversion price of the 12% convertible
debentures issued from March through June 2002 and from November 2002 through
May 2003 was reduced from 50% to 40% of the average of the lowest three intra-
day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion.
<page>F-25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 7. LOAN FEES (continued)
In November 2003 through December 2003, the Company received another $200,000
from the above accredited investor group in exchange for 12% convertible
debentures, convertible at the lesser of $0.005 per share and 40% of the
average of the lowest three intra-day trading prices of a share of common
stock during the 20 trading days immediately preceding conversion. The
convertible debentures were accompanied by 1,500,000 common stock warrants,
exercisable over a seven-year period at $0.005 per share. Loan fees
associated with these loans amounted to $33,778, consisting of $18,778 in
finder's fees and $15,000 in legal costs.
In February 2004 and March 2004, the Company received another $300,000
from the above accredited investor group in exchange for 12% convertible
debentures, convertible at the lesser of $0.005 per share and 40% of the
average of the lowest three intra-day trading prices of a share of common
stock during the 20 trading days immediately preceding conversion. The
convertible debentures were accompanied by 1,500,000 common stock warrants,
exercisable over a seven-year period at $0.002 per share. Loan fees
associated with these loans amounted to $42,335, consisting of $35,335 in
finder's fees and $7,000 in legal costs.
In April 2004, the Company received another $250,000 from the above accredited
investor group in exchange for 12% convertible debentures, convertible at the
lesser of $0.005 per share and 40% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. The convertible debentures were accompanied
by 750,000 common stock warrants, exercisable over a seven-year period at
$0.002 per share. Loan fees associated with these loans amounted to $36,624,
consisting of $21,624 in finder's fees and $15,000 in legal costs. The Company
also prepaid $30,000 in interest.
In June 2004, the Company received another $625,000 from the above accredited
investor group in exchange for 12% convertible debentures, convertible at the
lesser of $0.005 per share and 40% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. The convertible debentures were accompanied
by 1,875,000 common stock warrants, exercisable over a seven-year period at
$0.002 per share. Loan fees associated with these loans amounted to $52,653,
consisting of $47,653 in finder's fees and $5,000 in legal costs. The Company
also prepaid $75,000 in interest.
In September 2004, the Company received another $625,000 from the above
accredited investor group in exchange for 12% convertible debentures,
convertible at the lesser of $0.005 per share and 40% of the average of the
lowest three intra-day trading prices of a share of common stock during the 20
trading days immediately preceding conversion. The convertible debentures were
accompanied by 1,875,000 common stock warrants, exercisable over a seven-year
period at $0.002 per share. Loan fees associated with these loans amounted to
$48,453, consisting of $46,953 in finder's fees and $1,500 in legal costs. The
Company also prepaid $75,000 in interest.
<page>F-26
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 7. LOAN FEES (continued)
Total new loan fees during the year ended September 30 ,2004 amounted to
$213,843.
Total amortization on the one- and two-year lives of all loan fees amounted to
$97,034 during the year ended September 30, 2004, leaving an unamortized
balance at December 31, 2004 of $144,705. During the three months ended
December 31, 2004, total amortization of loan fees amounted to $33,970, leaving
an unamortized balance of $110,735.
NOTE 8. DUE TO/FROM OFFICERS
At September 30, 2001, a revolving promissory note agreement for $56,880 was
drawn up, due on demand, at an annual interest rate of 18%, for unpaid
cumulative advances (plus interest) made by the Company's CEO. During the year
ended September 30, 2002, cash advances of $31,500 were made. Additionally, the
loan account was increased by $120,875, representing the value of 2,361,814
restricted shares of the Company's common stock held by the CEO, which were
used as collateral and transferred to a note holder in June of 2002 to
partially cover a $300,000 debt, and by $16,202, representing the value of
794,857 restricted shares of the Company's common stock held by the CEO, which
were pledged to and sold by a convertible note holder on a Company obligation
in default. Repayments of debt by the Company amounted to $144,806 and accrued
interest amounted to $6,913 during the year ended September 30, 2002, resulting
in a loan balance due the CEO at September 30, 2002 of $87,564. During the
year ended September 30, 2003, additional cash advances totaling $37,869 were
made, along with $37,423, representing another 1,835,885 restricted shares of
the Company's common stock pledged and sold by the above note holder.
Repayments of debt by the Company amounted to $136,009, including re-issuance
of 2,361,814 restricted shares of the Company's common stock valued at $120,875
that had been transferred to a note holder during the previous fiscal year.
Accrued interest during the year ended September 30, 2003 was $10,073, bringing
the loan balance due the CEO at September 30, 2003 to $36,920. During the
year ended September 30, 2004, the Company repaid $32,673. Accrued interest of
$3,558 during the period brought the loan balance due the CEO at December 31,
2004 to $7,805. During the three months ended December 31, 2004, the Company
repaid $799. Accrued interest during the period amounted to $350 and brought
the balance at December 31, 2004 to $7,356. The loan balance at December 31,
2004 is currently due on demand and continues to accrue interest at the rate of
18% per year.
<page>F-27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 8. DUE TO/FROM OFFICERS (continued)
At September 30, 2001, a promissory note agreement for $25,874 was drawn up,
due on demand, at an annual interest rate of 18 percent, for cumulative
advances (plus interest) made by the Company's Secretary/Treasurer. The
Secretary/Treasurer had also borrowed on a personal credit card for the
Company's behalf in the amount of $18,455, bringing the total obligation due
the Secretary/Treasurer at September 30, 2001 to $44,329. During the year
ended September 30, 2002, the personal credit card balance was virtually paid-
off. Additional loan advances were $19,500, loan repayments were $39,500, and
accrued interest was $2,269 during the year ended September 30, 2002, bringing
the aggregate loan balance due the Secretary/Treasurer at September 30, 2002 to
$8,143. During the year ended September 30, 2003, additional cash advances of
$37,500 were made, and accrued interest was $6,522, resulting in a loan balance
due the secretary Treasurer at September 30, 2003 of $52,165. During the year
ended December 31, 2004, the Company repaid $25,655 and received an additional
$666 from the treasurer. Accrued interest amounted to $8,077 during the period
bring the loan balance due the Secretary at December 31, 2004 to $35,253.
During the three months ended December 31, 2004, the Company repaid $8,436.
Accrued interest during the period amounted to $1,512 and brought the balance
at December 31, 2004 to $28,329. The loan balance at December 31, 2004 is
currently due on demand and continues to accrue interest at the rate of 18% per
year.
During the period May through September 2002, the Company's Chief Technical
Officer advanced the Company $32,946, corresponding to 684,407 restricted
shares of the Company's common stock held by the officer, which were pledged to
and sold by a convertible note holder on a Company obligation in default.
Accrued interest at the annual rate of 18% was $1,831 through the end of the
fiscal year, bringing the total loan amount to $34,777 at September 30, 2002.
In November 2002, the Company re-issued the 684,407 restricted shares to the
Chief Technical Officer (valued at $32,946) that had been pledged to and sold
by the convertible note holder during the previous fiscal year. Accrued
interest amounted to $1,205 during the year ended September 30, 2003, resulting
in a loan balance of $3,036 as of that date. During the year ended September
30, 2004, the Company repaid $15,623. During the year ended September 30,
2004, accrued interest amounted to $294 and brought the loan balance due from
the Chief Technical Officer at December 31, 2004 to $12,293. The loan balance
at December 31, 2004 is currently due on demand and continues to accrue
interest at the rate of 18% per year.
The aggregate amount due officers at December 31, 2004 and September 30, 2004
was $23,392 and $30,765, respectively and interest expense on the officer
loans amounted to $1,862 for the three months ended December 31, 2004 and
$11,929 for the year ended September 30, 2004. For presentation purposes
$12,293 due from the Chief Technical Officer has been shown as a receivable
and $35,685 has been shown as due to officers at December 31, 2004.
<page>F-28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 8. DUE TO/FROM OFFICERS (continued)
As of December 31, 2004, the Company owed its officers $1,609,692 in accrued
compensation. Of this amount, $480,000 was attributable to aggregate staying
bonuses payable to the President and Secretary/Treasurer of the Company as of
December 31, 2003. An additional $120,000 was accrued on December 31, 2004
which will be amortized over the 2005 calendar year. The staying bonuses are
to be compensated for with the Company's common stock, valued at the average
bid and ask price for the stock for the 30 days prior to each respective year-
end issuance date. The total common stock to be issued as staying bonuses
amounted to 29,530,431 shares at September 30, 2004 and 69,602,215 at December
31, 2004.
