<pre>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 2006
| | TRANSITION REPORT PURSUANT TO 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
(Exact name of small business issuer as specified in its charter)
Colorado 84-1017107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25115 Avenue Stanford
Suite 320
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)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No | |
As of February 16, 2007, there were 18,378,428,568 shares of the
issuer's common stock, no par value per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes | |
No |X|
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet as of December 31, 2006
(unaudited)................................................. F-1
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 2006 (unaudited) and 2005
(unaudited) and the Cumulative Period From December 31, 1990
(Inception) Through December 31, 2006 (unaudited)........... F-3
Condensed Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Cumulative Period From December
31, 1990 (Inception) Through December 31, 2006 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 2006 (unaudited) and 2005
(unaudited) and the Cumulative Period From December 31, 1990
(Inception) Through December 31, 2006 (unaudited)........... F-16
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................. F-19
Item 2. Management's Discussion and Analysis or Plan of Operation..... 2
Item 3. Controls and Procedures....................................... 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 10
Item 3. Defaults Upon Senior Securities............................... 11
Item 4. Submission of Matters to a Vote of Security Holders........... 12
Item 5. Other Information............................................. 12
Item 6. Exhibits...................................................... 12
Signatures............................................................. 13
Exhibits Filed with this Report on Form 10-QSB......................... 14
ITEM 1. FINANCIAL STATEMENTS.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2006
December 31,
2006
Unaudited
Assets
Current assets
Cash and cash equivalents $ 6,570
Short-term investments 108,633
Prepaid expenses 109,942
-----------------
Total current assets 225,145
Property and equipment, net of accumulated
depreciation of $360,066 103,110
Other assets
Deposits 23,550
Loan fees, net of accumulated
amortization of $517,132 22,023
-----------------
Total assets $ 373,828
=================
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
December 31, 2006
December 31,
2006
Unaudited
Liabilities and shareholders' deficit
Current liabilities
Accounts payable $ 264,894
Accrued compensation 1,894,804
Due to officers 470
Accrued interest payable 381,112
Other current liabilities 19,926
Notes payable and current portion of
long-term debt 2,439,135
-----------------
Total current liabilities 5,000,341
Long-term debt, net of current portion 1,882,904
Commitments and contingencies --
Shareholders' 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 - no par value; 50,000,000,000
shares authorized; 15,707,452,473 shares issued
and outstanding 28,214,661
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; 32,620,000
warrants exercisable 1,371,265
Accumulated deficit during development stage (36,411,208)
-----------------
Total shareholders' deficit (6,509,417)
-----------------
Total liabilities and shareholders' deficit $ 373,828
=================
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 STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2006 and 2005
And the Cumulative Period From December 31, 1990 (Inception) Through December
31, 2006
<table>
Dec. 1, 1990
(Inception)
3 Months Ended 3 Months Ended Through
December 31, December 31, December 31,
2006 2005 2006
Unaudited Unaudited Unaudited
Revenues $ 0 $ 0 $ 517,460
Cost of prototypes and samples 30,166 74,846 1,372,655
----------------- ----------------- -----------------
Gross loss (30,166) (74,846) (855,195)
General and administrative expenses 338,743 314,286 24,423,808
Bad debt Expense 0 0 1,680,522
Write-off of deposits
and intangible assets 0 0 1,316,861
----------------- ----------------- -----------------
Loss from operations (368,909) (389,132) (28,276,386)
Other income (expenses)
Forgiveness of debt 0 0 504,462
Settled damages 0 0 (125,000)
Other income 0 0 12,072
Interest income 2,878 0 110,270
Interest expense (326,332) (213,895) (8,699,126)
Minority interest 0 0 62,500
------------------ ----------------- -----------------
Net loss $ (692,363) $ (603,027) (36,411,208)
================= ================= =================
Weighted-average shares
outstanding 15,041,201,929 8,021,520,957
Net loss per share-basic and diluted (0.00) (0.00)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</table>
<page>F-3
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through December 31,
2006
<table>
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance, 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, November 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. 199 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
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Cash, February 13, 1995 - $ - 1,160 $ 232,000 $ - $ - $ - $ 232,000
Debt repayment, February 13,
1995 - - 2,040 408,000 - - - 408,000
Debt repayment, February 20,
1995 - - 4,778 477,810 - - - 477,810
Acquisition of assets, CIPI
February, 1995 - - 28,750 1,950,000 - - - 1,950,000
Acquisition of assets, April 5,
1995 - - 15,000 - - - - -
Cash and services, April and
May 1995 - - 16,000 800,000 - - - 800,000
Cash, June 1, 1995 - - 500 30,000 - - - 30,000
Acquisition of assets and
services, September 26, 1995 - - 4,000 200,000 - - - 200,000
Cash, September 28, 1995 - - 41 3,000 - - - 3,000
Acquisition of assets,
September 1995 - - 35,000 1,750,000 - - - 1,750,000
Return of assets, CIPI
September, 1995 - - (27,700) (1,950,000) - - - (1,950,000)
Net loss for the year - - - - - - (2,293,867) (2,293,867)
--------- ----------- -------- ----------- -------- ------------ ---------- -----------
Balance,
November 30, 1995 16,345 $ 16,345 129,569 $5,031,834 $ - $ - $(3,374,010) $1,674,169
Shares issued in exchange for:
Cash, February, 1996 - - 1,389 152,779 - - - 152,779
Debt repayment, February 1996 - - 10,000 612,000 - - - 612,000
Services, February, 1996 - - 3,160 205,892 - - - 205,892
Cash, March, 1996 - - 179 25,000 - - - 25,000
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares returned and canceled,
March, 1996 - $ - (15,000)$ - $ - $ - $ - $ -
Services, April, 1996 - - 13 2,069 - - - 2,069
Services, September, 1996 4,155 4,155 586 36,317 - - - 40,472
Services, October, 1996 - - 6,540 327,000 - - - 327,000
Debt repayment, November, 1996 - - 2,350 64,330 - - - 64,330
Net loss for the year - - - - - - (2,238,933) (2,238,933)
--------- ---------- ---------- ----------- ---------- --------- ------------ -----------
Balance,
November 30, 1996 20,500 $ 20,500 138,786 $ 6,457,221 $ - $ - $ (5,612,943) $ 864,778
Shares issued in exchange for:
Services, March, 1997 - - 228 6,879 - - - 6,879
Services, April, 1997 - - 800 13,120 - - - 13,120
Services, July, 1997 - - 1,500 16,200 - - - 16,200
Cash, July, 1997 - - 15,000 300,000 - - - 300,000
Services, August, 1997 - - 5,958 56,000 - - - 56,000
Adjustment for partial shares due
to reverse stock split (1:20) - - 113 - - - - -
Services, October, 1997 - - 1,469,666 587,865 - - - 587,865
Debt repayment, October, 1997 - - 1,540,267 620,507 - - - 620,507
Cash, October, 1997 - - 1,500,000 281,250 - - - 281,250
Services, November, 1997 - - 4,950 10,538 - - - 10,538
Net loss for the year - - - - - - (2,739,268) (2,739,268)
--------- ---------- ---------- ----------- ---------- ---------- ----------- -----------
Balance,
November 30, 1997 20,500 $ 20,500 4,677,268 $ 8,349,580 $ - $ - $ (8,352,211) $ 17,869
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, December, 1997
through November, 1998 - $ - 2,551,610 $ 2,338,264 $ - $ - $ - $ 2,338,264
Debt repayment, April, 1998
through September, 1998 - - 250,000 129,960 - - - 129,960
Cash, January, 1998 through
July, 1998 - - 4,833,334 1,139,218 - - - 1,139,218
Acquisition of assets,
July, 1998 - - 300,000 421,478 - - - 421,478
Acquisition of remaining 20%
minority interest in
subsidiary, July, 1998 - - 50,000 59,247 - - - 59,247
Services, November, 1998 60,000 60,000 - - - - - 60,000
Net loss for the year - - - - - - (4,928,682) (4,928,682)
--------- ---------- ---------- ----------- ---------- ------------ ---------- -----------
Balance,
November 30, 1998 80,500 $ 80,500 12,662,212 $12,437,747 $ - $ - $(13,280,893)$ (762,646)
Shares issued in exchange for:
Shares returned and canceled,
December, 1998 - - (1,350,000) (814,536) - - - (814,536)
Services, December, 1998
through September, 1999 - - 560,029 349,454 150,000 - - 499,454
Cash, December, 1998
through September, 1999 - - 1,155,800 129,537 - - - 129,537
Debt repayment, Sept., 1999 39,520 39,520 960,321 197,500 100,000 - - 337,020
Net loss for the period - - - - - - (1,323,831) (1,323,831)
--------- ---------- ---------- ----------- -------- ------------ ---------- -----------
Balance,
September 30, 1999 120,020 $ 120,020 13,988,362 $12,299,702 $ 250,000 $ - $(14,604,724)$(1,935,002)
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares re-acquired and
canceled, October, 1999 - $ - (17,500)$ (12,000)$ - $ - $ - $ (12,000)
Shares issued in exchange for:
Services, October, 1999 through
September, 2000, valued from
$0.25 to $0.80 per share - - 2,405,469 990,949 - - - 990,949
Retainers, debt and accrued
liabilities, October, 1999
through September, 2000, valued
from $0.25 to $1.57 per share - - 2,799,579 1,171,638 - - - 1,171,638
Cash, October, 1999 through
September, 2000, with subscription
prices ranging from $0.25 to
$0.66 per share - - 2,295,482 839,425 - (15,450) - 823,975
Issuance of 563,500 consultant
stock options, March, 2000,
at an exercise price of $2.00
per share - - - - 214,130 - - 214,130
Reduction of exercise prices
on 2,600,000 officer and employee
common stock options, March, 2000,
to $0.38 and approximately $0.39
per share - - - - 1,113,610 - 1,113,610
Exercise of 2,056,346 common and
20,000 preferred officer stock
options, May, 2000, with
common stock exercise prices
ranging from $0.15 to approx.
