<pre>
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2005 or
[ ] 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 May 12, 2005, there were 4,745,769,453 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
March 31, 2005 (unaudited)........................................F-1
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended March 31, 2005 (unaudited) and 2004
(unaudited) and the Cumulative Period From December 31, 1990
(Inception) Through March 31, 2005 (unaudited)....................F-3
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Cumulative Period From
December 31, 1990 (Inception) Through March 31, 2005 (unaudited)..F-4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 2005 (unaudited) and 2004 (unaudited) and
the Cumulative Period From December 31, 1990 (Inception) Through
March 31, 2005 (unaudited)........................................F-13
Notes to Condensed Consolidated Financial Statements (unaudited)....F-15
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....................................................9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........9
Item 3. Defaults Upon Senior Securities......................................10
Item 4. Submission of Matters to a Vote of Security Holders..................11
Item 5. Other Information....................................................11
Item 6. Exhibits.............................................................11
Signatures....................................................................12
Exhibits Filed with this Report on Form 10-QSB................................13
ITEM 1. FINANCIAL STATEMENTS.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
Mar. 31,
2005
Unaudited
-----------------
Assets
Current assets
Cash and cash equivalents $ 30,318
Due from officer 12,293
Prepaid expenses 127,241
----------------
Total current assets 169,852
Property and equipment, net of accumulated
depreciation of $334,444 10,473
Other assets
License and technology, net of accumulated
amortization of $421,478 0
Loan fees, net of accumulated
amortization of $442,932 66,255
----------------
Total assets $ 246,580
================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<page>F-1
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
Mar. 31,
2005
Unaudited
-----------------
Liabilities and shareholders' equity (deficit)
Current liabilities
Accounts payable $ 243,429
Accrued compensation 1,665,509
Due to officers 23,204
Accrued interest payable 492,569
Other current liabilities 2,875
Notes payable and current portion of
long-term debt 2,392,055
----------------
Total current liabilities 4,819,641
Long-term debt, net of current 251,500
----------------
Total liabilities 5,071,141
Shareholders' equity (deficit)
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; 3,788,747,661
shares issued and outstanding 24,963,828
Additional paid-in capital:
Convertible preferred stock - Class B $1.00 par
value, 1,000,000 stock options exercisable 100,000
Common stock, no par value 17,959,720 stock
Options and warrants exercisable 1,363,436
Accumulated gain (deficit) during development stage (31,467,690)
----------------
Total shareholders' equity (deficit) (4,824,561)
----------------
Total liabilities and shareholders' equity $ 246,580
================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<page>F-2
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months and Six Months Ended March 31, 2005 and 2004
And the Cumulative Period
From December 31, 1990 (Inception) Through March 31, 2005
<table> Dec. 1, 1990
(Inception)
Period
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended Through
Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
2005 2004 2005 2004 2005
Unaudited Unaudited Unaudited Unaudited Unaudited
----------------- ----------------- ----------------- ----------------- -------------
Revenues $ 0 $ 0 $ 0 $ 0 $ 517,460
Cost of goods sold 41,712 22,195 103,674 22,195 989,616
---------------- ---------------- ---------------- ---------------- ------------
Gross profit (41,712) (22,195) (103,674) (22,195) (472,156)
General and administrative 742,898 448,542 1,099,937 632,350 22,782,087
---------------- ---------------- ---------------- ---------------- ------------
Loss from operations (784,610) (470,737) (1,203,611) (654,545) (23,254,243)
Other income (expenses)
Settlement 0 0 0 (150,000) (125,000)
Other income 0 0 0 0 12,072
Interest income 0 0 0 0 102,924
Interest expense (364,949) (228,167) (730,214) (1,037,489) (5,908,340)
Write-off of intangible assets 0 0 0 0 (1,299,861)
Minority interest 0 0 0 0 62,500
---------------- ---------------- ---------------- ---------------- -----------
Net loss $ (1,149,559) $ (698,904) $ (1,933,825) $ (1,842,034) $ (30,409,948)
================ ================ ================ ================ ============
Weighted average shares outstanding 2,336,849,668 697,702,258 1,799,502,955 631,525,095
Net loss per share 0.00 0.00 0.00 0.00
The accompanying notes are an integral part of these condensed consolidated financial statements.
</table>
<page>F-3
<table>
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 March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Balance, Dec. 1, 1990
(re-entry
development stage) $ 0 $ 0 $ 10,609 $ 1,042,140 $ 0 $ 0 $(1,042,140) $ 0
Shares issued in exchange for:
Cash, Aug. 1993 0 0 1,000 1,000 0 0 0 1,000
Capital contribution,
Aug. 1993 0 0 2,000 515 0 0 0 515
Services, Mar. 1993 0 0 2,000 500 0 0 0 500
Services, Mar. 1993 0 0 1,200 600 0 0 0 600
Net loss for the year 0 0 0 0 0 0 (5,459) (5,459)
Balance, Sep. 30, 1993 0 0 16,809 1,044,755 0 0 (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1994 0 0 2,400 3,000 0 0 0 3,000
Cash, Sep. 1994 0 0 17,771 23,655 0 0 0 23,655
Services, Sep. 1994 0 0 8,700 11,614 0 0 0 11,614
Cash, Sep. 1994 0 0 3,000 15,000 0 0 0 15,000
Cash, Oct. 1994 16,345 A 16,345 0 0 0 0 0 16,345
Cash, Sep. and Oct. 1994 0 1,320 33,000 0 0 0 33,000
Net loss for the year 0 0 0 0 0 0 (32,544) (32,544)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, November
30, 1994 16,345 16,345 50,000 1,131,024 0 0 (1,080,143) 67,226
Shares issued in exchange for:
Cash, Feb. 1995 0 0 1,160 232,000 0 0 0 232,000
Debt repayment, Feb. 1995 0 0 2,040 408,000 0 0 0 408,000
Debt repayment, Feb. 1995 0 0 4,778 477,810 0 0 0 477,810
Acquisition of assets, CIPI
Feb. 1995 0 0 28,750 1,950,000 0 0 0 1,950,000
Acquisition of assets,
Apr. 1995 0 0 15,000 0 0 0 0 0
Cash and services, Apr.