NOTE 9. NOTES PAYABLE
Notes payable at December 31, 2004 consisted of the following:
Registered Convertible Debentures - secured by substantially all the assets of
the Company
Convertible Debenture #1
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 29, 2003 at an annual interest
rate of 12% $ 0
Accrued interest of $7,075 and principal
on Convertible Debenture convertible
into approximately 8,843,750
shares of common stock at the price
of $0.0008 at December 31, 2004 7,075 $ 7,075
-------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 29, 2003 at an annual interest
rate of 12% $ 0
Accrued interest of $7,075 and principal
on Convertible Debenture convertible
into approximately 8,843,750
shares of common stock at the price
of $0.0008 at December 31, 2004 7,075 7,075
-------
<page>F-29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
NOTE 9. NOTES PAYABLE (continued)
Note payable to AJW/New Millennium
Offshore, Ltd. (Convertible Debenture)
due on March 29, 2003 at an annual
interest rate of 12% $ 0
Accrued interest of $8,136 and principal
on Convertible Debenture convertible
into approximately 10,170,000
shares of common stock at the price
of $0.0008 at December 31, 2004 8,136 $ 8,136
-------
Note payable to Pegasus Capital Partners,
LLC (Convertible Debenture) due on
March 29, 2003 at an annual interest
rate of 12% $ 0
Accrued interest of $4,975 and principal
on Convertible Debenture convertible
into approximately 6,218,750
shares of common stock at the price
of $0.0008 at December 31, 2004 4,975 $ 4,975
-------
Convertible Debenture #2
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
May 10, 2003 at an annual interest
rate of 12% $ 0
Accrued interest of $9,600 and principal
on Convertible Debenture convertible
into approximately 12,000,000
shares of common stock at the price
of $0.0008 at December 31, 2004 9,600 $ 9,600
--------
<page>F-30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
NOTE 9. NOTES PAYABLE (continued)
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on May 10, 2003 at an annual
interest rate of 12% $ 0
Accrued interest of $9,600 and principal
on Convertible Debenture convertible
into approximately 12,000,000
shares of common stock at the price
of $0.0008 at December 31, 2004 9,600 $ 9,600
-------
Note payable to AJW/New Millennium
Offshore, Ltd. (Convertible Debenture)
due on May 10, 2003 at an annual
interest rate of 12% $ 0
Accrued interest of $10,800 and principal
on Convertible Debenture convertible
into approximately 13,500,000
shares of common stock at the price
of $0.0008 at December 31, 2004 10,800 $ 10,800
-------
Note payable to Pegasus Capital Partners,
LLC (Convertible Debenture) due on
May 10, 2003 at an annual
interest rate of 12% $ 3,829
Accrued interest of $6,298 and principal
on Convertible Debenture convertible
into approximately 12,658,750
shares of common stock at the price
of $0.0008 at December 31, 2004 6,298 $ 10,127
Convertible Debenture #3
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
June 17, 2003 at an annual interest
rate of 12% $77,260
Accrued interest of $24,255 and principal
on Convertible Debenture convertible
into approximately 126,893,750
shares of common stock at the price
of $0.0008 at December 31, 2004 24,255 $ 101,515
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on June 17, 2003 at an annual
interest rate of 12% $77,260
Accrued interest of $24,255 and principal
on Convertible Debenture convertible
into approximately 126,893,750
shares of common stock at the price
of $0.0008 at December 31, 2004 24,255 $ 101,515
-------
Note payable to AJW/New Millennium
Offshore, Ltd. (Convertible Debenture)
due on June 17, 2003 at an annual
interest rate of 12% $89,055
<page>F-31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Accrued interest of $27,426 and principal
on Convertible Debenture convertible
into approximately 145,601,250
shares of common stock at the price
of $0.0008 at December 31, 2004 27,426 $ 116,481
--------
Note payable to Pegasus Capital Partners,
LLC (Convertible Debenture) due on
June 17, 2003 at an annual
interest rate of 12% $50,000
Accrued interest of $15,271 and principal
on Convertible Debenture convertible
into approximately 81,588,750
shares of common stock at the price
of $0.0008 at December 31, 2004 15,271 $ 65,271
--------
Convertible Debenture #5
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $38,500
Accrued interest of $8,481 and principal
on Convertible Debenture convertible
into approximately 58,726,250
shares of common stock at the price
of $0.0008 at December 31, 2004 8,481 $ 46,981
-------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $38,500
Accrued interest of $8,481 and principal
on Convertible Debenture convertible
into approximately 58,726,250
shares of common stock at the price
of $0.0008 at December 31, 2004 8,481 $ 46,981
-------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $38,500
Accrued interest of $8,481 and principal
on Convertible Debenture convertible
into approximately 58,726,250
shares of common stock at the price
of $0.0008 at December 31, 2004 8,481 $ 46,981
-------
<page>F-32
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #6
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $50,000
Accrued interest of $9,863 and principal
on Convertible Debenture convertible
into approximately 74,828,750
shares of common stock at the price
of $0.0008 at December 31, 2004 9,863 $ 59,863
-------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $50,000
Accrued interest of $9,863 and principal
on Convertible Debenture convertible
into approximately 74,828,750
shares of common stock at the price
of $0.0008 at December 31, 2004 9,863 $ 59,863
-------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $50,000
Accrued interest of $9,863 and principal
on Convertible Debenture convertible
into approximately 74,828,750
shares of common stock at the price
of $0.0008 at December 31, 2004 9,863 $ 59,863
--------
<page>F-33
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #7
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $33,333
Accrued interest of $4,417 and principal
on Convertible Debenture convertible
into approximately 47,187,500
shares of common stock at the price
of $0.0008 at December 31, 2004 4,417 $ 37,750
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $33,333
Accrued interest of $4,417 and principal
on Convertible Debenture convertible
into approximately 47,187,500
shares of common stock at the price
of $0.0008 at December 31, 2004 4,417 $ 37,750
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $33,333
Accrued interest of $4,417 and principal
on Convertible Debenture convertible
into approximately 47,187,500
shares of common stock at the price
of $0.0008 at December 31, 2004 4,417 $ 37,750
--------
<page>F-34
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #8
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $16,667
Accrued interest of $2,164 and principal
on Convertible Debenture convertible
into approximately 23,538,750
shares of common stock at the price
of $0.0008 at December 31, 2004 2,164 $ 18,831
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $16,667
Accrued interest of $2,164 and principal
on Convertible Debenture convertible
into approximately 23,538,750
shares of common stock at the price
of $0.0008 at December 31, 2004 2,164 $ 18,831
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $16,666
Accrued interest of $2,165 and principal
on Convertible Debenture convertible
into approximately 23,538,750
shares of common stock at the price
of $0.0008 at December 31, 2004 2,165 $ 18,831
--------
<page>F-35
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #9
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $16,667
Accrued interest of $2,005 and principal
on Convertible Debenture convertible
into approximately 23,340,000
shares of common stock at the price
of $0.0008 at December 31, 2004 2,005 $ 18,672
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $16,667
Accrued interest of $2,005 and principal
on Convertible Debenture convertible
into approximately 23,340,000
shares of common stock at the price
of $0.0008 at December 31, 2004 2,005 $ 18,672
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $16,666
Accrued interest of $2,005 and principal
on Convertible Debenture convertible
into approximately 23,340,000
shares of common stock at the price
of $0.0008 at December 31, 2004 2,006 $ 18,672
--------
<page>F-36
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #10
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $16,666
Accrued interest of $1,743 and principal
on Convertible Debenture convertible
into approximately 23,011,250
shares of common stock at the price
of $0.0008 at December 31, 2004 1,743 $ 18,409
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $16,667
Accrued interest of $1,742 and principal
on Convertible Debenture convertible
into approximately 23,011,250
shares of common stock at the price
of $0.0008 at December 31, 2004 1,742 $ 18,409
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $16,667
Accrued interest of $1,742 and principal
on Convertible Debenture convertible
into approximately 23,011,250
shares of common stock at the price
of $0.0008 at December 31, 2004 1,742 $ 18,409
--------
<page>F-37
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #11
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $83,334
Accrued interest of $5,780 and principal
on Convertible Debenture convertible
into approximately 114,543,750
shares of common stock at the price
of $0.0008 at December 31, 2004 8,301 $ 91,635
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $83,333
Accrued interest of $5,781 and principal
on Convertible Debenture convertible
into approximately 114,543,750
shares of common stock at the price
of $0.0008 at December 31, 2004 8,302 $ 91,635
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $83,333
Accrued interest of $5,781 and principal
on Convertible Debenture convertible
into approximately 114,542,500
shares of common stock at the price
of $0.0008 at December 31, 2004 8,301 $ 91,634
--------
<page>F-38
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #12
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
April 19, 2006 at an annual interest
rate of 12% with one year interest prepaid $50,000
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 62,500,000
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 50,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
April 19, 2006 at an annual interest
rate of 12% with one year interest prepaid $88,700
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 110,875,000
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 88,700
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
April 19, 2006 at an annual interest
rate of 12% with one year interest prepaid $101,125
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 126,406,250
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 101,125
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on April 19, 2006 at an annual
interest rate of 12% with one year
interest prepaid $10,175
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 12,718,750
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 10,175
--------
<page>F-39
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #13
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
June 30, 2006 at an annual interest
rate of 12% with one year
interest prepaid $125,000
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 156,250,000
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 125,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
June 30, 2006 at an annual interest
rate of 12% with one year
interest prepaid $221,750
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 277,187,500
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 221,750
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
June 30, 2006 at an annual interest
rate of 12% with one year
interest prepaid $252,813
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 316,016,250
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 252,813
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on June 30, 2006 at an annual
interest rate of 12% with one year
interest prepaid $25,437
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 31,796,250
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 25,437
--------
<page>F-40
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Convertible Debenture #14
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
September 9, 2006 at an annual interest
rate of 12% with one year
interest prepaid $125,000
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 156,250,000
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 125,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
September 9, 2006 at an annual interest
rate of 12% with one year
interest prepaid $221,750
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 277,187,500
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 221,750
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
September 9, 2006 at an annual interest
rate of 12% with one year
interest prepaid $252,813
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 316,016,250
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 252,813
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on September 9, 2006 at an annual
interest rate of 12% with one year
interest prepaid $25,437
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 31,796,250
shares of common stock at the price
of $0.0008 at December 31, 2004 0 $ 25,437
-------- --------
<page>F-41
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Subtotal of all Registered Convertible Debentures 2,828,592
Less reclassified accrued interest $ (265,688)
------------
Subtotal principal value 2,562,904
Derivative conversion option - 150 percent of principal 3,844,356
Less unamortized note discount (1,205,857)
-----------
Net carrying value of
Registered Convertible Debentures $ 5,201,403
Note payable to Devon Investment Advisors,
unsecured, due on December 1, 1996, interest payable
at an annual rate of 10%. The Company is
currently in default. 241,824
Note payable to Black Dog Ranch LLC,
unsecured, due on demand, including interest
at an annual rate of 18%. 165,388
Convertible note payable to Laurus Master Fund, Ltd.,
unsecured, with interest payable at an annual rate
of 8%, conversion premium of 25% based on current
market price of the Company's common stock (as defined),
initially due October 12, 2001 and extended to
December 1, 2001. Currently in default. 7,581
-----------
Total notes payable $ 5,616,196
Current portion (2,465,157)
-----------
Long-term portion $ 3,151,039
===========
<page>F-42
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
On April 12, 2001, the Company received $300,000 in proceeds from Laurus
Master Fund, Ltd. ("Laurus") and issued a $300,000 principal value 8%
convertible note due on October 12, 2001, along with 1,000,000 common stock
warrants, exercisable at $0.192 per share over a four-year period. $77,228 of
the proceeds was allocated to the cost of the warrants, with the remaining
$222,772 allocated to the cost of the debt instrument, based on the relative
fair market values of the note and the warrants at the date of issuance.