$0.39 per share, in exchange
for officer debt 20,000 20,000 2,056,346 897,707 (407,735) - - 509,972
Issuance of 500,000 consultant
stock options, September, 2000,
with floating exercise prices
set at 15% below current market - - - - 65,000 - - 65,000
Net loss for the year - - - - - - (3,812,140) (3,812,140)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2000 140,020 $ 140,020 23,527,738 $16,187,421 $1,235,005 $ (15,450)$(18,416,864) $ (869,868)
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2000 through
September, 2001, valued from
$0.11 to $0.40 per share - $ - 3,471,007 $ 572,790 $ - $ - $ - $ 572,790
Retainers, debt and accrued
liabilities, October, 2000
through September, 2001, valued
from $0.11 to $0.43 per share - - 3,688,989 487,121 - - - 487,121
Cash, October, 2000 through
March, 2001, with subscription
prices ranging from $0.075 to
$0.083 per share - - 1,045,500 78,787 - - - 78,787
Collection of stock subscription
receivable, October, 2000,
on 61,800 shares - - - - - 15,450 - 15,450
Exercise of 400,000 common
stock options, January, 2001,
at a exercise price of $0.085 per
share, in exchange for debt - - 400,000 86,000 (52,000) - - 34,000
Issuance of 1,000,000 common
stock warrants, April, 2001,
at an exercise price of $0.192
per share, in conjunction with
$300,000 principal value of
8% convertible debt - - - - 77,228 - - 77,228
Issuance of 2,000,000 consultant
stock options, September, 2001,
at a exercise price of $0.13 per
share - - - - 115,000 - - 115,000
Beneficial conversion option,
April, 2001 through September,
2001, pertaining to $300,000
principal value and accrued
interest on 8% convertible debt - - - - 155,027 - - 155,027
Net loss for the year - - - - - - (2,154,567) (2,154,567)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2001 140,020 $ 140,020 32,133,234 $17,412,119 $1,530,260 $ - $(20,571,431)$(1,489,032)
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2001 through
September, 2002, valued from
$0.02 to $0.25 per share - $ - 2,180,000 $ 179,916 $ - $ - $ - $ 179,916
Debt and accrued liabilities,
October, 2001 through September,
2002, with common shares
valued from $0.01 to $0.15 per
share and preferred A shares
valued at $1.00 per share 60,000 60,000 10,948,077 428,563 - - - 488,563
Cash, October, 2001 through
September, 2001, with prices
ranging from $0.01 to $0.083
per share - - 5,833,334 200,000 - - - 200,000
Exercise of 550,000 common stock
options by a consultant at a
exercise price of $0.13 per share,
in exchange for debt - - 550,000 103,125 (31,625) - - 71,500
Issuance of 3,750,000 warrants,
April, 2002 through June, 2002,
at an exercise price of $0.045
per share, in conjunction with
$750,000 principal value of 12%
convertible debt - - - - 100,087 - - 100,087
Beneficial conversion option,
April 2002, through June, 2002,
pertaining to $750,000 principal
value of 12% convertible debt - - - - 649,913 - - 649,913
Conversion of $93,130 principal
value of 12% convertible debt
along with $6,916 accrued
interest, net of $69,233
convertible debt discount - - 12,667,178 111,515 (80,702) - - 30,813
Net loss for the year - - - - - - (2,346,732) (2,346,732)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2002 200,020 $ 200,020 64,311,823 $18,435,238 $2,167,933 $ - $(22,918,163)$(2,114,972)
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October, 2002 through
July, 2003, valued from
$0.0012 to $0.0100 share - $ - 31,500,000 $ 134,000 $ - $ - $ - $ 134,000
Debt and accrued liabilities,
October, 2002 through September,
2003, valued from $0.0010 to
$0.0512 per share, including
transfer of $155,027
beneficial conversion option 162,134,748 704,774 (155,027) - - 549,747
Cash, November, 2002 through
September, 2003, with prices
ranging from $0.0010 to $0.100
per share - - 128,500,000 180,000 - - - 180,000
Issuance of 2,500,000 warrants,
November, 2002 through May, 2003,
at an exercise price of $0.005
per share, in conjunction with
$500,000 principal value of 12%
convertible debt - - - - 9,816 - - 9,816
Beneficial conversion option,
November, 2002, through May, 2003,
pertaining to $500,000 principal
value of 12% convertible debt - - - - 490,184 - - 490,184
Conversion of $193,665 principal
value of 12% convertible debt
along with $34,355 accrued
interest, net of $52,340
convertible debt discount - - 103,778,301 353,525 (177,845) - - 175,680
Net loss for the year - - - - - - (2,386,875) (2,386,875)
--------- ---------- ----------- ----------- ---------- ---------- ------------ -----------
Balance,
September 30, 2003 200,020 $ 200,020 490,224,872 $19,807,537 $2,335,061 $ - $(25,305,038)$(2,962,420)
The accompanying notes are an integral part of these 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 December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ------------ -----------
Shares issued in exchange for:
Services, October 2003 through
August 2004 valued from
$0.0008 to $0.0026 per share 0 $ 0 57,300,000 $ 78,400 $ 0 $ 0 $ 0 $ 78,400
Issuance of 7,000,000 warrants
November 2003 through
September 2004 at exercise
Prices ranging from $0.002 to
$0.005 per share, in
conjunction with $2,000,000
principal value of 12%
convertible debt 0 0 0 0 9,447 0 0 9,447
Debt and accrued liabilities
December 2003 with
preferred stock class A
valued at $1.00 per share 15,845 A 15,845 0 0 0 0 0 15,845
Debt and accrued liabilities
November 2003 to September
2004 with common shares
valued from $0.001 to $0.0025
per share 0 0 156,625,000 163,575 0 0 0 163,575
Cash, November 2003 through
March 2004 with prices of
approximately $0.0010 0 0 74,670,000 75,000 0 0 0 75,000
per share
Re-characterization of beneficial
conversion option as derivative
conversion option , October 2003
pertaining to $963,205 of
convertible debt at
September 30, 2003 0 0 0 0 (881,550) 0 0 (881,550)
Conversion of $218,115 principal
value of 12% convertible debt
$327,172 of derivative
conversion option
along with $49,008 accrued
interest, net of $28,571
convertible debt discount 0 0 352,352,250 565,724 0 0 565,724
Net loss for the year 0 0 0 0 0 0 (4,228,827)(4,228,827)
--------- ---------- ----------- ----------- ----------- ---------- ------------ -----------
Balance, September 30, 2004 215,865 $215,865 1,131,172,122 $20,690,236 $1,462,958 $ 0 $(29,533,865)$(7,164,806)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Shares issued in exchange for:
Cash, January 2005 with a price
of $0.00125 per share 0 $ 0 4,000,000 $ 5,000 $ 0 $ 0 $ 0 $ 5,000
Debt, accrued liabilities
and prepaid retainer
October 2004 to September
2005 with common shares
valued from $0.0004 to $0.0010
per share 0 0 591,300,000 473,362 0 0 0 473,362
Services, December 2004 through
August 2005 valued from
$0.0006 to $0.0010 per share 0 0 52,000,000 46,200 0 0 0 46,200
Issuance of 2,800,000 warrants
November 2004 through
September 2005 at an exercise
price of $0.0039 per share, in
conjunction with $1,400,000
principle value of 12%
convertible debt 0 0 0 0 3,756 0 0 3,756
Conversion of $2,529,378 principal
value of convertible debt,
$3,794,067 of derivative
conversion option
along with $104,410 accrued
interest, net of $973,565
convertible debt discount 0 0 5,610,392,876 5,454,290 0 0 5,454,290
Net loss for the year 0 0 0 0 0 0 (3,132,683) (3,132,683)
----------- -------- ------------- ----------- --------- ---------- ---------- -----------
Balance, September 30, 2005 215,865 $215,865 7,388,864,998 $26,669,088$1,466,714 $ 0 $(32,666,548) $ (4,314,881)
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 CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Shares issued in exchange for:
Cash, April through July 2006