and May 1995 0 0 16,000 800,000 0 0 0 800,000
Cash, Jun. 1995 0 0 500 30,000 0 0 0 30,000
Acquisition of assets and
services, Sep. 1995 0 0 4,000 200,000 0 0 0 200,000
Cash, Sep. 1995 0 0 41 3,000 0 0 0 3,000
Acquisition of assets,
Sep. 1995 0 0 35,000 1,750,000 0 0 0 1,750,000
Return of assets, CIPI
Sep. 1995 0 0 (27,700) (1,950,000) 0 0 0 (1,950,000)
Net loss for the year 0 0 0 0 0 0 (2,293,867) (2,293,867)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, November
30, 1995 16,345 16,345 129,569 5,031,834 0 0 (3,374,010) 1,674,169
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-4
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Cash, Feb. 1996 0 0 1,389 152,779 0 0 0 152,779
Debt repayment, Feb. 1996 0 0 10,000 612,000 0 0 0 612,000
Services, Feb. 1996 0 0 3,160 205,892 0 0 0 205,892
Cash, Mar. 1996 0 0 179 25,000 0 0 0 25,000
Shares returned and
canceled Mar. 1996 0 0 (15,000) 0 0 0 0 0
Services, Apr. 1996 0 0 13 2,069 0 0 0 2,069
Services, Sep. 1996 4,155 A 4,155 586 36,317 0 0 0 40,472
Services, Oct. 1996 0 0 6,540 327,000 0 0 0 327,000
Debt repayment, Nov. 1996 0 0 2,350 64,330 0 0 0 64,330
Net loss for the year 0 0 0 0 0 0 (2,238,933) (2,238,933)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1996 20,500 20,500 138,786 6,457,221 0 0 (5,612,943) 864,778
Shares issued in exchange for:
Services, Mar. 1997 0 0 228 6,879 0 0 0 6,879
Services, Apr. 1997 0 0 800 13,120 0 0 0 13,120
Services, Jul. 1997 0 0 1,500 16,200 0 0 0 16,200
Cash, Jul. 1997 0 0 15,000 300,000 0 0 0 300,000
Services, Aug. 1997 0 0 5,958 56,000 0 0 0 56,000
Adjustment for partial
shares due to reverse
stock split (1:20) 0 0 113 0 0 0
Services, Oct. 1997 0 0 1,469,666 587,865 0 587,865
Debt repayment, Oct. 1997 0 0 1,540,267 620,507 0 620,507
Cash, Oct. 1997 0 0 1,500,000 281,250 0 281,250
Services, Nov. 1997 0 0 4,950 10,538 0 10,538
Net loss for the year 0 0 0 0 (2,739,268) (2,739,268)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 20,500 20,500 4,677,268 8,349,580 (8,352,211) 17,869
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-5
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, Dec. 1997
through Nov. 1998 0 0 2,551,610 2,338,264 0 2,338,264
Debt repayment, Apr. 1998
through Sep. 1998 0 0 250,000 129,960 0 129,960
Cash, Jan. 1998 through
Jul. 1998 0 0 4,833,334 1,139,218 0 1,139,218
Acquisition of assets,
Jul. 1998 0 0 300,000 421,478 0 421,478
Acquisition of 20% minority
interest in subsidiary,
Jul. 1998 0 0 50,000 59,247 0 59,247
Services, Nov. 1998 60,000 A 60,000 0 0 0 60,000
Net loss for the year 0 0 0 0 (4,928,682) (4,928,682)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, 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
Dec. 1998 0 0 (1,350,000) (814,536) (814,536)
Services, Dec. 1998
through Sep. 1999 0 0 560,029 349,454 150,000 499,454
Cash, Dec. 1998
through Sep. 1999 0 0 1,155,800 129,537 129,537
Debt repayment, Sep. 1999 39,520 A 39,520 960,321 197,500 100,000 337,020
Net loss for the year 0 0 0 0 (1,323,831) (1,323,831)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 120,020 120,020 13,988,362 12,299,702 250,000 (14,604,724) (1,935,002)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-6
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, October 1999 through (17,500) (12,000) (12,000)
September 2000, valued from
$.025 to $0.80 per share 0 0 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 0 0 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 0 0 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 0 0 0 0 214,130 0 0 214,130
Reduction of exercise prices
on 2,600,000 officer and employee
common stock options, March 2000
to $0.38 and approx.$0.39
per share 0 0 0 0 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 0 0 0 0 65,000 65,000
Net loss for the year 0 0 0 0 0 0 (3,812,140) (3,812,140)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2000 140,020 140,020 23,527,738 16,187,421 1,235,005 (15,450) (18,416,864) (869,868)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-7
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, October 2000 through
September 2001 valued from
$0.11 to $0.40 per share 0 0 3,471,007 572,790 0 0 0 73,790
Retainers, debt and accrued
liabilities October 2000
through September 2001, valued
from $0.11 to $0.43 per share 0 0 3,688,989 487,121 0 0 0 487,121
Cash, October 2000 through
March 2001 with subscription
prices ranging from $0.075 to
$0.083 per share 0 0 1,045,500 78,787 0 0 0 78,787
Collection of stock subscription
receivable, October 2000
on 61,800 shares 0 0 0 0 0 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 0 0 400,000 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 0 0 0 0 77,228 0 0 77,228
Issuance of 2,000,000 consultant
stock options, September 2001
at a strike price of $0.13 per
share 0 0 0 0 115,000 0 0 115,000
Beneficial conversion options
April 2001 through September
2001, pertaining to $300,000
principal value and accrued
interest on 8% convertible debt 0 0 0 0 155,027 0 0 155,027
Net loss for the year 0 0 0 0 0 0 (2,154,567) (2,154,567)
---------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2001 140,020 140,020 32,133,234 17,412,119 1,530,260 0 (20,571,431) (1,489,032)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-8
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, October 2001 through
September 2002 valued from
$0.02 to $0.25 per share 0 0 2,180,000 179,916 0 0 0 179,916
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 0 0 0 488,563
Cash, October 2001 through
September 2002 with prices
ranging from $0.01 to $0.083
per share 0 0 5,833,334 200,000 0 0 0 200,000
Exercise of 550,000 common stock
options by a consultant at a
strike price of $0.13 per share
in exchange for debt 0 0 550,000 103,125 (31,625) 0 0 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 0 0 0 0 100,087 0 0 100,087
Beneficial conversion option
April 2002 through June 2002
pertaining to $750,000 principal
value of 12% convertible 0 0 0 0 649,913 0 0 649,913
Conversion of $93,130 principal
value of 12% convertible debt
along with $6,916 accrued
interest, net of $69,233
convertible debt discount 0 0 12,667,178 111,515 (80,702) 0 0 30,813
Net loss for the year 0 0 0 0 0 0 (2,346,732) (2,346,732)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2002 200,020 200,020 64,311,823 18,435,238 2,167,933 0 (22,918,163) (2,114,972)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-9
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, October 2002 through
September 2003 valued from
$0.0012 to $0.01 per share 0 0 31,500,000 134,000 0 0 0 134,000
Debt and accrued liabilities
October 2002 through September
2003 with common shares
valued from $0.001 to $0.0512
per share 0 0 162,134,748 704,774 (155,027) 0 0 549,747
Cash, October 2002 through
September 2003 with prices
ranging from $0.001 to $0.10
per share 0 0 128,500,000 180,000 0 0 0 180,000
Issuance of 2,500,000 warrants
November 2002 through
September 2003 at an exercise
price of $0.005 per share, in
conjunction with $500,000