A convertible note discount of $77,228 was also recognized, which was
effectively fully amortized at September 30, 2002 as interest expense.
The note was convertible (at the option of the holder) into common stock at the
lesser of 80% of the average of the 3-lowest closing bid prices during the 30
trading days prior to the closing date (April 12, 2001) or 80% of the average
of the 3-lowest closing bid prices during the 30 trading days prior to the
conversion date (assumed to be September 30, 2002). At April 12, 2001, the
note was convertible into approximately 2,181,500 common shares at an exercise
price of approximately $0.1021 per share, and at September 30, 2002, the note
was convertible into approximately 20,189,875 common shares at an exercise
price of approximately $0.0064 per share. In either instance, the fair value
of the debt instrument (due to the 80% pricing advantage) was $375,000 (a 25%
premium on the principal value), resulting in a further convertible debt
discount of $152,228, representing the difference between the note's fair
value of $375,000 and the allocated proceeds at issuance of $222,772. This
discount was also fully amortized at September 30, 2001.
A corresponding $152,228 credit was made to additional paid-in capital for the
conversion benefit option, i.e., the intrinsic value of the matured debt
instrument. Interest accrued at 8% on the $300,000 note principal through
September 30, 2002 was $17,168. For presentation purposes, this interest was
added to the principal value of the note at the year-end balance sheet date.
The holder can also convert the accrued interest into common stock at a 25%
premium ($4,292), bringing the total conversion benefit
option to $155,027. Total amortization of interest on the discounted
convertible note during the year ended September 30, 2001 (including $32,775
in loan fees associated with the transaction) amounted to $265,030.
<page>F-43
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
The maturity date on the $300,000 principal value 8% convertible note,
initially October 12, 2001, was extended to December 1, 2001. Because of the
inherent conversion benefit feature, the aggregate note with accrued interest,
totaling $311,194 at September 30, 2001, was classified as a long-term
liability.
The Company was unable to pay-off the note at maturity. However, after
receiving bridge financing from another investment group in February 2002, the
Company subsequently repaid $150,000 of the obligation, as the note holder
elected to not convert the debt to shares. Consequently, the note holder sold
1,479,264 of the 4,773,208 shares of the Company's common stock that had been
pledged by officers of the Company as collateral, resulting in net proceeds of
$49,148. Adding accrued interest of $17,168 at an annual rate of 8%, brought
the loan balance at September 30, 2002 to $129,214. During the year ended
September 30, 2003, the note holder sold the remaining 3,293,944 pledged shares
for net proceeds of $67,144. The note holder elected to convert essentially
all the remaining debt for common stock of the Company, receiving 26,000,000
newly issued Company shares valued at $58,400, and bringing the tentative
liability down to $3,670. Accrued interest amounted to $3,183, resulting in a
total liability to the note holder at September 30, 2003 of $6,851. For the
year ended December 31, 2004 accrued interest amounted to $580 resulting in a
balance of $7,431 at December 31, 2004. In connection with the pay-down of the
debt, the $155,027 beneficial conversion option noted above was reduced to zero
through transference to common stock.
In February 2002, the Company borrowed $340,000 from the Mercator Momentum
Fund ("Mercator"). This loan from Mercator was a short-term loan due May 15,
2002 and accrued interest at an annual rate of 18%. The loan was secured by
shares of the Company's common stock. In April and May of 2002, the Company
paid Mercator an aggregate of $100,000. On June 14, 2002 Mercator transferred
collateral in the form of 5,861,814 shares of common stock to its name
because the Company was in default on the balance of the loan.
<page>F-44
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 9. NOTES PAYABLE (continued)
Thereafter, on June 21, 2002, Mercator filed an action against the Company,
Robert A. Spigno and Patricia A. Spigno in the Superior Court of California,
County of Los Angeles (Case No. BC276283) for breach of promissory note,
foreclosure of security interests, fraud and deceit. Mr. Spigno is the Chairman
of the Board and a director of the Company and is also the Company's Chief
Executive Officer. Ms. Spigno is the Company's Secretary and Chief Financial
Officer. On July 3, 2002, Mercator filed a first amended complaint in the
Superior Court of California, County of Los Angeles (Case No. BC276283), adding
a claim of common count for money lent. In March 2004, the Company settled its
suit with Mercator for $150,000.
NOTE 10. SECURED CONVERTIBLE DEBENTURES
In order to provide working capital and financing for the Company's continued
research and development efforts as of March 29, 2002, the Company entered
into a securities purchase agreement and related agreements with four
accredited investors (the "Purchasers") for the purchase of up to $750,000 of
the Company's 12% Convertible Debentures due one year from their date of
issuance. The Company granted the holders of the debentures a continuing
security interest in all of the Company's assets to secure the Company's
obligations under the debentures and related agreements. The debentures bear
interest at a rate of 12% per annum, payable quarterly in common stock or cash
at the option of the Purchasers.
<page>F-45
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
On March 29, 2002 the Company issued an aggregate of $300,000 of 12%
convertible debentures in a private offering to four accredited investors.
Three of the investors, if certain conversion limitations are disregarded, are
beneficial owners of 5% or more of the company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.06 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,500,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
On May 10, 2002 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to four accredited investors. Three of the
investors, if certain conversion limitations are disregarded, are beneficial
owners of 5% or more of the Company's outstanding shares of common stock. The
debentures initially were convertible into shares of common stock at the
lesser of $.06 per share and 50% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 750,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
On June 17, 2002 the Company issued an aggregate of $300,000 of 12%
convertible debentures in a private offering to four accredited investors.
Three of the investors, if certain conversion limitations are disregarded, are
beneficial owners of 5% or more of the company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.06 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,500,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
<page>F-46
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
The Company entered into another securities purchase agreement plus related
agreements with three accredited investors on November 27, 2002 (essentially
the same re-organized investor group delineated above) for the purchase of up
to $500,000 of the Company's 12% Convertible Debentures due one year from
their date of issuance. The Company granted the holders of the debentures a
continuing security interest in all of the Company's assets to secure the
Company's obligations under the debentures and related agreements. The
debentures bear interest at a rate of 12% per annum, payable quarterly in
common stock or cash at the option of the Purchasers.
On November 27, 2002 the Company issued an aggregate of $200,000 of 12%
convertible debentures in a private offering to three accredited investors
who, if certain conversion limitations are disregarded, would be deemed
beneficial owners of 5% or more of the Company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.01 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,000,000 shares of common stock at a per
share exercise price equal to $.005.
On March 3, 2003 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to these same three accredited investors. The
debentures initially were convertible into shares of common stock at the lesser
of $.01 per share and 50% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. In October 2003, the conversion rate was changed from
50% to 40% of the average of the lowest three intra-day trading prices of a
share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 750,000 shares of common stock at a per share exercise price equal
to $.005.
<page>F-47
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
On May 12, 2003 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to the three accredited investors. The
debentures initially were convertible into shares of common stock at the lesser
of $.01 per share and 50% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. In October 2003, the conversion rate was changed from
50% to 40% of the average of the lowest three intra-day trading prices of a
share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 750,000 shares of common stock at a per share exercise price equal
to $.005.
On November 25, 2003 the Company issued an aggregate of $100,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 500,000 shares of common stock at a per share exercise
price equal to $.005.
On December 3, 2003 the Company issued an aggregate of $50,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 250,000 shares of common stock at a per share exercise
price equal to $.005.
On December 31, 2003 the Company issued an aggregate of $50,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 250,000 shares of common stock at a per share exercise
price equal to $.005.
On February 18, 2004 the Company issued an aggregate of $50,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 250,000 shares of common stock at a per share exercise
price equal to $.005.
<page>F-48
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
On March 4, 2004 the Company issued an aggregate of $250,000 of 12% convertible
debentures in a private offering to the three accredited investors. The
debentures were convertible into shares of common stock at the lesser of $.005
per share and 40% of the average of the lowest three intra-day trading prices
of a share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 1,250,000 shares of common stock at a per share exercise price
equal to $.005.
On April 19, 2004, the Company issued an aggregate of $250,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The Company prepaid one year's interest of $30,000 upon receipt of the funds.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 750,000 shares of common stock at a per share exercise
price equal to $.002.