with prices ranging from
$0.00015 to $0.00050 per share 0 $ 0 533,333,333 $ 125,000 $ 0 $ 0 $ 0 $ 125,000
Services, March 2006 valued
at approximately $0.00071 per share 0 0 4,368,872 3,100 0 0 0 3,100
Issuance of 20,320,000 warrants
September 2006 at an exercise
price of $0.0009 per share, in
conjunction with $1,270,000
principal value of 6%
convertible debt 0 0 0 0 4,551 0 0 4,551
Conversion of $547,376 principal
value of 8% and 12% convertible debt,
$821,065 of derivative conversion
option, along with $8,300 accrued
interest, net of $243,177
convertible debt discount 0 0 6,458,227,580 1,133,564 0 0 0 1,133,564
Net loss for the period 0 0 0 0 0 0 (3,052,297) (3,052,297)
---------- ---------- ------------- ----------- ---------- ------ ----------- ------------
Balance, September 30, 2006 215,865 $ 215,865 14,384,794,783 $27,930,753 $1,471,265 $ 0 $(35,718,845) $(6,100,962)
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 CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period from December 1, 1990 (Inception) Through December 31, 2006
Deficit
Accumulated Total
Preferred Stock Common Stock Additional Stock During the Shareholders'
Class A No Par Value Paid-in Subscript. Development Equity
Shares Value Shares Value Capital Receivable Stage (Deficit)
--------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Conversion of $111,000 principal
value of convertible debt,
$166,500 of derivative
conversion option
along with $6,408 accrued
interest, net of $0
convertible debt discount 0 $ 0 1,322,657,690$ 283,908 $ 0 $ 0 $ 0 $ 283,908
Net loss for the period 0 0 0 0 0 0 (692,363) (692,363)
---------- --------- -------------- ---------- ---------- ------ ------------ ------------
Balance, December 31, 2006 215,865 $ 215,865 15,707,452,473$28,214,661 $1,471,265 $ 0 $(36,411,208) $ (6,509,417)
========== ========= ============== ========== ========== ====== ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</table>
<page>F-15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2006 and 2005
And the Cumulative Period From December 31, 1990 (Inception) Through December
31, 2006
<table>
Dec. 1, 1990
(Inception)
3 Months Ended 3 Months Ended Through
December 31, December 31, December 31,
2006 2005 2006
Unaudited Unaudited Unaudited
Operating activities
Net loss $ (692,363)$ (603,027)$ (35,333,466)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Provision for bad debt 0 0 1,422,401
Depreciation and amortization 5,265 2,845 1,749,667
Stock issued for services 0 0 7,648,473
Stock issued for interest 0 0 535,591
Settlements 0 0 (25,000)
Minority interest 0 0 (62,500)
Intangibles 0 0 1,316,861
Amortization of loan fees
and note discounts 287,860 187,081 4,087,710
Mark-to-market of derivative
conversion option 0 0 2,916,012
Forgiveness of debt 0 0 (504,462)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 0 0 (4,201)
Prepaid expenses 32,138 54,362 114,255
Interest receivable 0 0 (95,700)
Increase (decrease) in liabilities
Accounts payable (13,888) (94,471) 1,333,020
Accrued compensation 16,108 21,248 3,066,812
Due to officers 21 18 631,231
Accrued interest and other current
liabilities 33,825 16,475 1,026,584
----------------- ----------------- -----------------
Total adjustments 361,329 187,558 25,156,754
----------------- ----------------- -----------------
Net cash used in
operating activities (331,034) (415,469) (10,176,712)
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2006 and 2005
And the Cumulative Period From December 31, 1990 (Inception) Through December 31, 2006
Dec. 1, 1990
(Inception)
3 Months Ended 3 Months Ended Through
December 31, December 31, December 31,
2006 2005 2006
Unaudited Unaudited Unaudited
Investing activities
Increase in notes receivable $ 0 $ 0 $ (1,322,500)
Cost of license & technology 0 0 (934,057)
Sale (purchase) of bank cds 322,100 0 (108,633)
Purchase of equipment (4,607) 0 (329,993)
----------------- ----------------- -----------------
Net cash provided by (used in)
investing activities 317,493 0 (1,855,183)
Financing activities
Common stock issued for cash 0 0 3,617,172
Stock warrants 0 0 204,885
Preferred stock issued for cash 0 0 16,345
Proceeds from stock purchase 0 0 281,250
Loan fees 0 0 (579,555)
Proceeds from debts
Related party 0 0 206,544
Other 175 0 8,913,567
Payments on debt
Related party 0 0 (53,172)
Other 0 0 (604,536)
Decrease in subscription receivable 0 0 35,450
Contributed capital 0 0 515
----------------- ----------------- -----------------
Net cash provided by
financing activities 175 0 12,038,465
----------------- ----------------- -----------------
Net increase (decrease) in cash and
cash equivalents (13,366) (415,469) 6,570
Cash and cash equivalents at
beginning of period 19,936 518,765 0
----------------- ----------------- -----------------
Cash and cash equivalents at end
of period $ 6,570 $ 103,296 $ 6,570
================= ================= =================
The accompanying notes are an integral part of these condensed consolidated financial statements.
<page>F-17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2006 and 2005
And the Cumulative Period From December 31, 1990 (Inception) Through December 31, 2006
Dec. 1, 1990
(Inception)
3 Months Ended 3 Months Ended Through
December 31, December 31, December 31,
2006 2005 2006
Unaudited Unaudited Unaudited
Cash paid during the period for
Interest $ 2,792 $ 14,653 $ 702,282
Income Taxes 4,000 0 20,050
Non-cash investing and financing activities
Common stock issued for
Note receivable 0 0 281,250
Prepaid expenses 0 0 264,748
Property and equipment 0 0 130,931
Licenses & technology 0 0 2,191,478
Acquisition of remaining
minority interest in subsidiary 0 0 59,247
Repayment of debt 277,500 202,226 13,290,971
Accrued services & interest 6,408 788 5,221,910 Preferred stock issued for
Services 0 75,845
Repayment of debt 0 0 119,520
Preferred stock options issued for
repayment of debt 0 0 100,000
Re-characterize beneficial
conversion option as debt 0 0 881,550
The accompanying notes are an integral part of these condensed consolidated financial statements.
</table>
<page>F-18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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, 2006.
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 months ended December 31, 2006 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
materially differ from those estimates.
Net loss per common share - basic and diluted
Net loss per common share - basic and diluted is based on the weighted-average
number of common and common equivalent shares outstanding for the periods
presented. Common equivalent shares representing the common shares that would be
issued on exercise of convertible securities and outstanding stock options and
warrants reduced by the number of shares which could be purchased from the
related exercise proceeds are not included since their effect would be anti-
dilutive.
As of December 31, 2006, the Company had 15,707,452,473 shares of common stock
outstanding. If all of the Company's unexpired warrants and options 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 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 32,620,000
--------------
Subtotal 42,620,000
Accrued officer compensation ($440,000),
convertible into common stock 358,758,842
Convertible note holder principal value
($2,227,336), accrued interest ($381,112)
assumed converted into common stock at
$0.000076 per share 34,321,684,211
--------------
Total potential common stock equivalents 34,723,063,053
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
year's presentation.