principal value of 12%
convertible debt 0 0 0 0 9,816 0 0 9,816
Beneficial conversion option
October 2002 through June 2003
pertaining to $350,000 principal
value of 12% convertible 0 0 0 0 490,184 0 0 490,184
Conversion of $193,665 principal
value of 12% convertible debt
along with $34,335 accrued
interest, net of $52,340
convertible debt discount 0 0 103,778,301 353,525 (177,845) 0 0 175,680
Net loss for the year 0 0 0 0 0 0 (2,386,875) (2,386,875)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2003 200,020 200,020 490,224,872 19,807,537 2,335,061 0 (25,305,038) (2,962,420)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-10
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Services, October 2003 through
December 2003 valued from
$0.002 to $0.003 per share 15,845 15,845 57,300,000 78,400 0 0 0 94,245
Issuance of 13,750,000 warrants
November 2003 through
June 2004 at an exercise
price of $0.005 per share, in
conjunction with $1,375,000
principal value of 12%
convertible debt 0 0 0 0 9,447 0 0 9,447
Debt and accrued liabilities
November 2003 to September
2004 with common shares
valued from $0.001 to $0.0512
per share 0 0 156,625,000 163,575 0 0 0 163,575
Cash, October 2003 through
September 2004 with prices
of approximately $0.001 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 $881,550 of
convertible debt at
September 30, 2003 0 0 0 0 (881,550) 0 0 (881,550)
Conversion of $218,115 principal
value of 12% convertible debt
$327,172 of derivative
conversion option
along with $49,008 accrued
interest, net of $28,571
convertible debt discount 0 0 352,352,250 565,724 0 0 565,724
Net loss for the year 0 0 0 0 0 0 (4,228,827) (4,228,827)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2004 215,865 215,865 1,131,172,122 20,690,236 1,462,958 0 (29,533,865) (7,164,806)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-11
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period From December 1, 1990 (Inception) Through March 31, 2005
Preferred Stock Common Stock Additional Stock Total
Class A and B No Par Value Paid-in Subscription Accumulated Shareholders'
Shares Value Shares Value Capital Receivable Deficit Equity (Deficit)
---------------------- -------------------------- ---------- ------------- ---------- ---------------
Shares issued in exchange for:
Cash, January 2005 with a price
of $0.00125 per share 0 0 4,000,000 5,000 0 0 0 5,000
Debt and accrued liabilities
November 2004 to March
2005 with common shares
valued from $0.001 to $0.0512
per share 0 0 64,500,000 52,000 0 0 0 52,000
Services, October 2004 through
March 2005 valued from
$0.0012 to $0.01 per share 0 0 296,800,000 351,862 0 0 0 351,862
Issuance of 316,066 warrants
March 2005 at an exercise
price of $0.0039 per share, in
conjunction with $158,033
principal value of 12%
convertible debt 0 0 0 0 478 0 0 478
Conversion of $1,784,110 principal
value of 12% convertible debt,
$2,676,165 of derivative
conversion option along
with $39,356 accrued
interest, net of $634,901
convertible debt discount 0 0 2,292,275,539 3,864,730 0 0 3,864,730
Net loss for the period 0 0 0 0 0 0 (1,933,825) (1,933,825)
----------- ----------- --------------- ----------- ----------- ----------- ------------ -----------
Balance, March 31, 2005 215,865 $ 215,865 3,788,747,661 $24,963,828 $ 1,463,436 $ 0 $(31,467,690) $(4,824,561)
=========== =========== ============== =========== =========== =========== -=========== ===========
</table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<page>F-12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2005 and 2004
And the Cumulative Period
From December 31, 1990 (Inception) Through March 31, 2005
<table>
Dec. 1, 1990
(Inception)
Through
Mar. 31, Mar. 31, Mar. 31,
2005 2004 2005
Unaudited Unaudited Unaudited
----------------- ----------------- --------------------
Operating activities
Net income (loss) $ (1,933,825) $ (1,842,034) $ (30,389,948)
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 12,884 7,131 1,724,044
Derivative conversion option 0 815,620 1,572,705
Stock issued for services 351,862 69,245 7,951,035
Stock issued for interest 39,356 574,947
Settlements 0 0 (25,000)
Minority interest 0 0 (62,500)
Intangibles 0 0 1,299,861
Amortization of loan fees
and note discounts 686,581 303,398 2,897,858
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 0 0 (4,201)
Prepaid expenses 49,726 (90,000) 55,105
Interest receivable 0 0 (95,700)
Increase (decrease) in liabilities
Accounts payable (12,750) 6,934 1,020,759
Accrued compensation 207,273 217,774 2,787,526
Due to officers (19,853) (18,225) 686,949
Other current liabilities (16,794) 80,182 739,234
---------------- ---------------- ----------------
Net cash provided by (used by) operating activities (635,540) (449,975) (7,844,925)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-13
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2005 and 2004
And the Cumulative Period
From December 31, 1990 (Inception) Through March 31, 2005
Dec. 1, 1990
(Inception)
Through
Mar. 31, Mar. 31, Mar. 31,
2005 2004 2005
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 provided by (used by) investing activities 0 0 (1,628,291)
Financing activities
Common stock issued for cash 5,000 50,000 3,492,172
Stock warrants 478 2,362 197,056
Preferred stock issued for cash 0 16,345
Proceeds from stock purchase 0 0 281,250
Loan fees (32,000) (111,125) (549,187)
Proceeds from debts
Related party 0 0 206,544
Other 158,033 585,429 6,394,294
Payments on debt
Related party 0 (53,172)
Other (15,697) (35,704) (517,733)
Decrease in subscription receivable 0 0 35,450
Contributed capital 0 0 515
---------------- ---------------- ----------------
Net cash provided by (used by) financing activities 115,814 490,962 9,503,534
Net increase (decrease) in cash (519,726) 40,987 30,318
Cash beginning of period 550,044 2,282 0
---------------- ---------------- ----------------
Cash end of period $ 30,318 $ 43,269 $ 30,318
================ ================ ================
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-14
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2005 and 2004
And the Cumulative Period
From December 31, 1990 (Inception) Through March 31, 2005
Dec. 1, 1990
(Inception)
Through
Mar. 31, Mar. 31, Mar. 31,
2005 2004 2005
Unaudited Unaudited Unaudited
----------------- ----------------- -------------------
Cash paid during the year for
Interest 14,653 0 633,020
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 3,868,374 285,567 10,169,341
Service & interest 391,218 12,136 5,340,410
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 60,000 881,550
</table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<page>F-15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the year ended September 30, 2004.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for the fair presentation have been included. The results
for the three and six months ended March 31, 2005 do not necessarily indicate
the results that may be expected for the full year.