On June 30, 2004 the Company issued an aggregate of $625,000 of 12% convertible
debentures in a private offering to the three accredited investors. The
Company prepaid one year's interest of $75,000 upon receipt of the funds. The
debentures were convertible into shares of common stock at the lesser of $.005
per share and 40% of the average of the lowest three intra-day trading prices
of a share of common stock during the 20 trading days immediately preceding
conversion. The debentures were accompanied by warrants to purchase up to an
aggregate of 1,875,000 shares of common stock at a per share exercise price
equal to $.002.
On September 9, 2004 the Company issued an aggregate of $625,000 of 12%
convertible debentures in a private offering to the three accredited investors.
The Company prepaid one year's interest of $75,000 upon receipt of the funds.
The debentures were convertible into shares of common stock at the lesser of
$.005 per share and 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants to purchase
up to an aggregate of 1,875,000 shares of common stock at a per share exercise
price equal to $.002.
<page>F-49
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
The Company's convertible debentures and related warrants contain anti-
dilution provisions whereby, if the Company issues common stock or securities
convertible into or exercisable for common stock at a price less than the
conversion or exercise prices of the debentures or warrants, the conversion and
exercise prices of the debentures and/or warrants shall be adjusted as
stipulated in the agreements governing such debentures and warrants.
As part of the recording of the convertible debt transactions, a beneficial
conversion option was recognized, along with a corresponding convertible debt
discount. The fair value of the debt instruments issued totaling $1,750,000 in
principal value was $3,500,000 in aggregate, representing a 100% premium on the
principal value (due to the 100% pricing advantage) and making the beneficial
conversion option $1,637,735 at the inception of the loans ($1,750,000 proceeds
less $112,265 allocated to the issuance of the 8,750,000 related warrants). In
October 2003, the conversion option was increased to 150% from 100% which
resulted in an increase of $563,257 in the conversion interest and a
corresponding expense in the current period. Due to the nature of the debt
instrument and its repayment terms, the beneficial conversion option has been
re-characterized as derivative conversion option and reclassified as additional
debt. In connection with the issuance of an additional $2,000,000 of
convertible debt during the year ended September 30, 2004, the derivative
conversion option was increased by $3,000,000.
During the fiscal year ended September 30, 2002, the Company issued 12,667,178
shares of common stock in connection with interest payments and upon
conversion of an aggregate $93,130 of principal and $6,916 of related interest
on the Company's convertible debentures. A corresponding pro-rata reduction of
$80,702 to the beneficial conversion option was made. During the fiscal year
ended September 30, 2003, the Company issued another 103,778,301 shares of
common stock in connection with the conversion of another $193,665 of principal
and $34,355 of accrued interest on the Company's convertible debentures,
<page>F-50
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 10. SECURED CONVERTIBLE DEBENTURES (continued)
resulting in a convertible debt principal balance at September 30, 2003 of
$963,205 (net of an aggregate of $286,795 in debt conversions through that
date). A corresponding pro-rata reduction of $177,845 was made to the
beneficial conversion option during the fiscal year ended September 30, 2003
(an aggregate of $258,547 since the inception of the loans), bringing the
beneficial conversion option balance at September 30, 2003 to $881,550.
In October 2003, the conversion option was increased to 150% from 100%
resulting in an increase of $563,257 and a re-characterization of the
conversion option as additional debt.
During the year ended September 30, 2004, the Company issued an additional
$2,000,000 of 12% convertible debentures. Also, the Company issued 352,352,250
shares of common stock in connection with the conversion of another $218,115 of
principal and $49,008 of accrued interest on the Company's convertible
debentures, resulting in a convertible debt principal balance at September 30,
2004 of $2,745,090 (net of an aggregate of $504,910 in debt conversions through
that date). In connection with the issuance of the additional $2,000,000
convertible debt, the Company recorded a corresponding derivative conversion
option of $3,000,000. A corresponding pro-rata reduction of $327,172 was made
to the derivative conversion option during the year ended September 30, 2004
(an aggregate of $585,720 since the inception of the loans), bringing the
derivative conversion option balance at December 31, 2004 to $4,117,635.
During the three months ended December 31, 2004, the Company issued 500,468,353
shares of common stock in connection with the conversion of another $182,186 of
principal and $13,171 of accrued interest on the Company's convertible
debentures, resulting in a convertible debt principal balance at September 30,
2004 of $2,562,904 (net of an aggregate of $687,096 in debt conversions through
that date). A corresponding pro-rata reduction of $273,279 was made to the
derivative conversion option during the three months ended December 31, 2004
(an aggregate of $858,999 since the inception of the loans), bringing the
derivative conversion option balance at December 31, 2004 to $3,844,356.
The aggregate note discount of $3,250,000 is being amortized over the one-year
and two-year lives of the respective debt instruments. Of this amount,
$279,115 was amortized during the fiscal year ended September 30, 2002,
$653,720 during the year ended September 30, 2003, $673,705 during the year
ended September 30, 2004 and $287,459 during the three months ended December
31, 2004, while $69,233 in convertible bond discount was transferred to equity
upon conversion of $93,130 in debt principal during the fiscal year ended
September 30, 2002, $52,340 upon conversion of $193,665 of debt principal
during the fiscal year ended September 30, 2003 and $28,571 upon conversion of
$218,115 of debt principal during the year ended September 30, 2004, resulting
in an unamortized convertible debt discount balance of $1,205,857 at December
31, 2004.
As of December 31, 2004, the Company was indebted for an aggregate of
$2,828,592, including $2,562,904 of principal and $265,688 of accrued interest
on these convertible debentures. To the extent debentures issued by the Company
are converted into shares of common stock, the Company will not be obligated to
repay the amounts converted.
<page>F-51
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 11. SHAREHOLDERS' EQUITY (DEFICIT)
The Company's authorized capital stock consists of 7,500,000,000 shares of
common stock, no par value per share, and 50,000,000 shares of preferred stock,
$1.00 par value per share. On July 29, 2004, the Board of Directors approved an
increase in the amount of common shares authorized from 1,000,000,000 to
7,500,000,000. Of the 50,000,000 authorized shares of preferred stock,
1,000,000 shares have been designated as Class A Preferred Stock and 1,000,000
shares have been designated as Class B Preferred Stock, and the remaining
48,000,000 shares are undesignated. As of December 31, 2004, there were
1,680,440,475 shares of the Company's common stock outstanding held by
approximately 800 holders of record and 215,865 shares of the Company's Class A
Preferred Stock outstanding held by one holder of record and no shares of Class
B Preferred Stock outstanding.
Each share of Class A Preferred Stock is entitled to 100 votes per share on all
matters presented to the Company's shareholders for action. The Class A
Preferred Stock does not have any liquidation preference, additional voting
rights, conversion rights, anti-dilution rights or any other preferential
rights.
Each share of Class B Preferred Stock is convertible into 10 shares of the
Company's common stock. The Class B Preferred Stock does not have any
liquidation preference, voting rights, other conversion rights, anti-dilution
rights or any other preferential rights.
<page>F-52
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 11. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
During the months October 2002 through July 2003, the Company issued 15,000,000
shares of its restricted common stock to a consultant in exchange for
promotional services valued at $65,000.
During the months October 2002 through September 2003, the Company issued
119,630,468 shares of its restricted common stock to a consultant for debt
reduction of $162,500 and accrued fees of $91,305.
During the months October 2002 through September 2003, the Company issued
103,778,301 of its common shares to an investor group in exchange for $193,665
principal value of convertible debt and $34,355 in accrued interest. In
conjunction with these transactions, $177,845 of the Company's beneficial
conversion option was also transferred to common stock, and $52,340 in
convertible note discounts was applied against common stock as a result of debt
conversion.
During the months November 2002 through May 2003, the Company issued
14,500,000 shares of its restricted common stock to consultants in exchange
for media services rendered of $49,000.
During the months November 2002 through September 2003, the Company issued
128,500,000 shares of its restricted common stock for cash of $180,000 in
private placements.
<page>F-53
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 11. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
During the months November 2002 through May 2003, the Company issued 2,500,000
in seven-year common stock warrants as part of a $500,000 12% convertible debt
issuance, exercisable at a per share price of $0.005. The warrants were
recorded at $9,816 and the debt at $490,184, based upon the relative fair
values of each, and a beneficial conversion option for an additional $490,184
was also recognized.
During the months November 2002 through January 2003, the Company issued
4,504,280 shares of its restricted common stock to its corporate officers in
exchange for a net reduction of debt of $183,542.
During the months December 2002 through September 2003, the Company issued
26,000,000 shares of its common stock to a convertible note holder in exchange
for $58,400 in debt reduction. In conjunction with these transactions, the
Company transferred a beneficial conversion option valued at $155,027 to
common stock.
In December 2002 and January 2003, the Company issued its advisory board
members 1,250,000 shares of its restricted common stock in exchange for
$12,500 in services.
In December 2002, the Company issued 750,000 shares of its restricted common
stock to staff consultants as a $7,500 bonus.
In January 2003, the Company received back 1,000,000 restricted common shares
held by a former director as collateral on a $75,000 loan and re-issued the
shares as interest (valued at $9,000). The $75,000 loan (previously recorded
as an addition to capital) was paid-off by and recorded as a new loan to the
Company's CEO and Secretary/Treasurer.
In May 2003, the Company issued 12,000,000 shares of its restricted common
stock to an outside accountant in exchange for $120,000 in accrued services
rendered.