<page>F-19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 2. GOING CONCERN UNCERTAINTY
As of December 31, 2006, the Company had a deficiency in working capital of
approximately $4,800,000 and had incurred cumulative net losses since inception
of approximately $36,400,000, 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 additional convertible debt securities and sales of
common stock, 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 $5,920,000 through twenty-three similar
funding tranches occurring in April 2002 through July 2006, including certain
fees payable in connection with the financings. The same investor group
recently agreed to advance the Company an additional $1,350,000. The initial
tranche of this funding in the amount of $250,000 was funded in February 2007
(see Note 11). 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. In January 2007, the Company entered into a contract to
install and maintain its H-Net(TM) technology in Northern California. The
Company estimates that this initial contract has a revenue potential of up to
$500,000.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of the recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue its existence.
NOTE 3. PREPAID EXPENSES
The Company has a prepaid expense of $80,000 as representing a staying bonus for
its Chief Executive Officer as per his employment contract (see Note 6). The
staying bonus was amortized over the calendar year 2006. For the three months
ended December 31, 2006, $20,000 of this expense was amortized as officer
salaries with a balance of $0 at December 31, 2006.
Included in prepaid expenses is $20,000 in an escrow account designated for key
man life insurance. Also included are prepaid retainers for a consultant and
law firm amounting to $83,653 and $4,009, respectively, and $2,280 in prepaid
rent.
As of December 31, 2006, the balance in prepaid expenses was $109,942.
NOTE 4. LICENSE RIGHTS AND TECHNOLOGY
License rights and technology at December 31, 2006 consisted of the following:
License rights $ 421,478
Accumulated depreciation (421,478)
------------
Net book value $ --
===========
<page>F-20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 5. LOAN FEES
During the year ended September 30, 2006, the Company received an aggregate of
$1,270,000 from the same accredited investor group in exchange for 6%
convertible debentures maturing March 8, 2009, 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. These convertible debentures were accompanied by an
aggregate of 20,320,000 common stock warrants, exercisable over a five-year
period at a exercise price of $0.0009 per share. Loan fees associated with these
loans amounted to $20,000. As of September 30, 2006, aggregate loan fees
amounted to $539,555, and accumulated amortization of these loan fees was
$511,315.
Total amortization of all loan fees during the quarter ended December 31, 2006
amounted to $6,217, leaving an unamortized loan fee balance at December 31,
2006 of $22,023.
NOTE 6. DUE TO/FROM OFFICERS
The aggregate amount due officers at December 31, 2006 was $470 and interest
expense on the officer loans amounted to $21 for the three months ended
December 31, 2006.
As of September 30, 2006, the Company owed its officers and former officers
$1,878,696 in accrued compensation. Of this amount, $360,000 was attributable
to aggregate staying bonuses payable to the President and former Chief Financial
Officer, Secretary and Treasurer of the Company as of January 31, 2005. An
additional $80,000 payable to the President on January 1, 2006 was amortized
over the 2006 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 358,758,842 at
September 30, 2006, including 289,156,628 shares to pay the Chief Executive
Officer's January 1, 2006 staying bonus.
<page>F-21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES
Convertible debentures at December 31, 2006, secured by substantially all the
assets of the Company, consisted of the following:
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 93,092,105
shares of common stock at the price
of $0.000076 at December 31, 2006 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 93,092,105
shares of common stock at the price
of $0.000076 at December 31, 2006 7,075 $ 7,075
-------
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 107,052,632
shares of common stock at the price
of $0.000076 at December 31, 2006 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 65,460,526
shares of common stock at the price
of $0.000076 at December 31, 2006 4,975 $ 4,975
--------
<page>F-22
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
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 126,315,789
shares of common stock at the price
of $0.000076 at December 31, 2006 9,600 $ 9,600
--------
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 126,315,789
shares of common stock at the price
of $0.000076 at December 31, 2006 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 142,105,263
shares of common stock at the price
of $0.000076 at December 31, 2006 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 78,947,368
shares of common stock at the price
of $0.000076 at December 31, 2006 6,000 $ 6,000
-------
<page>F-23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (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 252,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 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 252,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 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
Accrued interest of $21,600 and principal
on Convertible Debenture convertible
into approximately 284,210,526
shares of common stock at the price
of $0.000076 at December 31, 2006 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 157,894,737
shares of common stock at the price
of $0.000076 at December 31, 2006 12,000 $ 12,000
--------
<page>F-24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #5
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $9,240 and principal
on Convertible Debenture convertible
into approximately 121,578,947
shares of common stock at the price
of $0.000076 at December 31, 2006 9,240 $ 9,240
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $9,240 and principal
on Convertible Debenture convertible
into approximately 121,578,947
shares of common stock at the price
of $0.000076 at December 31, 2006 9,240 $ 9,240
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $9,240 and principal
on Convertible Debenture convertible
into approximately 121,578,947
shares of common stock at the price
of $0.000076 at December 31, 2006 9,240 $ 9,240
-------
<page>F-25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #6
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $12,000 and principal
on Convertible Debenture convertible
into approximately 157,894,737
shares of common stock at the price
of $0.000076 at December 31, 2006 12,000 $ 12,000
-------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $12,000 and principal
on Convertible Debenture convertible
into approximately 157,894,737
shares of common stock at the price
of $0.000076 at December 31, 2006 12,000 $ 12,000
-------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
May 12, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $12,000 and principal
on Convertible Debenture convertible
into approximately 157,894,737
shares of common stock at the price
of $0.000076 at December 31, 2006 12,000 $ 12,000
-------
<page>F-26
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #7
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $8,000 and principal
on Convertible Debenture convertible
into approximately 105,263,158
shares of common stock at the price
of $0.000076 at December 31, 2006 8,000 $ 8,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $8,000 and principal
on Convertible Debenture convertible
into approximately 105,263,158
shares of common stock at the price
of $0.000076 at December 31, 2006 8,000 $ 8,000
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
November 25, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $8,000 and principal
on Convertible Debenture convertible
into approximately 105,263,158
shares of common stock at the price
of $0.000076 at December 31, 2006 8,000 $ 8,000
--------
<page>F-27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #8
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
December 3, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
<page>F-28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #9
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
December 31, 2004 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
<page>F-29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #10
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
February 18, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $4,000 and principal
on Convertible Debenture convertible
into approximately 52,631,579
shares of common stock at the price
of $0.000076 at December 31, 2006 4,000 $ 4,000
--------
<page>F-30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #11
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $19,683 and principal
on Convertible Debenture convertible
into approximately 258,986,842
shares of common stock at the price
of $0.000076 at December 31, 2006 19,683 $ 19,683
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $19,683 and principal
on Convertible Debenture convertible
into approximately 258,986,842
shares of common stock at the price
of $0.000076 at December 31, 2006 19,683 $ 19,683
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 4, 2005 at an annual interest
rate of 12% $ 0
Accrued interest of $19,683 and principal
on Convertible Debenture convertible
into approximately 258,986,842
shares of common stock at the price
of $0.000076 at December 31, 2006 19,683 $ 19,683
--------
<page>F-31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #12
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 16,929
Accrued interest of $3,121 and principal
on Convertible Debenture convertible
into approximately 263,815,789
shares of common stock at the price
of $0.000076 at December 31, 2006 3,121 $ 20,050
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 47,613
Accrued interest of $ 8,778 and principal
on Convertible Debenture convertible
into approximately 741,986,842
shares of common stock at the price
of $0.000076 at December 31, 2006 8,778 $ 56,391
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 39,149
Accrued interest of $7,217 and principal
on Convertible Debenture convertible
into approximately 610,078,947
shares of common stock at the price
of $0.000076 at December 31, 2006 7,217 $ 46,366
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with certain
interest prepaid $ 2,116
Accrued interest of $390 and principal
on Convertible Debenture convertible
into approximately 32,973,684
shares of common stock at the price
of $0.000076 at December 31, 2006 390 $ 2,506
--------
<page>F-32
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #13
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 17,397
Accrued interest of $2,368 and principal
on Convertible Debenture convertible
into approximately 260,065,789
shares of common stock at the price
of $0.000076 at December 31, 2006 2,368 $ 19,765
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 48,930
Accrued interest of $6,660 and principal
on Convertible Debenture convertible
into approximately 731,447,368
shares of common stock at the price
of $0.000076 at December 31, 2006 6,660 $ 55,590
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 40,231
Accrued interest of $5,476 and principal
on Convertible Debenture convertible
into approximately 601,407,895
shares of common stock at the price
of $0.000076 at December 31, 2006 5,476 $ 45,707
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with certain
interest prepaid $ 2,175
Accrued interest of $296 and principal
on Convertible Debenture convertible
into approximately 32,513,158
shares of common stock at the price
of $0.000076 at December 31, 2006 296 $ 2,471
--------
<page>F-33
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #14
Note payable to AJW Partners, LLC
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 42,276
Accrued interest of $5,448 and principal
on Convertible Debenture convertible
into approximately 627,947,368
shares of common stock at the price
of $0.000076 at December 31, 2006 5,448 $ 47,724
--------
Note payable to AJW Offshore, Ltd.
(Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $118,902
Accrued interest of $15,324 and principal
on Convertible Debenture convertible
into approximately 1,766,131,579
shares of common stock at the price
of $0.000076 at December 31, 2006 15,324 $ 134,226
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 97,764
Accrued interest of $12,599 and principal
on Convertible Debenture convertible
into approximately 1,452,144,737
shares of common stock at the price
of $0.000076 at December 31, 2006 12,599 $ 110,363
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with certain
interest prepaid $ 5,285
Accrued interest of $681 and principal
on Convertible Debenture convertible
into approximately 78,500,000
shares of common stock at the price
of $0.000076 at December 31, 2006 681 $ 5,966
--------
<page>F-34
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #16
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $ 94,331
Accrued interest of $9,469 and principal
on Convertible Debenture convertible
into approximately 1,365,789,474
shares of common stock at the price
of $0.000076 at December 31, 2006 9,469 $ 103,800
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with certain
interest prepaid $ 265,306
Accrued interest of $26,632 and principal
on Convertible Debenture convertible
into approximately 3,841,289,474
shares of common stock at the price
of $0.000076 at December 31, 2006 26,632 $ 291,938
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 17, 2007 at an annual interest
rate of 8% with certain
interest prepaid $218,141
Accrued interest of $21,898 and principal
on Convertible Debenture convertible
into approximately 3,158,407,895
shares of common stock at the price
of $0.000076 at December 31, 2006 21,898 $ 240,039
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 17, 2007 at an annual
interest rate of 8% with certain
interest prepaid $ 11,791
Accrued interest of $1,184 and principal
on Convertible Debenture convertible
into approximately 170,723,684
shares of common stock at the price
of $0.000076 at December 31, 2006 1,184 $ 12,975
--------
<page>F-35
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #17
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $28,490
Accrued interest of $1,400 and principal
on Convertible Debenture convertible
into approximately 393,289,474
shares of common stock at the price
of $0.000076 at December 31, 2006 1,400 $ 29,890
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6%
$ 157,990
Accrued interest of $7,765 and principal
on Convertible Debenture convertible
into approximately 2,180,986,842
shares of common stock at the price
of $0.000076 at December 31, 2006 7,765 $ 165,755
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 69,930
Accrued interest of $3,437 and principal
on Convertible Debenture convertible
into approximately 965,355,263
shares of common stock at the price
of $0.000076 at December 31, 2006 3,437 $ 73,367
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 2,590
Accrued interest of $127 and principal
on Convertible Debenture convertible
into approximately 35,750,000
shares of common stock at the price
of $0.000076 at December 31, 2006 127 $ 2,717
--------
<page>F-36
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #18
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 11,000
Accrued interest of $456 and principal
on Convertible Debenture convertible
into approximately 150,736,842
shares of common stock at the price
of $0.000076 at December 31, 2006 456 $ 11,456
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 61,000
Accrued interest of $2,527 and principal
on Convertible Debenture convertible
into approximately 835,881,579
shares of common stock at the price
of $0.000076 at December 31, 2006 2,527 $ 63,527
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 27,000
Accrued interest of $1,118 and principal
on Convertible Debenture convertible
into approximately 369,973,684
shares of common stock at the price
of $0.000076 at December 31, 2006 1,118 $ 28,118
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 1,000
Accrued interest of $41 and principal
on Convertible Debenture convertible
into approximately 13,697,368
shares of common stock at the price
of $0.000076 at December 31, 2006 41 $ 1,041
--------
<page>F-37
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #19
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 11,000
Accrued interest of $410 and principal
on Convertible Debenture convertible
into approximately 150,131,579
shares of common stock at the price
of $0.000076 at December 31, 2006 410 $ 11,410
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 61,000
Accrued interest of $2,276 and principal
on Convertible Debenture convertible
into approximately 832,578,947
shares of common stock at the price
of $0.000076 at December 31, 2006 2,276 $ 63,276
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 27,000
Accrued interest of $1,008 and principal
on Convertible Debenture convertible
into approximately 368,526,316
shares of common stock at the price
of $0.000076 at December 31, 2006 1,008 $ 28,008
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 1,000
Accrued interest of $37 and principal
on Convertible Debenture convertible
into approximately 13,644,737
shares of common stock at the price
of $0.000076 at December 31, 2006 37 $ 1,037
--------
<page>F-38
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #20
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 11,000
Accrued interest of $353 and principal
on Convertible Debenture convertible
into approximately 149,381,579
shares of common stock at the price
of $0.000076 at December 31, 2006 353 $ 11,353
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 61,000
Accrued interest of $1,955 and principal
on Convertible Debenture convertible
into approximately 828,355,263
shares of common stock at the price
of $0.000076 at December 31, 2006 1,955 $ 62,955
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 27,000
Accrued interest of $865 and principal
on Convertible Debenture convertible
into approximately 366,644,737
shares of common stock at the price
of $0.000076 at December 31, 2006 865 $ 27,865
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 1,000
Accrued interest of $32 and principal
on Convertible Debenture convertible
into approximately 13,578,947
shares of common stock at the price
of $0.000076 at December 31, 2006 32 $ 1,032
--------
<page>F-39
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Convertible Debenture #21
Note payable to AJW Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $ 66,000
Accrued interest of $1,714 and principal
on Convertible Debenture convertible
into approximately 890,973,684
shares of common stock at the price
of $0.000076 at December 31, 2006 1,714 $ 67,714
--------
Note payable to AJW Offshore, LTD
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $366,000
Accrued interest of $9,506 and principal
on Convertible Debenture convertible
into approximately 4,940,868,421
shares of common stock at the price
of $0.000076 at December 31, 2006 9,506 $ 375,506
--------
Note payable to AJW Qualified Partners,
LLC (Convertible Debenture) due on
March 8, 2009 at an annual interest
rate of 6% $162,000
Accrued interest of $4,208 and principal
on Convertible Debenture convertible
into approximately 2,186,947,368
shares of common stock at the price
of $0.000076 at December 31, 2006 4,208 $ 166,208
--------
Note payable to New Millennium Capital
Partners II, LLC (Convertible Debenture)
due on March 8, 2009 at an annual
interest rate of 6% $ 6,000
Accrued interest of $156 and principal
on Convertible Debenture convertible
into approximately 81,000,000
shares of common stock at the price
of $0.000076 at December 31, 2006 156 $ 6,156
--------
<page>F-40
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 7. CONVERTIBLE DEBENTURES (continued)
Subtotal - convertible debentures $ 2,712,298
Less reclassified accrued interest (381,112)
Less prepaid interest offset (103,850)
------------
Subtotal principal value 2,227,336
Derivative conversion option - 150 percent of principal 3,341,003
Less unamortized note discount (1,255,191)
-----------
Net carrying value -
convertible debentures $ 4,313,148
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. 8,891
-----------
Total - convertible debentures and notes $ 4,322,039
Current portion 2,439,135
-----------
Long-term portion $ 1,882,904
===========
As of December 31, 2006, five-year maturities of the notes payable, including
convertible debentures, are as follows:
<table>
Derivative Unamortized Subsequent
Conversion Note Conversions Total
Principal Option Discount to Equity Due
----------- ----------- ------------ ----------- -----------
Year ended December 31, 2007 $ 1,077,227 $ 1,602,503 $ (240,595) $ 0 $ 2,439,135
Year ended December 31, 2008 0 0 0 0 0
Year ended December 31, 2009 1,159,000 1,738,500 (1,014,596) (294,500) 1,588,404
Subsequent conversions to equity 0 0 0 294,500 294,500
----------- ----------- ----------- --------- -----------
Total notes payable $ 2,236,227 $ 3,341,003 $(1,255,191) $ 0 $ 4,322,039
=========== =========== =========== ========= ===========
</table>
<page>F-41
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT
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.