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.
<page>F-15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 March 31, 2005, the Company had 3,788,747,661 shares of common stock
outstanding. If all of 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 13,566,066
Common stock options - officers 1,943,654
Common stock options - other 2,450,000
-------------
Subtotal 27,959,720
Accrued officer compensation ($480,000),
convertible into common stock 69,602,215
Convertible note holder principal value
($1,119,013), accrued interest ($268,849)
less prepaid interest ($32,873),
assumed converted into common stock at
$0.0008 per share 1,693,736,250
-------------
Total potential common stock equivalents 1,791,298,185
<page>F-16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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:
Six Months Ended Six Months Ended
3/31/2005 3/31/2004
------------------ ------------------
Net loss, as reported $ (1,933,825) $ (1,842,034)
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 $ (1,933,825) $ (1,842,034)
<page>F-17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 2. GOING CONCERN UNCERTAINTY
As of March 31, 2005, the Company had a deficiency in working capital of
approximately $4,600,000 and had incurred continual net losses since its return
to the development stage in fiscal 1996, of approximately $31,000,000, 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. During the six
months ended March 31, 2005, the same investor group committed to advance the
Company and additional $1,400,000 payable in twelve monthly installments. In
March 2005, the Company received $158,033, including certain fees payable, in
connection with this additional financing. Over the longer- term, the Company
plans to achieve profitability through its operations from the sale and
licensing of its H-Net(TM) automatic meter-reading system. The accompanying
condensed 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-17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 3. PREPAID EXPENSES AND DEPOSITS
The Company has accrued a prepaid expense of $120,000 as a staying bonus for
its Chief Executive Officer and its Chief Financial Officer and Secretary as
per their employment contracts (see NOTE 5). The staying bonus is being
amortized over the calendar year 2005. For the year ended December 31, 2005,
$30,000 of this expense was amortized as officer salaries with a balance of
$90,000 at March 31, 2005.
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 7). 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, related to this
prepaid interest for a total of $37,192. The balances at September 30, 2004
were $16,438, $55,890 and $70,480 for total prepaid interest of $142,808.
During the six months ended March 31, 2005, an additional $6,264, $33,190 and
$37,398 were amortized, respectively, related to this prepaid interest for a
total of $76,852. The balances at March 31, 2005 were $10,174, $22,700 and
$32,873 for a total prepaid interest of $65,747. During the six months ended
March 31, 2005, the Company converted all convertible debentures relating to
the $10,174 and $22,700 prepaid balances. These amounts are being applied to
the remaining accrued and unpaid interest on other debentures. Total remaining
prepaid interest consisted of $32,873 at March 31, 2005
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. As of March 31, 2005, the balance in prepaid expenses was
$127,241.
<page>F-18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 4. 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 March 31, 2005 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-19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 4. 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.
<page>F-20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 4. LOAN FEES (continued)
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.
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 September 30, 2004 of $144,705. During the six months ended
March 31, 2005, total amortization of loan fees amounted to $109,792, leaving
an unamortized balance of $34,913.
In March 2005, the Company received another $158,033 from the above accredited
investor group in exchange for 8% 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 316,066 common stock warrants, exercisable over a seven-year period at
$0.002 per share. Loan fees associated with these loans amounted to $32,000,
consisting of $27,000 in finder's fees and $5,000 in legal costs. The Company
also paid $1,033 in prepaid interest.
There is no amortization on the new loan fees during the six months ended
March 31, 2005.
<page>F-21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 5. 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 September 30,
2004 to $7,805. During the six months ended March 31, 2005, the Company
repaid $1,954. Accrued interest during the period amounted to $660 and brought
the balance at March 31, 2005 to $6,511. The loan balance at March 31, 2005
is currently due on demand and continues to accrue interest at the rate of
18% per year.
<page>F-22
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 5. 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 September 30, 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 September 30, 2004 to $35,253.
During the six months ended March 31, 2005, the Company repaid $21,090.
Accrued interest during the period amounted to $2,530 and brought the balance
at March 31, 2005 to $16,693. The loan balance at March 31, 2005 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 March 31, 2005 to $12,293. The loan balance
at March 31, 2005 is currently due on demand and continues to accrue
interest at the rate of 18% per year.
<page>F-23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 5. DUE TO/FROM OFFICERS (continued)
The aggregate amount due officers at March 31, 2005 and September 30, 2004
was $10,911 and $30,765, respectively and interest expense on the officer
loans amounted to $3,190 for the six months ended March 31, 2005 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 $23,204 has been shown as due to officers at March 31, 2005.
As of March 31, 2005, the Company owed its officers $1,665,509 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 171,428,571 at
March 31, 2005.