During the months October 2003 through September 30, 2004, the Company issued
352,352,250 shares of common stock to a convertible note holder in exchange
for $218,115 in debt reduction and $49,008 in accrued interest. In conjunction
with these transactions, the Company transferred $327,172 in derivative
conversion option, net of $28,571 convertible debt discount to common stock.
During the months November 2003 through September 2004, the Company issued
156,625,000 shares of its restricted common stock to a consultant for debt
reduction of $163,575.
During the months October 2003 through August 2004, the Company issued
57,300,000 shares of its restricted common stock to three consultants for
services rendered of $78,400.
<page>F-54
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 11. SHAREHOLDERS' EQUITY (DEFICIT) (continued
During the months November 2003 through March 2004, the Company issued
74,670,000 shares of its common stock for $75,000 in cash.
In December 2003, the Company issued 15,845 convertible preferred A shares
to the President for a reduction $15,845 in accrued compensation.
In October 2003, $881,550 of beneficial conversion option (equity) was
re-characterized as derivative conversion option (debt).
During the months November 2003 through September 2004, the Company issued
7,000,000 in seven-year common stock warrants as part of a $2,000,000 12%
convertible debt issuance, exercisable at prices ranging from $0.002 to $0.005
per share through the date of exercise. The warrants were recorded at $9,447
and the debt at $1,990,553, based upon the relative fair values of each.
During November 2004, the Company issued 23,500,000 share of its restricted
common stock to a consultant for debt reduction of $11,000.
During November 2004 and December 2004, the Company issued 25,300,000 shares of
its restricted common stock to two consultants for $73,000 in services
rendered.
During the months October 2004 through December 2004, the Company issued
500,468,353 shares of common stock to convertible note holders in exchange
for $182,186 in debt reduction and $13,171 in accrued interest. In conjunction
with these transactions, the Company transferred $273,279 in derivative
conversion option to common stock.
NOTE 12. INCOME TAXES
Deferred income taxes consisted of the following at December 31, 2004:
Deferred tax asset, benefit
of net operating loss
carryforward $ 9,900,000
Valuation allowance (9,900,000)
-----------
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. During the three months ended
December 31, 2004, the deferred tax asset and valuation allowance were both
increased by $800,000.
The Company has approximately $24,300,000 in both federal and California net
operating loss carryforwards. The federal net operating loss carryforwards
expire as follows: $2,700,000 in the year 2012, $5,300,000 in 2018, $1,200,000
in 2019, $3,500,000 in 2020, $2,300,000 in 2021, $2,200,000 in 2022,
$2,100,000 in 2023, $4,200,000 in 2024 and $800,000 in 2025. The California
net operating loss carryforwards expire as follows: $2,700,000 in the year
2004, $5,300,000 in 2005, $1,200,000 in 2006, $3,500,000 in 2007, $2,300,000
in 2013, $8,500,000 in 2014 and $800,000 in 2015.
<page>F-55
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 13. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into three employment agreements with key individuals,
the terms of the agreements are as follows:
1) The CEO (and President) of the Company entered into an agreement dated
October 2, 1995 (which was subsequently amended September 1, 1997, September
1, 1999, and March 27, 2000) for a period of five years (to April 1, 2005),
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 was 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, which, in turn, has subsequently been extended to
December 2, 2005.
2) The Secretary and Treasurer of the Company entered into an Agreement
dated October 2, 1995 (which was subsequently amended September 1, 1997,
September 1, 1999, and March 27, 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 was 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, which was subsequently extended to
December 2, 2005.
<page>F-56
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)
Employment agreements (continued)
3) The Chief Technical Officer of the Company entered into an agreement
dated August 1, 1998 for an initial term of three years (extended through
August 1, 2003 and again through January 19, 2009), 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). He was granted an option to
purchase up to 2,000,000 shares of the Company's restricted common stock at a
price equal to 60% of the average market value at the date of purchase that was
to vest if substantially all performance milestones were met. As of December
31, 2004, none of the aforementioned milestones had been successfully
completed. Furthermore, the stock option expired on December 31, 2004.
Litigation
There have been two recent legal proceedings to which the Company has been a
party:
In February 2002, the Company borrowed $340,000 from the Mercator Momentum
Fund ("Mercator") in order to make an initial $100,000 payment to Laurus
Master Fund, Ltd. and to fund continuing development of the Company's H-
Net(TM) system. This loan from Mercator was a short-term loan due May 15, 2002
and accrued interest at an annual rate of 18%. The loan was secured by shares
of the Company's common stock. As of June 13, 2002, the Company owed Mercator
approximately $243,000 of principal and accrued and unpaid interest under this
loan and was in default in the repayment of this debt.
<page>F-57
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
On June 14, 2002, Mercator transferred collateral in the form of 5,861,814
shares of the Company's common stock into its name as a result of the
Company's default on Mercator's loan. Of the 5,861,814 shares of common stock
transferred into the name of Mercator 3,500,000 shares of the Company's common
stock were issued and pledged as collateral by the Company in February 2002,
and 2,361,814 shares of the Company's common stock were issued and pledged as
collateral by Robert Spigno, the Company's Chief Executive Officer, in
February 2002.
On June 21, 2002 Mercator filed an action against the Company,
Robert A. Spigno and Patricia A. Spigno in the Superior Court of California,
County of Los Angeles (Case No. BC276283) for breach of promissory note,
foreclosure of security interests and fraud and deceit. Mr. Spigno is the
Chairman of the Board and a director of the Company and is also the Company's
Chief Executive Officer. Ms. Spigno is the Company's Secretary and Chief
Financial Officer. On July 3, 2002, Mercator filed a first amended complaint
in the Superior Court of California, County of Los Angeles (Case No. BC276283)
adding a claim of common count for money lent. In March 2004, the Company
settled its suit with Mercator for $150,000.
On or about August 18, 2004, Devon Investment Advisors, Ltd., or plaintiff,
filed a Complaint in the Arapahoe County District Court of the State of
Colorado against the Company. The complaint seeks repayment of
amounts allegedly loaned, plus interest and applicable attorneys' fees. As of
the date of this report, the Company has filed an Answer denying certain of
plaintiff's claims and asserting defenses to plaintiff's causes of action
alleged in the complaint, including a defense based on the expiration of the
applicable statue of limitations. The outcome of this action is presently
uncertain. However, at this time, the Company does not expect the defense or
outcome of this action to have a material adverse affect on its business,
financial condition or results of operations. As of the date of this report, a
trial date has been set for July 6, 2005.
<page>F-58
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
The Company, during its normal course of business, may be subject 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 14. FORM S-8 FILINGS
In November 2003, the Company filed a registration statement on Form S-8
covering 12,000,000 shares issued to an independent consultant to the Company,
which authorized the re-sale of the 12,000,000 shares of common stock valued at
$46,800.
In March 2004, the Company filed another registration statement on Form S-8
covering an additional 14,000,000 shares issued to the same independent
consultant valued at $36,400.
In September 2004, the Company filed a registration statement on Form S-8
covering 30,000,000 shares issued to the same independent consultant valued at
$33,000.
NOTE 15. STOCK OPTIONS AND WARRANTS
During the fiscal year ended September 30, 1999, the Company issued to a note
holder options to purchase 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share. As consideration, the Company
reduced its debt to the note holder by $50,000 and received an extension of
time to pay-off its promissory note. The Company also issued to its CEO
options to purchase another 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share in exchange for a reduction in
debt of $50,000. Total consideration received on the above issued options, as
evidenced by debt reduction, was $100,000. These options could be exercised
through November 1, 2002 and could also be converted into common stock at the
rate of 10 common shares for each Class B preferred share. In September 2001,
the exercise price on the Class B preferred stock options was adjusted to
$2.50 per share and the exercise period extended to November 1, 2005. In June
2002, the exercise price on the Class B preferred stock options was adjusted to
$0.50 per share. In January 2004, the exercise price on the Class B preferred
stock options was adjusted to $0.05 per share and the exercise period extended
to November 1, 2009.
<page>F-59
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 15. STOCK OPTIONS AND WARRANTS (continued)
The Company has granted various common stock options and warrants to employees
and consultants. Generally, the options and warrants were granted at
approximately the fair market value of the Company's common stock at the date
of grant and vested immediately, except that when restricted rule 144 common
stock was issued, the options and warrants were granted at an average
discount to market of 50% (ranging from between 20% to 75%).
The Company accounts for stock-based compensation under the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25. Accordingly,
compensation expense for common stock options and warrants issued to employees
for services have been recorded as the difference between the intrinsic value
of those services as measured by the (discounted) market value of the common
stock at the date of grant and the exercise price, with pro forma disclosure of
the excess market value as required by SFAS No. 123. No common stock options
or warrants were granted to employees (including officers) and directors of the
Company during the three months ended December 31, 2004 or 2003.
All common stock options and warrants issued to consultants and other non-
employees have been recorded at the fair value of the services rendered and
equivalent to the market value (as discounted, if applicable) of the equity
instruments received as per SFAS No. 123. The market value was determined by
utilizing an averaging convention of between 5 to 30 days of the closing price
of the Company's common shares as traded on the OTC Bulletin Board (stock
symbol CNES) through the grant date and applying certain mathematical
assumptions as required under the Black-Scholes valuation model. Such
assumptions, pertaining to the risk-free annual rate of return and stock
volatility, were generally the same as those mentioned above when making fair
value disclosures for the issuance of officer and employee stock options,
except that the risk-free annual rate of return during the latter half of
fiscal 2001 and thereafter was assumed to be 5% (rather than 6%) due to the
general decline of interest rates.