On March 29, 2002 the Company issued an aggregate of $300,000 of 12%
convertible debentures in a private offering to four accredited investors.
Three of the investors, if certain conversion limitations are disregarded, are
beneficial owners of 5% or more of the company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.06 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,500,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
On May 10, 2002 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to four accredited investors. Three of the
investors, if certain conversion limitations are disregarded, are beneficial
owners of 5% or more of the Company's outstanding shares of common stock. The
debentures initially were convertible into shares of common stock at the
lesser of $.06 per share and 50% of the average of the lowest three intra-day
trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 750,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
On June 17, 2002 the Company issued an aggregate of $300,000 of 12%
convertible debentures in a private offering to four accredited investors.
Three of the investors, if certain conversion limitations are disregarded, are
beneficial owners of 5% or more of the company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.06 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,500,000 shares of common stock at a per
share exercise price equal to the lesser of $.045 and the average of the
lowest three intra-day trading prices during the 20 trading days immediately
preceding an exercise.
<page>F-42
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
The Company entered into another securities purchase agreement plus related
agreements with three accredited investors on November 27, 2002 (essentially
the same re-organized investor group delineated above) for the purchase of up
to $500,000 of the Company's 12% Convertible Debentures due one year from
their date of issuance. The Company granted the holders of the debentures a
continuing security interest in all of the Company's assets to secure the
Company's obligations under the debentures and related agreements. The
debentures bear interest at a rate of 12% per annum, payable quarterly in
common stock or cash at the option of the Purchasers.
On November 27, 2002 the Company issued an aggregate of $200,000 of 12%
convertible debentures in a private offering to three accredited investors
who, if certain conversion limitations are disregarded, would be deemed
beneficial owners of 5% or more of the Company's outstanding shares of common
stock. The debentures initially were convertible into shares of common stock
at the lesser of $.01 per share and 50% of the average of the lowest three
intra-day trading prices of a share of common stock during the 20 trading days
immediately preceding conversion. In October 2003, the conversion rate was
changed from 50% to 40% of the average of the lowest three intra-day trading
prices of a share of common stock during the 20 trading days immediately
preceding conversion. The debentures were accompanied by warrants
to purchase up to an aggregate of 1,000,000 shares of common stock at a per
share exercise price equal to $.005.
On March 3, 2003 the Company issued an aggregate of $150,000 of 12% convertible
debentures in a private offering to 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-43
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (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.
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.
<page>F-44
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
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 in 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.
On April 20, 2005 the Company issued an aggregate of $108,733 of 8% convertible
debentures in a private offering to the four accredited investors. The Company
prepaid $1,033 in 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
217,466 shares of common stock at a per share exercise price equal to $.0039.
On May 23, 2005 the Company issued an aggregate of $543,665 of 8% convertible
debentures in a private offering to the four accredited investors. The Company
prepaid $5,165 in 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
1,087,330 shares of common stock at a per share exercise price equal to $.0039.
On September 30, 2005 the Company issued an aggregate of $589,569 of 8%
convertible debentures in a private offering to the four accredited investors.
The Company prepaid $36,665 in 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 1,179,138 shares of common stock at a per share exercise price
equal to $.0039.
On March 8, 2006, the Company issued an aggregate of $370,000 of 6% convertible
debentures in a private offering to the four 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 5,920,000 shares of common stock at a per share exercise price
equal to $.0009.
On April 24, 2006, the Company issued an aggregate of $100,000 of 6% convertible
debentures in a private offering to the four 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 1,600,000 shares of common stock at a per share exercise price
equal to $.0009.
On May 19, 2006, the Company issued an aggregate of $100,000 of 6% convertible
debentures in a private offering to the four 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 1,600,000 shares of common stock at a per share exercise price
equal to $.0009.
<page>F-45
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
On June 20, 2006, the Company issued an aggregate of $100,000 of 6% convertible
debentures in a private offering to the four 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 1,600,000 shares of common stock at a per share exercise price
equal to $.0009.
On July 27, 2006, the Company issued an aggregate of $600,000 of 6% convertible
debentures in a private offering to the four 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 9,600,000 shares of common stock at a per share exercise price
equal to $.0009.
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.
Through September 30, 2003, 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 $1,250,000 in principal value was $2,500,000 in aggregate,
representing a 100% premium on the principal value (due to the 100% pricing
advantage) and making the beneficial conversion option of $1,140,097 at the
inception of the loans ($1,250,000 proceeds less $109,903 allocated to the
issuance of the 6,250,000 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 option and a corresponding expense in the current period. Due
to the nature of the debt instrument and its repayment terms, the beneficial
conversion option was 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
year ended September 30, 2005, the derivative conversion option was increased by
$2,100,000 in conjunction with the issuance of an additional $1,400,000 of
convertible debt. During the year ended September 30, 2006, the derivative
conversion option was increased by $1,905,000 in conjunction with the issuance
of an additional $1,270,000 of convertible 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 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.
<page>F-46
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
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 $613,967 since the inception of the loans), bringing the derivative
conversion option balance at September 30, 2004 to $4,117,635
During the year ended September 30, 2005, the Company issued an additional
$1,400,000 of 8% convertible debentures. Also, the Company issued
5,610,392,876 shares of common stock in connection with the conversion of
$2,529,378 of principal and $104,410 of accrued interest on the Company's
convertible debentures, resulting in a convertible debt principal balance at
September 30, 2005 of $1,615,712 (net of an aggregate of $3,034,288 in debt
conversions through that date). A corresponding pro-rata reduction of
$3,794,067 was made to the derivative conversion option during the year ended
September 30, 2005 (an aggregate of $4,408,034 since the inception of the
loans), bringing the derivative conversion option balance at September 30, 2005
to $2,423,568.
During the year ended September 30, 2006, the Company issued an additional
$1,270,000 of 6% convertible debentures. Also, the Company issued 6,458,227,580
shares of common stock upon the conversion of $547,376 of principal and $8,300
of accrued interest on the Company's convertible debentures, resulting in a
convertible debt principal balance at September 30, 2006 of $2,338,336 (net of
an aggregate of $3,581,664 in debt conversions through that date). A
corresponding pro-rata reduction of $821,065 was made to the derivative
conversion option during the year ended September 30, 2006 (an aggregate of
$5,229,099 since the inception of the loans), bringing the derivative conversion
option balance at September 30, 2006 to $3,507,503.
During the quarter ended December 31, 2006, the Company issued 1,322,657,690
shares of common stock in connection with the conversion of $111,000 of
principal and $6,408 of accrued interest on the Company's convertible
debentures, resulting in a convertible debt principal balance at December 31,
2006 of $2,227,336 (net of an aggregate of $3,692,664 in debt conversions
through that date). A corresponding pro-rata reduction of $166,500 was made to
the derivative conversion option during the quarter ended December 31, 2006 (an
aggregate of $5,395,599 since the inception of the loans), bringing the
derivative conversion option balance at December 31, 2006 to $3,341,003.
The aggregate note discount of $5,920,000 is being amortized over the one-year
and two-year, and three-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, $693,992 was amortized
during the year ended September 30, 2005, $715,748 was amortized during the year
September 30, 2006, and $281,643 was amortized during the quarter ended December
31, 2006, while $69,233 in convertible debt 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, $973,565 in convertible bond discount was transferred to
equity upon conversion of $2,529,378 of debt principal during the year ended
September 30, 2005, $243,177 in convertible debt discount was transferred to
equity upon conversion of $547,376 of debt principal during the year ended
September 30, 2006, and $0 in convertible debt discount was transferred to
equity during the quarter ended December 31, 2006 resulting in an unamortized
convertible debt discount balance of $1,255,191 at December 31, 2006.
<page>F-47
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
As of December 31, 2006, the Company was indebted for an aggregate of
$2,608,448 including $2,227,336 of principal and $381,112 of accrued interest,
net of prepaid interest of $103,850, 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.
Unpaid principal and accrued and unpaid interest on the Company's convertible
debentures and notes becomes immediately due and payable from one to three years
from their dates of issuance, depending on the debenture or note, or earlier in
the event of a default. The events of default under the convertible debentures
and notes are similar to those customary for convertible debt securities,
including breaches of material terms, failure to pay amounts owed, delisting of
the Company's common stock from the OTC Bulletin Board or failure to comply with
the conditions of listing on the OTC Bulletin Board and cross-defaults on other
debt securities.