<page>24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE
Notes payable at March 31, 2005 consisted of the following:
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 March 31, 2005 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 March 31, 2005 7,075 7,075
-------
<page>F-25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 March 31, 2005 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 March 31, 2005 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 March 31, 2005 9,600 $ 9,600
<page>F-26 --------
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 March 31, 2005 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 March 31, 2005 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% $ 0
Accrued interest of $6,000 and principal
on Convertible Debenture convertible
into approximately 7,500,000
shares of common stock at the price
of $0.0008 at March 31, 2005 6,000 $ 6,000
-------
<page>F-27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
Convertible Debenture #3
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
June 17, 2003 at an annual interest
rate of 12% $ 0
Accrued interest of $19,200 and principal
on Convertible Debenture convertible
into approximately 24,000,000
shares of common stock at the price
of $0.0008 at March 31, 2005 19,200 $ 19,200
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on June 17, 2003 at an annual
interest rate of 12% $ 0
Accrued interest of $19,200 and principal
on Convertible Debenture convertible
into approximately 24,000,000
shares of common stock at the price
of $0.0008 at March 31, 2005 19,200 $ 19,200
-------
Note payable to AJW/New Millennium
Offshore, Ltd. (Convertible Debenture)
due on June 17, 2003 at an annual
interest rate of 12% $ 0
<page>F-28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
Accrued interest of $21,600 and principal
on Convertible Debenture convertible
into approximately 27,000,000
shares of common stock at the price
of $0.0008 at March 31, 2005 21,600 $ 21,600
--------
Note payable to Pegasus Capital Partners,
LLC (Convertible Debenture) due on
June 17, 2003 at an annual
interest rate of 12% $ 0
Accrued interest of $12,000 and principal
on Convertible Debenture convertible
into approximately 15,000,000
shares of common stock at the price
of $0.0008 at March 31, 2005 12,000 $ 12,000
--------
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 $9,620 and principal
on Convertible Debenture convertible
into approximately 60,150,000
shares of common stock at the price
of $0.0008 at March 31, 2005 9,620 $ 48,120
-------
<page>F-29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
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 $9,620 and principal
on Convertible Debenture convertible
into approximately 60,150,000
shares of common stock at the price
of $0.0008 at March 31, 2005 9,620 $ 48,120
-------
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 $9,620 and principal
on Convertible Debenture convertible
into approximately 60,150,000
shares of common stock at the price
of $0.0008 at March 31, 2005 9,620 48,120
-------
<page>F-30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $11,342 and principal
on Convertible Debenture convertible
into approximately 76,677,500
shares of common stock at the price
of $0.0008 at March 31, 2005 11,342 $ 61,342
-------
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 $11,342 and principal
on Convertible Debenture convertible
into approximately 76,677,500
shares of common stock at the price
of $0.0008 at March 31, 2005 11,342 $ 61,342
-------
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 $11,343 and principal
on Convertible Debenture convertible
into approximately 76,678,750
shares of common stock at the price
of $0.0008 at March 31, 2005 11,343 $ 61,343
--------
<page>F-31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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% $33,334
Accrued interest of $5,402 and principal
on Convertible Debenture convertible
into approximately 48,420,000
shares of common stock at the price
of $0.0008 at March 31, 2005 5,402 $ 38,736
--------
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 $5,403 and principal
on Convertible Debenture convertible
into approximately 48,420,000
shares of common stock at the price
of $0.0008 at March 31, 2005 5,403 $ 38,736
--------
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 $5,403 and principal
on Convertible Debenture convertible
into approximately 48,420,000
shares of common stock at the price
of $0.0008 at March 31, 2005 5,403 $ 38,736
--------
<page>F-32
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $2,657 and principal
on Convertible Debenture convertible
into approximately 24,155,000
shares of common stock at the price
of $0.0008 at March 31, 2005 2,657 $ 19,324
--------
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 $2,658 and principal
on Convertible Debenture convertible
into approximately 24,156,250
shares of common stock at the price
of $0.0008 at March 31, 2005 2,658 $ 19,325
--------
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 $2,658 and principal
on Convertible Debenture convertible
into approximately 24,155,000
shares of common stock at the price
of $0.0008 at March 31, 2005 2,658 $ 19,324
--------
<page>F-33
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $2,504 and principal
on Convertible Debenture convertible
into approximately 23,963,750
shares of common stock at the price
of $0.0008 at March 31, 2005 2,504 $ 19,171
--------
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 $2,504 and principal
on Convertible Debenture convertible
into approximately 23,963,750
shares of common stock at the price
of $0.0008 at March 31, 2005 2,504 $ 19,171
--------
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 $2,504 and principal
on Convertible Debenture convertible
into approximately 23,962,500
shares of common stock at the price
of $0.0008 at March 31, 2005 2,504 $ 19,170
--------
<page>F-34
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $2,236 and principal
on Convertible Debenture convertible
into approximately 23,627,500
shares of common stock at the price
of $0.0008 at March 31, 2005 2,236 $ 18,902
--------
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 $2,235 and principal
on Convertible Debenture convertible
into approximately 23,627,500
shares of common stock at the price
of $0.0008 at March 31, 2005 2,235 $ 18,902
--------
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 $2,236 and principal
on Convertible Debenture convertible
into approximately 23,628,750
shares of common stock at the price
of $0.0008 at March 31, 2005 2,236 $ 18,903
--------
<page>F-35
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $10,767 and principal
on Convertible Debenture convertible
into approximately 117,626,250
shares of common stock at the price
of $0.0008 at March 31, 2005 10,767 $ 94,101
--------
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 $10,767 and principal
on Convertible Debenture convertible
into approximately 117,625,000
shares of common stock at the price
of $0.0008 at March 31, 2005 10,767 $ 94,100
--------
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 $10,767 and principal
on Convertible Debenture convertible
into approximately 117,625,000
shares of common stock at the price
of $0.0008 at March 31, 2005 10,767 $ 94,100
--------
<page>F-36
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 $ 78,420
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 98,025,000
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 78,420
--------
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 $ 69,096
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 86,370,000
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 69,096
--------
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 $ 39,096
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 48,870,000
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 39,096
--------
<page>F-37
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
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 $ 8,868
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 11,085,000
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 8,868
--------
Convertible Debenture #15
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with one year
interest prepaid $ 25,285
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 31,606,250
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 25,285
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with one year
interest prepaid $ 71,115
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 88,893,750
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 71,115
--------
<page>F-38
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with one year
interest prepaid $ 58,472
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 73,090,000
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 58,472
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with one year
interest prepaid $3,161
Accrued interest of $0 and principal
on Convertible Debenture convertible
into approximately 3,951,250
shares of common stock at the price
of $0.0008 at March 31, 2005 0 $ 3,161
--------
<page>F-39
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. NOTES PAYABLE (continued)
Subtotal of all Convertible Debentures 1,387,862
Less reclassified accrued interest $ (301,722)
Less prepaid interest offset 32,873
------------
Subtotal principal value 1,119,013
Derivative conversion option - 150 percent of principal 1,678,520
Less unamortized note discount (519,485)
-----------
Net carrying value of
Convertible Debentures $ 2,278,048
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%. 115,950
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. 7,733
-----------
Total notes payable $ 2,643,555
Current portion (2,392,055
-----------
Long-term portion $ 251,500
===========
<page>F-40
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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-41
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 September 30, 2004 and the six months ended March 31,
2005, accrued interest amounted to $580 and $302, respectively, resulting in a
balance of $7,733 at March 31, 2005. 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 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-42
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 6. 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 7. 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-43
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. 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.