At September 30, 2002, the Company had an aggregate of 8,807,154 common stock
options and a total of 1,000,000 Class B preferred stock options recorded as
additional paid-in capital at a value of $1,443,695. Of the common stock
options and warrants, 2,043,654
<page>F-60
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 15. STOCK OPTIONS AND WARRANTS (continued)
had been issued to officers and employees and the remaining 6,763,500 had been
issued to consultants and investors.
In November 2002 through May 2003, 2,500,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $500,000 12%
convertible debenture financing arrangement (see Note 10 above). The
allocated cost of these warrants amounted to $9,816, resulting in a recorded
balance of stock options and warrants exercisable at September 30, 2003 of
$1,453,511 (including $100,000 attributable to 1,000,000 Class B preferred
stock options noted above).
As of September 30, 2003, the Company had an additional 4,852,205 common stock
options that had been granted to consultants and investors at exercise prices
ranging from $0.50 to $2.00 per share, expiring from November 1, 2003 through
January 16, 2005. Because these strike prices were substantially above the
market price of the Company's common stock, no value was attributed to these
options at the time of grant. During the year ended December 31, 2004,
4,352,205 of these non-valued options expired, leaving a balance at September
30, 2004 of 500,000 options, exercisable at $1.00 per share and expiring
January 16, 2005. The Company also granted a contingent issuance to its Chief
Technical Officer of 2,000,000 common stock options exercisable at $0.50 per
share, which expired on December 31, 2004, and which would not have vested
until certain milestones had been attained. These respective common stock
options and contingent issuances have been excluded from the summarized table
below.
In November 2003 through December 2003, 1,000,000 seven-year common stock
warrants were issued to an accredited investor group in connection with a
$200,000 12% convertible debenture financing arrangement (see Note 10 above).
The allocated cost of these warrants amounted to $945.
In February 2004 and March 2004, 1,500,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $300,000 12%
convertible debenture financing arrangement (see Note 10 above). The
allocated cost of these warrants amounted to $1,417.
In April 2004, 750,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $250,000 12%
convertible debenture financing arrangement (see Note 10 above). The
allocated cost of these warrants amounted to $1,181.
In June 2004, 1,875,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $625,000 12%
convertible debenture financing arrangement (see Note 10 above). The
allocated cost of these warrants amounted to $2,952.
In September 2004, 1,875,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $625,000 12%
convertible debenture financing arrangement (see Note 10 above). The
allocated cost of these warrants amounted to $2,952, resulting in a recorded
balance of stock options and warrants exercisable at December 31, 2004 of
$1,462,958 (including $100,000 attributable to 1,000,000 Class B preferred
stock options noted above).
<page>F-61
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
NOTE 15. STOCK OPTIONS AND WARRANTS (continued)
The common stock option activity during the fiscal year ended September
30, 2004 and the three months ended December 31, 2004 is summarized
as follows:
Common Stock Weighted
Options Average
and Exercise
Warrants Price
---------- --------
Balance outstanding, October 1, 2003 11,307,154 $.204
Granted 7,000,000 .003
Expired 563,500 2.00
---------- -----
Balance outstanding, September 30, 2004 17,743,654 $.068
Expired 100,000 .380
---------- -----
Balance outstanding, December 31, 2004 17,643,654 .066
========== =====
The following table summarizes information about common stock options at
December 31, 2004:
Outstanding Exercisable
Weighted Weighted Weighted
Range of Common Average Average Common Average
Exercise Stock Life Exercise Stock Exercise
Prices Options (Months) Price Options Price
- --------------- --------- ------- -------- ---------- -------
$ .192 - $ .192 1,000,000 3 $ .192 1,000,000 $ .192
$ .001 - $ .001 3,750,000 4 $ .001 3,750,000 $ .001
$ .130 - $ .130 1,450,000 8 $ .130 1,450,000 $ .130
$ .386 - $ .386 1,443,654 11 $ .386 1,443,654 $ .386
$ .380 - $ .380 500,000 11 $ .380 500,000 $ .380
$ .002 - $ .002 2,500,000 61 $ .005 2,500,000 $ .005
$ .002 - $ .002 500,000 71 $ .005 500,000 $ .005
$ .002 - $ .002 250,000 71 $ .005 250,000 $ .005
$ .002 - $ .005 250,000 71 $ .005 250,000 $ .005
$ .002 - $ .005 250,000 72 $ .005 250,000 $ .005
$ .002 - $ .005 1,250,000 74 $ .005 1,250,000 $ .005
$ .002 - $ .005 750,000 76 $ .002 750,000 $ .002
$ .002 - $ .005 1,875,000 78 $ .002 1,875,000 $ .002
$ .002 - $ .005 1,875,000 80 $ .002 1,875,000 $ .002
$ .001 - $0.386 17,643,654 42 $ .066 17,643,654 $ .066
=============== ========== == ======== ========== =======
NOTE 16. SUBSEQUENT EVENTS
(a) Subsequent to December 31, 2004, the Company issued 388,199,753 shares of
common stock through January 26, 2005 in exchange for reduction of $318,031 in
convertible debt and accrued interest.
<page>F-62
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. We intend that those forward-looking statements be subject to the
safe harbors created by those sections. These forward- looking statements
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance, and
can generally be identified by the use of the words "believe," "intend,"
"plan," "expect," "forecast," "project," "may," "should," "could," "seek," "pro
forma," "estimates," "continues," "anticipate" and similar words. The forward-
looking statements and associated risks may include, relate to, or be qualified
by other important factors, including, without limitation:
o our ability to obtain FCC approval of our H-Net(TM) wireless meter reading
product;
o the projected growth in the automated meter reading markets;
o our business strategy for establishing and expanding our presence in
these markets;
o our ability to successfully implement our business plans;
o our ability to hire and retain qualified personnel;
o anticipated trends in our financial condition and results of operations;
o our ability to distinguish ourselves from our competitors; and
o uncertainties relating to economic conditions in the markets in which we
currently operate and in which we intend to operate in the future.
These forward-looking statements necessarily depend upon assumptions and
estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the forward-
looking statements. We do not undertake to update, revise or correct any
forward-looking statements.
Any of the factors described above or in the "Risk Factors" section of our
most recent annual report on Form 10-KSB could cause our financial results,
including our net income (loss) or growth in net income (loss) to differ
materially from prior results, which in turn could, among other things, cause
the price of our common stock to fluctuate substantially.
Overview
Since 1995, we have been engaged in the development of a low-cost automatic
meter reading, or AMR, solution. We have developed a low-cost AMR solution that
includes a proprietary system employing specialized hardware and software that
will allow for residential and commercial applications. Our proprietary system
is called H-Net(TM), which is a trademark of ConectiSys.
We are currently developing our H-Net(TM) 5.0 wireless meter reading product
which is designed to increase the data transmission range of our H-Net(TM)
system over the data transmission range of our existing H-Net(TM) 4.0 product.
The development of our H-Net(TM) 5.0 product is also directed at curing certain
radio frequency interference experienced in our H-Net(TM) 4.0 product. In
August 2004, we submitted to the FCC our H-Net(TM) 5.0 wireless meter reading
product for approval for commercialization and sale and received FCC
certification for this product in November 2004. In December 2004, we submitted
to the FCC our H-Net(TM) BaseStation for approval for commercialization and
sale. We expect that this approval by the FCC will occur within approximately
60 days following submission to the FCC of our H-Net(TM) BaseStation, but no
<page>2
assurances can be made that this approval will be obtained or that it will not
be delayed. Once FCC approval is obtained, we expect that our wireless meter
reading products will be ready for full- scale commercial production.
We have not yet sold any H-Net(TM) systems and we do not expect any
significant sales of our H-Net(TM) systems until after FCC approval is
obtained. Accordingly, we have not earned any significant revenues from the
sale of our H-Net(TM) system. We have no history of revenues and have incurred
significant losses since the beginning of the development of our H-Net(TM)
system. We have a significant accumulated deficit and negative working capital.
As a result of our financial condition, our independent auditors have issued a
report questioning our ability to continue as a going concern.
Critical Accounting Policies and Estimates
The following discussion and analysis is based upon our financial
statements, which have been prepared using accounting principles generally
accepted in the United States of America. The preparation of our financial
statements requires management to make estimates and assumptions that affect
the reported amounts of revenue and expenses, and assets and liabilities,
during the periods reported. Estimates are used when accounting for certain
items such as depreciation, likelihood of realization of certain assets,
employee compensation programs and valuation of intangible assets. We base our
estimates on historical experience and other assumptions that we believe are
reasonable under the circumstances. Actual results may differ from our
estimates.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements. We have based our financial statements on the assumption of our
operations continuing as a going concern. As a result, we continue to
depreciate fixed assets and show certain debts as long-term. We have written-
off the value of technology in prior periods because the realization of that
value was doubtful. Our compensation of consultants and employees with our
capital stock is recorded at estimated market value. The volatile nature of the
price of our common stock causes wide disparities in certain valuations.
Results of Operations
Comparison of Results of Operations for the Three Months Ended December 31,
2004 and 2003
We did not generate any revenues for the three months ended December 31,
2004 and December 31, 2003. Cost of goods sold for the three months ended
December 31, 2004 was $61,962 as compared to $0 for the three months ended
December 31, 2003, an increase of $61,962. This increase in cost of sales
primarily was due to an increase in production of models and prototypes of our
H-Net(TM) products that are used for sales and marketing purposes.
General and administrative expenses increased by $173,231, or 94%, to
$357,039 for the three months ended December 31, 2004 as compared to $183,808
for the same period in 2003. This increase was primarily due to increased
expenses associated with legal and consulting services.