As of December 31, 2006 and the date of filing of this report, the Company was
in default under its obligations to register for resale shares of its common
stock underlying certain of its outstanding convertible debentures and notes
due to the Company's failure to timely register for resale a sufficient number
of shares of its common stock upon conversion of those convertible debentures
and notes. The Company's registration obligations require it to register for
resale 200% of all registrable securities, which are largely comprised of the
shares of common stock issuable upon conversion or exercise of the Company's
outstanding convertible debentures, notes and warrants.
As of December 31, 2006 and the date of filing of this report, the Company was
also in default under its obligations to make interest payments under nearly all
of its outstanding convertible debentures and notes due to its lack of liquidity
to fund those interest payments. The Company expects to continue indefinitely
to be in default of its obligations to make quarterly interest payments under
those convertible notes as well as numerous other convertible debentures and
notes outstanding from prior financing transactions.
As of December 31, 2006, the Company owed principal and unpaid interest on its
convertible debentures and notes in an aggregate amount of approximately $2.6
million, net of approximately $104,000 of prepaid interest, all of which the
Company believes would be immediately due and payable upon demand by the
holders of its secured convertible debentures and notes.
As a result of the above defaults, the holders of the Company's secured
convertible debentures and notes are entitled to pursue their rights to
foreclose upon their security interest in all of the Company's assets. In the
event that the holders of the Company's secured convertible debentures and
notes foreclose upon their security interest in all of the Company's assets,
the Company could lose all of its assets, including its intellectual property
and other technology associated with its H-Net(TM) system, which would have a
material and adverse effect on the Company's business, prospects, results of
operations and financial condition. In addition, the holders of the Company's
secured convertible debentures and notes were entitled to demand immediate
repayment of the outstanding principal amounts of the debentures and notes and
any accrued and unpaid interest. The cash required to repay such amounts would
likely have to be taken from the Company's working capital. Since the Company
relies on its working capital to sustain its day to day operations and the
development of its H-Net(TM) system, a default on the convertible debentures or
notes could have a material and adverse effect on the Company's business,
prospects, results of operations or financial condition. However, as of
December 31, 2006 and the date of filing of this report, other than the receipt
of a notice of default, the Company was not aware of any action taken by the
holders of its secured convertible debentures and notes to pursue such rights,
and as of those dates, the Company also was not aware of any other legal or
similar action taken by those holders to enforce their rights or as a result
of the Company's defaults under those secured convertible debentures and notes.
<page>F-48
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 8. SECURED CONVERTIBLE DEBENTURES - ASSOCIATED
DERIVATIVE CONVERSION OPTION AND CONVERTIBLE DEBT DISCOUNT (continued)
The Company plans to register for resale with the Securities and Exchange
Commission a portion of the shares of common stock underlying the convertible
debentures and notes under which the Company is in default and expects that the
convertible debentures and notes ultimately will be converted into shares of
the Company's common stock and that the Company therefore will not be obligated
to repay the outstanding principal and accrued and unpaid interest amounts on
those debentures and notes.
NOTE 9. SHAREHOLDERS' DEFICIT
The Company's authorized capital stock consists of 50,000,000,000 shares of
common stock, no par value per share, and 50,000,000 shares of preferred stock,
$1.00 par value per share. On June 28, 2006, the shareholders of the Company
approved an increase in the amount of authorized shares of common stock from
15,000,000,000 to 50,000,000,000. Of the 50,000,000 authorized shares of
preferred stock, 1,000,000 shares have been designated as Class A Preferred
Stock and 1,000,000 shares have been designated as Class B Preferred Stock, and
the remaining 48,000,000 shares are undesignated. As of December 31, 2006, there
were 15,707,452,473 shares of the Company's common stock outstanding held by
approximately 800 holders of record, 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.
During October 2006 through December 31, 2006, the Company issued 1,322,657,583
shares of common stock in connection with the conversion of $111,000 of
principal, $166,500 of derivative conversion option and $6,408 of accrued
interest, for a total
conversion amount of $283,908 of the Company's convertible debentures.
NOTE 10. STOCK OPTIONS AND WARRANTS
During the fiscal year ended September 30, 1999, the Company issued to a note
holder options to purchase 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share. As consideration, the Company
reduced its debt to the note holder by $50,000 and received an extension of time
to pay-off its promissory note. The Company also issued to its Chief Executive
Officer options to purchase another 500,000 shares of the Company's Class B
preferred stock at an exercise price of $5.00 per share in exchange for a
reduction in debt of $50,000. Total consideration received on the above issued
options, as evidenced by debt reduction, was $100,000. These options were
initially exercisable through November 1, 2002 and are exercisable into common
stock at the rate of 10 common shares for each Class B preferred share. In
September 2001, the exercise price on the Class B preferred stock options was
adjusted to $2.50 per share and the exercise period was extended to November 1,
2005. In June 2002, the exercise price on the Class B preferred stock options
was adjusted to $0.50 per share. In January 2004, the exercise price on the
Class B preferred stock options was adjusted to $0.05 per share and the exercise
period was extended to November 1, 2009.
<page>F-49
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
The Company's Chief Executive Officer owns 215,865 shares of the Company's Class
A preferred stock, of which 15,845 shares were purchased during the year ended
September 30, 2004, and has options to purchase another 234,155 shares for $1.00
per share through November 1, 2009.
The Company has granted various common stock options and warrants to employees
and consultants. Generally, the options and warrants were granted at
approximately the fair market value of the Company's common stock at the date of
grant and vested immediately, except that when restricted common stock was
issued, the options and warrants were granted at an average discount to market
of 50% (ranging from between 20% to 75%).
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"). On
January 1, 2006. Accordingly, compensation costs for all share-based awards to
employees are measured based on the grant date fair value of those awards and
recognized over the period during which the employee is required to perform
service in exchange for the award (generally over the vesting period of the
award). The Company has no awards with market or performance conditions. Excess
tax benefits are defined by SFAS 123R (when applicable) will be recognized as an
addition to additional paid-in capital. Effective January 1, 2006 and for all
periods subsequent to that date, SFAS 123R supersedes the Company's previous
accounting under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"). In March 2005, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107")
relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its
adoption of SFAS 123R.
The Company adopted SFAS 123R using the modified prospective transition method,
which provides for certain changes to the method for valuing share-based
compensation. The valuation provisions in SFAS 123R apply to new awards and to
awards that are outstanding at the effective date and subsequently modified or
cancelled. Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes under SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"). In accordance with
the modified prospective transition method, the Company's consolidated financial
statements for prior periods were not restated to reflect, and do not include,
the effect of SFAS 123R.
No options were granted or vested during the interim periods presented, and all
options previously granted had completely vested before January 1, 2005.
Therefore no compensation costs were incurred under SFAS 123R and the actual net
loss equals the pro forma net loss for such interim periods.
All common stock options and warrants issued to consultants and other non-
employees have been recorded at the fair value of the services rendered and
equivalent to the market value (as discounted, if applicable) of the equity
instruments received in accordance with SFAS No. 123. The market value was
determined by utilizing an averaging convention of between 5 to 30 days of the
closing price of the Company's common shares as traded on the OTC Bulletin Board
(stock symbol CNES) through the grant date and applying certain mathematical
assumptions as required under the Black-Scholes model. Such assumptions were
generally the same as those mentioned above when making fair value disclosures
for the issuance of officer and employee stock options. These included the
risk-free annual rate of return and stock volatility, which were assumed to be
4.50% and 190%, respectively, during the years ended September 30, 2006 and
2005.
<page>F-50
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
At September 30, 2002, the Company had an aggregate of 8,807,154 common stock
options and a total of 1,000,000 Class B preferred stock options recorded as
additional paid-in capital at a value of $1,443,695. Of the common stock
options and warrants, 2,043,654 had been issued to officers and employees and
the remaining 6,763,500 had been issued to consultants and investors.
In November 2002 through May 2003, 2,500,000 seven-year common stock warrants
were issued to an accredited investor group in connection with a $500,000 12%
convertible debenture financing arrangement (see Note 8 above). The allocated
cost of these warrants amounted to $9,816, resulting in a recorded balance of
stock options and warrants exercisable at September 30, 2003 of $1,453,511
(including $100,000 attributable to 1,000,000 Class B preferred stock options
noted above).