<page>F-44
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
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
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.
<page>F-45
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
On March 3, 2003 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to 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 May 12, 2003 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to 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 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.
<page>F-46
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
On December 3, 2003 the Company issued an aggregate of $50,000 of 12%
convertible debentures in a private offering to 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 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 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 March 4, 2004 the Company issued an aggregate of $250,000 of 12% convertible
debentures in a private offering to 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.
<page>F-47
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
On April 19, 2004, the Company issued an aggregate of $250,000 of 12%
convertible debentures in a private offering to four 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 four 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 four 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 March 17, 2005 the Company issued an aggregate of $158,033 of 8%
convertible debentures in a private offering to the four accredited investors.
The Company prepaid $1,033 interest 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 316,066 shares of common stock at a per share exercise
price equal to $.0039.
<page>F-48
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. 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 six months ended
March 31, 2005, the derivative conversion interest was increased by $237,050
in connection with the issuance of an additional $158,033 of debt.
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,
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
<page>F-50
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
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 March 31, 2005 to $4,117,635.
During the six months ended March 31, 2005, the Company issued 2,292,275,539
shares of common stock in connection with the conversion of another $1,784,110
of principal and $39,356 of accrued interest on the Company's convertible
debentures, resulting in a convertible debt principal balance at March 31, 2005
of $1,119,013 (net of an aggregate of $2,289,020 in debt conversions through
that date). A corresponding pro-rata reduction of $2,676,165 was made to the
derivative conversion option during the six months ended March 31, 2005 (an
aggregate of $3,261,885 since the inception of the loans), bringing the
derivative conversion option balance at March 31, 2005 to $1,678,520.
The aggregate note discount of $3,408,087 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 was amortized during the year ended September 30, 2003, $673,705 was
amortized during the year ended September 30, 2004 and $496,962 was amortized
during the six months ended March 31, 2005, 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 in convertible bond
discount was transferred to equity upon conversion of $193,665 of debt
principal during the fiscal year ended September 30, 2003, $28,571 in
convertible bond discount was transferred to equity upon conversion of $218,115
of debt principal during the year ended September 30, 2004 and $634,901 in
convertible bond discount was transferred to equity upon conversion of
$1,784,110 of debt principal during the six months ended March 31, 2005,
resulting in an unamortized convertible debt discount balance of $519,485 at
March 31, 2005.
<page>F-51
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 7. SECURED CONVERTIBLE DEBENTURES (continued)
As of March 31, 2005, the Company was indebted for an aggregate of
1,387,862 including $1,119,013 of principal and $268,849 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.
NOTE 8. 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 March 31, 2005, there were
3,788,747,661 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.
In March 2005, the Company issued 4,000,000 shares of common stock for $5,000
in cash.
During November 2004 through March 2005, the Company issued 64,500,000 shares
of its restricted common stock to a consultant for debt reduction of $52,000.
<page>F-52
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 9. FORM S-8 FILINGS
In April 2005, the Company filed a registration statement on Form S-8
covering 30,000,000 shares issued to the same independent consultant valued at
$57,000.
NOTE 10. STOCK OPTIONS AND WARRANTS
In March 2005, 316,066 five-year common stock warrants
were issued to an accredited investor group in connection with a $158,033 8%
convertible debenture financing arrangement (see NOTE 7). The
allocated cost of these warrants amounted to $478, resulting in a recorded
balance of stock options and warrants exercisable at March 31, 2005 of
$1,463,436 (including $100,000 attributable to 1,000,000 Class B preferred
stock options noted above).
The common stock option activity during the fiscal year ended September
30, 2004 and the three months ended March 31, 2005 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
Granted 316,066 .004
Expired (100,000) .310
---------- -----
Balance outstanding, March 31, 2005 17,959,720 .065
========== =====
<page>F-53
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
The following table summarizes information about common stock options at
March 31, 2005:
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 1 $ .001 3,750,000 $ .001
$ .130 - $ .130 1,450,000 5 $ .130 1,450,000 $ .130
$ .386 - $ .386 1,443,654 8 $ .386 1,443,654 $ .386
$ .380 - $ .380 500,000 8 $ .380 500,000 $ .380
$ .002 - $ .002 2,500,000 58 $ .005 2,500,000 $ .005
$ .002 - $ .002 500,000 68 $ .005 500,000 $ .005
$ .002 - $ .002 250,000 68 $ .005 250,000 $ .005
$ .002 - $ .005 250,000 68 $ .005 250,000 $ .005
$ .002 - $ .005 250,000 69 $ .005 250,000 $ .005
$ .002 - $ .005 1,250,000 71 $ .005 1,250,000 $ .005
$ .002 - $ .005 750,000 73 $ .002 750,000 $ .002
$ .002 - $ .005 1,875,000 75 $ .002 1,875,000 $ .002
$ .002 - $ .005 1,875,000 77 $ .002 1,875,000 $ .002
$ .004 - $ .004 316,066 60 $ .004 316,066 $ .004
$ .001 - $0.386 17,959,720 39 $ .065 17,959,720 $ .065
=============== ========== == ======== ========== =======
NOTE 11. SUBSEQUENT EVENTS
Subsequent to March 31, 2005, the Company issued 170,000,000 shares of common
stock through April 14, 2005 in exchange for reduction of $251,500 in
convertible debt and accrued interest (which also includes the corresponding
derivative conversion option portion, net of convertible note discount).
<page>F-54
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. Our H-Net(TM) system
is currently comprised of two principal components: our H-Net(TM) 5.0 product,
which itself is comprised of circuitry and a radio transmitter, and our H-
Net(TM) BaseStation. Our H-Net(TM) 5.0 product is a component that is designed
to be part of a digital energy meter to read and wirelessly transmit meter data
to our H- Net(TM) BaseStation. Our H-Net(TM) BaseStation is designed to receive
and relay the meter data over standard phone lines to a central location where
the data is compiled and utilized.