Interest expense decreased by $424,057, or 52%, to $385,265 during the
three months ended December 31, 2004 as compared to $809,322 for the same
period in 2003. This decrease was primarily attributable to the mark to market
of the derivative conversion option in the amount of approximately $663,000
associated with aggregate convertible debt issued during the quarter ended
December 31, 2003 and before, net of approximately $240,000 in additional
prepaid interest and convertible debt discount amortization during the current
quarter. No new convertible debt was issued during the quarter ended December
31, 2004.
<page>3
Net loss for the three months ended December 31, 2004 decreased by
$338,864, or 30%, to $804,266 as compared to a net loss of $1,143,130 for the
same period in 2003. The decrease in net loss primarily resulted from decreased
interest expense, which was partially offset by increased general and
administrative expenses, as discussed above.
Liquidity and Capital Resources
During the three months ended December 31, 2004, we financed our operations
solely from cash on hand and through private placements of securities. We are
currently developing our H-Net(TM) 5.0 wireless meter reading product. In
August 2004, we submitted to the FCC our H-Net(TM) 5.0 wireless meter reading
product for approval for commercialization and sale and received FCC
certification for this product in November 2004. In December 2004, we submitted
to the FCC our H-Net(TM) BaseStation for approval for commercialization and
sale. We expect that this approval by the FCC will occur within approximately
60 days following submission to the FCC of our H-Net(TM) BaseStation, but no
assurances can be made that this approval will be obtained or that it will not
be delayed.
We have not yet sold any H-Net(TM) systems and we do not expect any
significant sales of our H-Net(TM) systems until after FCC approval is
obtained. Accordingly, we have not earned any significant revenues from the
sale of our H-Net(TM) systems. We have no history of revenues and have incurred
significant losses since the beginning of the development of our H-Net(TM)
system. We have a significant accumulated deficit and negative working capital.
As a result of our financial condition, our independent auditors have issued a
report questioning our ability to continue as a going concern. Our consolidated
financial statements as of and for the years ended September 30, 2004 and 2003
have been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business.
As of December 31, 2004, we had a working capital deficit of approximately
$4.4 million and an accumulated deficit of approximately $30.3 million. As of
that date, we had approximately $192,000 in cash and cash equivalents. We had
accounts payable and accrued compensation expenses of approximately $1.8
million. We had other current liabilities, including amounts due to officers,
accrued interest, notes payable and current portion of long term debt of
approximately $3.0 million, including those issued prior to the beginning of
fiscal year 2004. To the extent convertible debentures or promissory notes that
we have issued are converted into shares of common stock, we will not be
obligated to repay the converted amounts.
Cash used in our operating activities totaled approximately $350,000 for
the three months ended December 31, 2004 as compared to approximately $152,000
for the three months ended December 31, 2003. No cash was used in or provided
by our investing activities in the three months ended December 31, 2004 or
2003.
<page>4
Cash used in our financing activities totaled approximately $7,000 for the
three months ended December 31, 2004 as compared to cash provided by our
financing activities of approximately $237,000 for the three months ended
December 31, 2003. We raised all of the cash provided by our financing
activities during the three months ended December 31, 2004 and 2003 from the
issuance of common stock, convertible debentures and/or promissory notes.
As of the following dates, we were in default in the repayment of principal
and interest in the corresponding amounts set forth below on our secured
convertible debentures due as of those dates:
Principal Current
Amount ($) Principal
Default Date at Default Date Amount ($)
------------ --------------- -----------
March 29, 2003.....$ 114,000 $ -
May 10, 2003....... 150,000 -
June 17, 2003...... 300,000 -
November 27, 2003.. 200,000 -
March 3, 2004...... 123,000 116,000
May 12, 2004....... 150,000 150,000
November 25, 2004.. 100,000 100,000
December 3, 2004... 50,000 50,000
December 31, 2004.. 50,000 50,000
Total: $ 1,237,000 $ 466,000
============ ===========
As of February 15, 2005, each of these defaults, other than with respect to
payment of principal amounts which have been paid subsequent to the
corresponding default date, was continuing and we were in payment default under
convertible debentures in the aggregate principal amount of approximately
$466,000 plus related interest on those debentures. As of that date, we also
were in default under our obligations to register for resale shares of our
common stock underlying certain of our outstanding convertible debentures. In
addition, as of that date, we also were in default under our obligations to
make quarterly interest payments under all of our outstanding convertible
debentures issued prior to our convertible debentures issued in April 2004. As
of February 15, 2005, as a result of the above defaults, the holders of our
secured convertible debentures were entitled to pursue their rights to
foreclose upon their security interest in all of our assets. However, as of
that date, we were not aware of any action taken by the holders of our secured
convertible debentures to pursue such rights, and as of that date we also were
not aware of any other legal or similar action taken by those holders to
enforce their rights or as a result of our defaults under those secured
convertible debentures.
We plan to register for resale with the Securities and Exchange Commission
a portion of the shares of common stock underlying the convertible debentures
under which we are in default and expect that the convertible debentures
ultimately will be converted into shares of our common stock and that we
therefore will not be obligated to repay the outstanding principal and accrued
and unpaid interest amounts on those debentures.
<page>5
As of February 15, 2005, we had issued the following secured convertible
debentures, which provide for interest at the rate of 12% per annum, and
warrants to purchase common stock to various accredited inventors in connection
with debenture offering transactions:
<table>
Original Net Remaining Accrued and Warrants
Principal Proceeds to Principal Unpaid Issued in
Issuance Date Amount ($) ConectiSys($)(1) Amount ($) Interest($)(2) Offering (#)
- --------------- ---------- ---------------- ---------- -------------- ------------
March 29, 2002 $ 300,000 $ 225,000 $ - $ 27,300 1,500,000
May 10, 2002 150,000 125,000 - 36,000 750,000
June 17, 2002 300,000 238,000 - 72,500 1,500,000
November 27, 2002 200,000 144,000 - - 1,000,000
March 3, 2003 150,000 100,000 116,000 27,200 750,000
May 12, 2003 150,000 100,000 150,000 31,800 750,000
November 25, 2003 100,000 75,000 100,000 14,700 500,000
December 3, 2003 50,000 31,000 50,000 7,200 250,000
December 31, 2003 50,000 31,000 50,000 6,800 250,000
February 18, 2004 50,000 35,000 50,000 6,000 250,000
March 4, 2004 250,000 203,000 250,000 28,600 1,250,000
April 19, 2004 250,000 165,000 191,000 - 750,000
June 30, 2004 625,000 452,000 625,000 - 1,875,000
September 9, 2004 625,000 482,000 625,000 - 1,875,000
---------- ---------- ---------- ---------- ----------
Total: $3,250,000 $2,420,000 $2,207,000 $ 257,600 13,250,000
========== ========== ========== ========== ==========
</table> __________________
(1) Amounts are approximate and represent net proceeds after deducting
expenses incurred in connection with the offering as well as expenses
for legal fees incurred in connection with preparation of reports and
statements filed with the Securities and Exchange Commission. Amounts
for April, June and September 2004 offerings also represent net
proceeds after deducting one year of interest paid in advance in the
amounts of $30,000, $75,000 and $75,000, respectively.
(2) Amounts are approximate and represent accrued and unpaid interest
outstanding as of February 15, 2005. The total amount of accrued and
unpaid interest does not account for approximately $80,800 of
outstanding pre-paid interest.
Each of the above secured convertible debentures, except for the
convertible debentures issued in April, June and September 2004, are due one
year following their respective issuance dates. The convertible debentures
issued in April, June and September 2004 are due two years following their
respective issuance dates. The conversion price of our secured convertible
debentures is the lower of 40% of the average of the three lowest intra-day
trading prices of a share of our common stock on the OTC Bulletin
Board(R)during the twenty trading days immediately preceding the conversion
date, and either (a) $.06 for the March, May and June 2002 convertible
debentures, (b) $.01 for the November 2002, March and May 2003 convertible
debentures, or (c) $.005 for the November and December 2003 and the February,
March, April, June and September 2004 convertible debentures. As of February
15, 2005, the applicable conversion price was approximately $.0009 per share.
In October 2003, in consideration for certain bridge financing which later
<page>6
As of February 15, 2005, we had a loan outstanding and due on demand in an
amount equal to approximately $7,400. This loan accrues interest at an annual
rate of 18% and was made by Robert Spigno, our President and Chief Executive
Officer and a member of our board of directors. As of that date we also had a
loan outstanding and due on demand in an amount equal to approximately $22,000.
This loan accrues interest at an annual rate of 18% and was made by Patricia
Spigno, our Chief Financial Officer and Secretary.
As of February 15, 2005, we had a promissory note outstanding and due
September 1, 2005, payable in the approximate amount of $184,000. This note
bears interest at an annual rate of 18%.
Our continued operations are dependent on securing additional sources of
liquidity through debt and/or equity financing.
As indicated above, our consolidated financial statements as of and for the
years ended September 30, 2004 and 2003 have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As discussed in this document and
in Note 1 to our consolidated financial statements for the years ended
September 30, 2004 and 2003 included in this report, we have suffered recurring
losses from operations and at September 30, 2004 had substantial net capital
and working capital deficiencies. These factors, among others, raised
substantial doubt about our ability to continue as a going concern and led our
independent certified public accountants to modify their unqualified report to
include an explanatory paragraph related to our ability to continue as a going
concern. The consolidated financial statements included in this document do not
include any adjustments that might result from the outcome of this uncertainty.
We have been, and currently are, working toward identifying and obtaining
new sources of financing. Our current convertible debenture investors have
provided us with an aggregate of $3,250,000 in financing to date. No assurances
can be given that they will provide any additional financing in the future. Our
current secured convertible debenture financing documents contain notice and
right of first refusal provisions and the grant of a security interest in
substantially all of our assets in favor of the convertible debenture
investors, all of which provisions will restrict our ability to obtain debt
and/or equity financing from any investor other than our current investors.
Any future financing that we may obtain may cause significant dilution to
existing stockholders. Any debt financing or other financing of securities
senior to common stock that we are able to obtain will likely include financial
and other covenants that will restrict our flexibility. At a minimum, we expect
these covenants to include restrictions on our ability to pay dividends on our
common stock. Any failure to comply with these covenants would have a material
adverse effect on our business, prospects, financial condition, results of
operations and cash flows.
If adequate funds are not available, we may be required to delay, scale
back or eliminate portions of our operations and product and service
development efforts or to obtain funds through arrangements with strategic
partners or others that may require us to relinquish rights to certain of our
technologies or potential products or other assets. Accordingly, the inability
to obtain such financing could result in a significant loss of ownership and/or
control of our proprietary technology and other important assets and could also
adversely affect our ability to fund our continued operations and our product
and service development efforts that historically have contributed
significantly to our competitiveness.
We have not yet sold any H-Net(TM) systems and we do not expect any
significant sales of our H-Net(TM) systems until after FCC approval of our H-
Net(TM) BaseStation is obtained. We expect that this approval will be obtained
by February 2004, but no assurances can be made that this approval will be
obtained or that it will not be delayed. Once FCC approval is obtained, we
<page>7
expect that our H-Net(TM) products will be ready for full- scale commercial
production. We believe that if we are successful in deploying our H-Net(TM)
system, we will begin to generate revenues from our business activities.
Effect of Inflation
Inflation did not have any significant effect on the operations of the
Company during the quarter ended December 31, 2004. Further, inflation is not
expected to have any significant effect on future operations of the Company.
Impact of New Accounting Pronouncements
The Financial Accounting Standards Board, or FASB, has established new
accounting pronouncements. We do not expect the adoption of these
pronouncements to have a material impact on our financial position, results of
operations or cash flows. This includes Statement of Financial Accounting
Standards, or SFAS, No. 144, "Accounting for Impairment and Disposal of Long-
Lived Assets."
In January 2003, the FASB issued FASB Interpretation, or FIN, No. 46,
"Consolidation of Variable Interest Entities." FIN No. 46 clarified the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," and applies immediately to any variable interest entities created
after January 31, 2003 and to variable interest entities in which an interest
is obtained after that date. We hold no interest in variable interest
entities.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies the
accounting and reporting for derivative instruments, including certain
derivative instruments imbedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In particular, SFAS No. 149 clarifies under what circumstances a
contract with an initial net investment met the characteristic of a derivative
as described in SFAS No. 133. SFAS No. 149 also clarifies when a derivative
contains a financing component. SFAS No. 149 is generally effective for
derivative instruments entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. We hold no derivative
instruments and we do not engage in hedging activities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS No. 150 requires certain financial instruments that have both equity and
liability characteristics to be classified as a liability on the balance sheet.
SFAS No. 150 is effective for the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on our
consolidated financial statements.
In December 2003, the FASB issued a revised Interpretation No. 46,
"Consolidation of Variable Interest Entities." The interpretation clarifies
the application of "Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain types of variable interest entities. We do
not expect the adoption of this interpretation to have any impact on our
financial statements.
ITEM 3. CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have
concluded, based on their evaluations as of December 31, 2004 (the "Evaluation
Date"), that the design and operation of our "disclosure controls and
procedures" (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended ("Exchange Act")) are effective to ensure that
information required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is accumulated, recorded, processed, summarized and
<page>8
reported to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding whether
or not disclosure is required.
There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
Evaluation Date, nor were there any significant deficiencies or material
weaknesses in our internal controls. As a result, no corrective actions were
required or undertaken.
<page>9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On or about August 18, 2004, Devon Investment Advisors, Ltd., or plaintiff,
filed a Complaint in the Arapahoe County District Court of the State of
Colorado against ConectiSys Corporation. The complaint seeks repayment of
amounts allegedly loaned, plus interest and applicable attorneys' fees. As of
the date of this report, we have filed an Answer denying certain of plaintiff's
claims and asserting defenses to plaintiff's causes of action alleged in the
complaint, including a defense based on the expiration of the applicable statue
of limitations. The outcome of this action is presently uncertain. However, at
this time, we do not expect the defense or outcome of this action to have a
material adverse affect on our business, financial condition or results of
operations. As of the date of this report, a trial date has been set for July
6, 2005.
Except as provided above, we are not a party to any material pending legal
proceedings. We are subject to legal proceedings, claims and litigation arising
in the ordinary course of business. While the amounts claimed may be
substantial, the ultimate liability cannot presently be determined because of
considerable uncertainties that exist. Therefore, it is possible the outcome of
such legal proceedings, claims and litigation could have a material effect on
quarterly or annual operating results or cash flows when resolved in a future
period. However, based on facts currently available, management believes such
matters will not have a material adverse effect on our financial position,
results of operations or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In October 2004, we issued an aggregate of 62,139,237 shares of common
stock to four accredited investors upon conversion of an aggregate of
approximately $14,500 in principal and related interest on our convertible
debentures.
In November 2004, we issued 23,500,000 shares of common stock to a creditor
in consideration for a reduction in debt in the amount of $11,000.
In November 2004, we issued 5,300,000 shares of common stock valued at
$53,000 to a consultant for services rendered.
In November 2004, we issued an aggregate of 83,488,963 shares of common
stock to four accredited investors upon conversion of an aggregate of
approximately $20,500 in principal and related interest on our convertible
debentures.
In December 2004, we issued 20,000,000 shares of common stock valued at
$20,000 to a consultant for services rendered.
In December 2004, we issued an aggregate of 354,840,153 shares of common
stock to four accredited investors upon conversion of an aggregate of $147,200
in principal and related interest on our convertible debentures.
The issuances of our securities described above were made in reliance upon
the exemption from registration available under Section 4(2) of the Securities
Act of 1933, as amended, as transactions not involving a public offering. This
exemption was claimed on the basis that these transactions did not involve any
public offering and the purchasers in each offering were sophisticated and had
sufficient access to the kind of information registration would provide,
including our most recent Annual Report on Form 10-KSB and our most recent
Quarterly Report on Form 10-QSB.
<page>10
Dividend Policy
We have never paid cash dividends on our common stock and do not currently
intend to pay cash dividends on our common stock in the foreseeable future. We
are restricted from paying dividends on our common stock under state law, and
the terms of our secured convertible debentures. We currently anticipate that
we will retain any earnings for use in the continued development of our
business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of the following dates, we were in default in the repayment of principal
and interest in the corresponding amounts set forth below on our secured
convertible debentures due as of those dates:
Principal Current
Amount ($) Principal
Default Date at Default Date Amount ($)
------------ --------------- -----------
March 29, 2003.....$ 114,000 $ -
May 10, 2003....... 150,000 -
June 17, 2003...... 300,000 -
November 27, 2003.. 200,000 -
March 3, 2004...... 123,000 116,000
May 12, 2004....... 150,000 150,000
November 25, 2004.. 100,000 100,000
December 3, 2004... 50,000 50,000
December 31, 2004.. 50,000 50,000
Total: $ 1,237,000 $ 466,000
============ ===========
As of February 15, 2005, each of these defaults, other than with respect to
payment of principal amounts which have been paid subsequent to the
corresponding default date, was continuing and we were in payment default under
convertible debentures in the aggregate principal amount of approximately
$466,000 plus related interest on those debentures. As of that date, we also
were in default under our obligations to register for resale shares of our
common stock underlying certain of our outstanding convertible debentures. In
addition, as of that date, we also were in default under our obligations to
make quarterly interest payments under all of our outstanding convertible
debentures issued prior to our convertible debentures issued in April 2004. As
of February 15, 2005, as a result of the above defaults, the holders of our
secured convertible debentures were entitled to pursue their rights to
foreclose upon their security interest in all of our assets. However, as of
that date, we were not aware of any action taken by the holders of our secured
convertible debentures to pursue such rights, and as of that date we also were
not aware of any other legal or similar action taken by those holders to
enforce their rights or as a result of our defaults under those secured
convertible debentures.
We plan to register for resale with the Securities and Exchange Commission
a portion of the shares of common stock underlying the convertible debentures
under which we are in default and expect that the convertible debentures
ultimately will be converted into shares of our common stock and that we
therefore will not be obligated to repay the outstanding principal and accrued
and unpaid interest amounts on those debentures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended December 31, 2004, no matters were submitted to a
vote of the holders of our securities.
<page>11
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits
Exhibit No. Description
- ----------- -----------
31 Certifications Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
<page>12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CONECTISYS CORPORATION
Date: February 18, 2005 By: /s/ ROBERT A. SPIGNO
----------------------
Robert A. Spigno,
Chairman of the Board,
President and
Chief Executive Officer
(principal executive officer)
Date: February 18, 2005 By: /s/ PATRICIA A. SPIGNO
------------------------
Patricia A. Spigno,
Chief Financial Officer
and Secretary
(principal financial and
accounting officer)
<page>13
EXHIBITS FILED WITH THIS REPORT ON FORM 10-QSB
Exhibit No. Description
- ----------- -----------
31 Certifications Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
<page>14