We are currently developing our H-Net(TM) system. Our development efforts
have recently been predominantly focused on increasing the data transmission
range of our H-Net(TM) 5.0 product over the data transmission range of our H-
Net(TM) 4.0 product. The development of our H-Net(TM) system 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 product for
approval for commercialization and sale and received FCC certification for this
product in December 2004. In December 2004, we submitted to the FCC our H-
Net(TM) BaseStation for approval for commercialization and sale and received
FCC certification for this product in March 2005.
Concurrently with the development of our H-Net(TM) BaseStation, which is a
single-channel design, we have been developing an eight-channel H-Net(TM)
BaseStation. Our eight-channel H-Net(TM) BaseStation is designed to
communicate with up to 10,000 H-Net(TM) 5.0 product installations per network
due to its multiple channel design and to deliver real-time energy consumption
data at low-cost. We have verified initial functionality and have undertaken
destructive testing of our eight-channel H-Net(TM) BaseStation hardware with
several units in inventory that are awaiting new software for additional field
testing. We anticipate submitting our eight-channel H-Net(TM) BaseStation for
FCC approval over the course of the next few months. We expect that this
approval by the FCC will occur within approximately 60 days following
submission to the FCC of our eight-channel H-Net(TM) BaseStation, but no
assurances can be made that this approval will be obtained or that it will not
be delayed. We do not expect that the eight- channel product enhancement will
prevent sales of our current H-Net(TM) system.
<page>2
We have not yet sold any H-Net(TM) systems. However, we are actively
pursuing sales of our H-Net(TM) systems with meter manufacturers and other
companies in the energy industry. We have 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 March 31,
2005 and 2004
We did not generate any revenues for the three months ended March 31, 2005
and 2004. Cost of goods sold for the three months ended March 31, 2005 was
$41,712 as compared to $22,195 for the three months ended March 31, 2004,
representing an increase of $19,517. 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 $294,356, or 66%, to
$742,898 for the three months ended March 31, 2005 as compared to $448,542 for
the same period in 2004. This increase was primarily due to increased expenses
associated with legal and consulting services.
Interest expense increased by $136,782, or 60%, to $364,949 during the
three months ended March 31, 2005 as compared to $228,167 for the same period
in 2004. The increase was primarily attributable to increased amortization of
convertible debt discount and prepaid interest in the aggregate amount of
approximately $220,000, which was partially offset by a decrease in the mark to
market of the derivative conversion option in the amount of approximately
$70,000.
<page>3
Net loss for the three months ended March 31, 2005 increased by $450,655,
or 64%, to $1,149,559 as compared to a net loss of $698,904 for the same period
in 2004. The increase in net loss primarily resulted from the increase in
general and administrative expenses and the increase in interest expense, as
discussed above.
Comparison of Results of Operations for the Six Months Ended March 31, 2005
and 2004
We did not generate any revenues for the six months ended March 31, 2005
and 2004. Cost of goods sold for the six months ended March 31, 2005 was
$103,674 as compared to $22,195 for the six months ended March 31, 2004, an
increase of $81,479. 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 $467,587, or 71%, to
$1,099,937 for the six months ended March 31, 2005 as compared to $632,350 for
the same period in 2004. This increase was primarily due to increased expenses
associated with legal and consulting services.
Interest expense decreased by $307,275, or 30%, to $730,214 during the six
months ended March 31, 2005 as compared to $1,037,489 for the same period in
2004. The decrease was primarily attributable to a decrease in the mark to
market of the derivative conversion option in the amount of approximately
$170,000 resulting from our issuance of a greater aggregate principal value of
convertible debentures during the six months ended March 31, 2004 as compared
to the aggregate principal value of our convertible debentures issued during
the six months ended March 31, 2005. The decrease was also attributable to
decreased amortization of convertible debt discount and prepaid interest in the
aggregate amount of approximately $130,000 resulting from an increase from one
to two years in the term of our convertible debentures issued during the six
months ended March 31, 2005 as compared to the term of our convertible
debentures issued during the six months ended March 31, 2004, which causes the
amortization of the convertible debt discount and prepaid interest over a
longer period of time, in turn reducing the amounts amortized in a particular
period.
Net loss for the six months ended March 31, 2005 increased by $91,791, or
5%, to $1,933,825 as compared to a net loss of $1,842,034 for the same period
in 2004. The increase in net loss primarily resulted from increased general and
administrative expenses which was partially offset by decreased interest
expense, as discussed above.
Liquidity and Capital Resources
During the six months ended March 31, 2005, we financed our operations
solely from cash on hand and through private placements of securities. We are
actively pursuing sales of our H-Net(TM) systems with meter manufacturers and
other companies in the energy industry. However, we have not yet sold any H-
Net(TM) systems. We have 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 March 31, 2005, we had a working capital deficit of approximately
$4.6 million and an accumulated deficit of approximately $31.5 million. As of
that date, we had approximately $30,000 in cash and cash equivalents. We had
accounts payable and accrued compensation expenses of approximately $1.9
million. We had other current liabilities, including amounts due to officers,
accrued interest, notes payable and current portion of long term debt of
approximately $2.9 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.
<page>4
Cash used in our operating activities totaled approximately $636,000 for
the six months ended March 31, 2005 as compared to approximately $450,000 for
the six months ended March 31, 2004. No cash was used in or provided by our
investing activities in the six months ended March 31, 2005 or 2004.
Cash provided by our financing activities totaled approximately $116,000
for the six months ended March 31, 2005 as compared to cash provided by our
financing activities of approximately $491,000 for the six months ended March
31, 2004. We raised all of the cash provided by our financing activities during
the six months ended March 31, 2005 and 2004 from the issuance of common stock,
convertible debentures and/or promissory notes.
As of the following dates, we were in default in the repayment of principal
and interest in the corresponding amounts set forth below on our secured
convertible debentures due as of those dates:
Principal Current
Amount($) 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 -
May 12, 2004..... 150,000 92,400
November 25, 2004 100,000 100,000
December 3, 2004. 50,000 50,000
December 31, 2004 50,000 50,000
February 18, 2005 50,000 50,000
March 4, 2005 250,000 250,000
------------ -----------
Total: $ 1,537,000 $ 592,400
============ ===========
As of May 12, 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
$592,000 plus related interest on those debentures. As of that date, we also
were in default under our obligations to register for resale shares of our
common stock underlying certain of our outstanding convertible debentures. In
addition, as of that date, we also were in default under our obligations to
make quarterly interest payments under all of our outstanding convertible
debentures issued prior to our convertible debentures issued in April 2004. As
of May 12, 2005, as a result of the above defaults, the holders of our secured
convertible debentures were entitled to pursue their rights to foreclose upon
their security interest in all of our assets. However, as of that date, we were
not aware of any action taken by the holders of our secured convertible
debentures to pursue such rights, and as of that date we also were not aware of
any other legal or similar action taken by those holders to enforce their
rights or as a result of our defaults under those secured convertible
debentures.
<page>5
We plan to register for resale with the Securities and Exchange Commission
a portion of the shares of common stock underlying the convertible debentures
under which we are in default and expect that the convertible debentures
ultimately will be converted into shares of our common stock and that we
therefore will not be obligated to repay the outstanding principal and accrued
and unpaid interest amounts on those debentures.
As of May 12, 2005, we had issued the following secured convertible
debentures, which provide for interest at the rate of 12 percent per annum, and
warrants to purchase common stock to various accredited inventors in connection
with debenture offering transactions:
<table>
Original Net Remaining Accrued and Warrants
Principal Proceeds to Principal Unpaid Issued in
Issuance Date Amount ($) 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 - 72,000 1,500,000
November 27, 2002 200,000 144,000 - - 1,000,000
March 3, 2003.... 150,000 100,000 - 27,700 750,000
May 12, 2003..... 150,000 100,000 92,400 36,100 750,000
November 25, 2003 100,000 76,000 100,000 17,600 500,000
December 3, 2003 50,000 31,000 50,000 8,700 250,000
December 31, 2003 50,000 44,000 50,000 8,200 250,000
February 18, 2004 50,000 35,000 50,000 7,400 250,000
March 4, 2004.... 250,000 203,000 250,000 35,800 1,250,000
April 19, 2004... 250,000 165,000 - - 750,000
June 30, 2004.... 625,000 452,000 - - 1,875,000
September 9, 2004 625,000 482,000 - - 1,875,000
March 17, 2005 158,033 90,000 158,033 1,000 316,066
April 20, 2005 108,733 91,000 108,733 - 217,466
----------- ----------- ------------ ----------- ----------
Total: $3,516,766 $2,601,000 $859,166 $ 277,800 13,783,532
=========== =========== ============= ============ ==========
</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 and March and April 2005 offerings also
represent net proceeds after deducting one year of interest paid in
advance in the amounts of $30,000, $75,000, $75,000, $1,033 and $1,033,
respectively.
(2) Amounts are approximate and represent accrued and unpaid interest
outstanding as of May 12, 2005. The total amount of accrued and unpaid
interest does not account for approximately $66,000 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 and March and April 2005 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 and March and April 2005
convertible debentures. As of May 12, 2005, the applicable conversion price was
approximately $.0003 per share.
In October 2003, in consideration for certain bridge financing which later
was incorporated into the November 2003 convertible debenture offering
described above, the variable conversion price of our outstanding 12%
convertible debentures issued from March 2002 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>6
As of May 12, 2005, we had a loan outstanding and due on demand in an
amount equal to approximately $12,500. 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 $3,100.
This loan accrues interest at an annual rate of 18% and was made by Patricia
Spigno, our Chief Financial Officer and Secretary.
As of May 12, 2005, we had a promissory note outstanding and due September
1, 2005, payable in the approximate amount of $142,000. 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 approximately $3.5 million in financing to
date. No assurances can be given that they will provide any additional
financing in the future. Our current secured convertible debenture 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.
Effect of Inflation
Inflation did not have any significant effect on the operations of the
Company during the three and six months ended March 31, 2005. Further,
inflation is not expected to have any significant effect on future operations
of the Company.
<page>7
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 March 31, 2005 (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
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>8
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 January 2005, we issued an aggregate of 388,199,753 shares of common
stock to four accredited investors upon conversion of an aggregate of $297,404
in principal plus related interest on our convertible debentures.
In February 2005, we issued an aggregate of 259,976,989 shares of common
stock to four accredited investors upon conversion of an aggregate of $232,500
in principal plus related interest on our convertible debentures.
In March 2005, we issued an aggregate of 1,199,630,444 shares of common
stock to four accredited investors upon conversion of an aggregate of
$1,072,020 in principal plus related interest on our convertible debentures.
In March 2005, we issued an aggregate of 271,500,000 shares of common stock
valued at $278,862 to four consultants as compensation for services rendered.
In March 2005, we issued an aggregate of 41,000,000 shares of common stock
in exchange for the cancellation of $41,000 of debt.
The issuances of our securities described above were made in reliance upon
the exemption from registration available under Section 4(2) of the Securities
Act of 1933, as amended, as transactions not involving a public offering. This
exemption was claimed on the basis that these transactions did not involve any
public offering and the purchasers in each offering were sophisticated and had
sufficient access to the kind of information registration would provide,
including our most recent Annual Report on Form 10-KSB and our most recent
Quarterly Report on Form 10-QSB.
Dividend Policy
We have never paid cash dividends on our common stock and do not currently
intend to pay cash dividends on our common stock in the foreseeable future. We
are restricted from paying dividends on our common stock under state law, and
the terms of our secured convertible debentures. We currently anticipate that
we will retain any earnings for use in the continued development of our
business.
<page>9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of the following dates, we were in default in the repayment of principal
and interest in the corresponding amounts set forth below on our secured
convertible debentures due as of those dates:
Principal Current
Amount($) 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 -
May 12, 2004..... 150,000 92,400
November 25, 2004 100,000 100,000
December 3, 2004. 50,000 50,000
December 31, 2004 50,000 50,000
February 18, 2005 50,000 50,000
March 4, 2005 250,000 250,000
------------ -----------
Total: $ 1,537,000 $ 592,400
============ ===========
As of May 12, 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
$592,000 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 May 12, 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>10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the three months ended March 31, 2005, no matters were submitted to
a vote of the holders of our securities.
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>11
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: May 16, 2005 By: /s/ ROBERT A. SPIGNO
--------------------------
Robert A. Spigno,
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date: May 16, 2005 By: /s/ PATRICIA A. SPIGNO
----------------------------
Patricia A. Spigno,
Chief Financial Officer and Secretary
(principal financial and accounting officer)
<page>12
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>13