As of September 30, 2003, the Company had an additional 4,852,205 common stock
options that had been granted to consultants and investors at exercise prices
ranging from $0.50 to $2.00 per share, expiring from November 1, 2003 through
January 16, 2005. Because these exercise prices were substantially above the
market price of the Company's common stock, no value was attributed to these
options at the time of grant. During the year ended September 30, 2004,
4,352,205 of these non-valued options expired, leaving a balance at September
30, 2004 of 500,000 options, exercisable at $1.00 per share and expiring January
16, 2005. The Company also granted a contingent issuance to its Chief Technical
Officer of 2,000,000 common stock options exercisable at $0.50 per share and
expiring December 31, 2004, which would not have vested until certain milestones
had been attained. These respective common stock options and contingent
issuances have been excluded from the summarized table below.
In November 2003 through December 2003, 1,000,000 seven-year common stock
warrants were issued to an accredited investor group in connection with a
$200,000 12% convertible debenture financing arrangement (see Note 8 above). The
allocated cost of these warrants amounted to $945.
In February 2004 and March 2004, 1,500,000 seven-year common stock warrants were
issued to an accredited investor group in connection with a $300,000 12%
convertible debenture financing arrangement (see Note 8 above). The allocated
cost of these warrants amounted to $1,417.
In April 2004, 750,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $250,000 12% convertible
debenture financing arrangement (see Note 8 above). The allocated cost of these
warrants amounted to $1,181.
In June 2004, 1,875,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $625,000 12% convertible
debenture financing arrangement (see Note 8 above). The allocated cost of these
warrants amounted to $2,952.
In September 2004, 1,875,000 seven-year common stock warrants were issued to an
accredited investor group in connection with a $625,000 12% convertible
debenture financing arrangement (see Note 8 above). The allocated cost of these
warrants amounted to $2,952, resulting in a recorded balance of stock options
and warrants exercisable at September 30, 2004 of $1,462,958 (including $100,000
attributable to 1,000,000 Class B preferred stock options noted above).
In March 2005 through September 2005, 2,800,000 five-year common stock warrants
were issued to an accredited investor group in connection with a $1,400,000 8%
convertible debenture financing arrangement (see Note 8 above). The allocated
cost of these warrants amounted to $3,756, resulting in a recorded balance of
stock options and warrants exercisable at September 30, 2005 of $1,466,714
(including $100,000 attributable to 1,000,000 Class B preferred stock options
noted above).
<page>F-51
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
During the year ended September 30, 2005, the 500,000 non-valued common stock
options and the 2,000,000 contingently issuable common stock options noted above
both expired. In addition, 6,300,000 previously-valued common stock options and
warrants expired, consisting of 4,750,000 warrants issued to convertible note
holders at exercise prices ranging from $0.045 to $0.192 per share, 1,450,000
common stock options issued to a consultant at an exercise price of $0.13 per
share, and 100,000 common stock options issued to a director at an exercise
price of $0.38 per share.
In March through July 2006, 20,320,000 five-year common stock warrants were
issued to an accredited investor group in connection with a $1,270,000 6%
convertible debenture financing arrangement (see Note 8 above). The allocated
cost of these warrants amounted to $4,551, resulting in a recorded balance of
stock options and warrants exercisable at both September 30, 2006 and December
31, 2006 of $1,471,265 (including $100,000 attributable to 1,000,000 Class B
preferred stock options noted above).
The common stock option and warrant activity during the three months ended
December 31, 2006 and 2005 is summarized as follows:
Common Stock Weighted-
Options Average
and Exercise
Warrants Price
---------- --------
Balance outstanding, October 1, 2006 32,620,000 $ 0.0019
Granted -- --
Expired -- --
---------- -------
Balance outstanding, December 31, 2006 32,620,000 $ 0.0019
========== =======
Balance outstanding, October 1, 2005 14,243,654 $ 0.0056
Granted -- --
Expired (1,943,654) 0.3800
---------- -------
Balance outstanding, December 31, 2005 12,300,000 $ 0.0040
========== =======
<page>F-52
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
The following table summarizes information about common stock options and
warrants at December 31, 2006:
Outstanding Exercisable
Common Weighted- Weighted- Common Weighted-
Range of Stock Average Average Stock Average
Exercise Options/ Life Exercise Options/ Exercise
Prices Warrants (Months) Price Warrants Price
--------------- --------- ------- -------- ---------- --------
$ 0.0050 - $ 0.0050 1,000,000 35 $ 0.0050 1,000,000 $ 0.0050
$ 0.0050 - $ 0.0050 750,000 41 $ 0.0050 750,000 $ 0.0050
$ 0.0050 - $ 0.0050 750,000 43 $ 0.0050 750,000 $ 0.0050
$ 0.0050 - $ 0.0050 500,000 47 $ 0.0050 500,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 47 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 48 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 250,000 50 $ 0.0050 250,000 $ 0.0050
$ 0.0050 - $ 0.0050 1,250,000 50 $ 0.0050 1,250,000 $ 0.0050
$ 0.0020 - $ 0.0020 750,000 52 $ 0.0020 750,000 $ 0.0020
$ 0.0020 - $ 0.0020 1,875,000 57 $ 0.0020 1,875,000 $ 0.0020
$ 0.0020 - $ 0.0020 1,875,000 59 $ 0.0020 1,875,000 $ 0.0020
$ 0.0039 - $ 0.0039 316,066 39 $ 0.0039 316,066 $ 0.0039
$ 0.0039 - $ 0.0039 217,466 39 $ 0.0039 217,466 $ 0.0039
$ 0.0039 - $ 0.0039 1,087,330 39 $ 0.0039 1,087,330 $ 0.0039
$ 0.0039 - $ 0.0039 1,179,138 39 $ 0.0039 1,179,138 $ 0.0039
$ 0.0009 - $ 0.0009 5,920,000 50 $ 0.0009 5,920,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 50 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 50 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 1,600,000 50 $ 0.0009 1,600,000 $ 0.0009
$ 0.0009 - $ 0.0009 9,600,000 50 $ 0.0009 9,600,000 $ 0.0009
$ 0.0009 - $ 0.0050 32,620,000 49 $ 0.0019 32,620,000 $ 0.0019
================ ========== == ======== ========== ========
NOTE 11. SUBSEQUENT EVENTS
COMMON STOCK ISSUANCES- Subsequent to December 31, 2006, the Company issued
approximately 2,420,000,000 shares of common stock through February 15, 2007 in
exchange for the reduction of approximately $118,000 in principal, approximately
$177,000 in derivative conversion option, and approximately $66,000 in accrued
interest, totaling approximately $361,000 in debt.
CONSULTING AGREEMENT - On January 17, 2007, the Company and Trimark Associates
Inc. ("Trimark") executed an Independent Contractor Agreement (the "Agreement")
for the Company to provide installation of its H-Net(TM)technology for a key
irrigation district cooperative in Northern California. The Company is to
provide the services described in individual task orders at compensation rates
also set forth therein. The Agreement is to continue until the services
described in the various task orders are completed. The Agreement may, however,
be terminated in advance by either party at any time and for any reason with 15-
days' prior written notice.
CONVERTIBLE NOTE OFFERING - The Company executed a Securities Purchase Agreement
dated as of February 13, 2007 and issued an aggregate of $1,350,000 of 6%
convertible notes in a private offering to four accredited investors. The
debentures are convertible into shares of common stock at the lesser of $0.03
per share and 40% of the average of the lowest three intraday 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 27,000,000 shares of common stock at a per share exercise price
equal to $0.0009. The Company received an aggregate of $250,000 in cash in
February 2007 in connection with this offering. The Securities Purchase
Agreement contemplates eleven additional monthly installments of $100,000
through January 2008. The subsequent monthly installments contemplated by the
Securities Purchase Agreement are terminable upon 30-days' advance notice by
either the Company or a majority-in-interest of the investors.
<page>F-53
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 products;
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 continuing the development of our H-Net(TM) system. Our recent
development efforts have focused on redesigning our H-Net(TM) circuitry from a
three-board circuit to a two-board circuit. This redesign was completed in
November 2005 and testing of our new H-Net(TM) circuitry has begun. We
<page>2
redesigned our H-Net(TM) circuitry to respond to redesigns of meter products by
meter manufacturers. These redesigns by meter manufacturers were directed at
reducing costs and resulted in reduced available space for integration of
circuitry from third-party technology providers such as ConectiSys.
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 7,500 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. In July 2005, we submitted to the
FCC our eight-channel H-Net(TM) BaseStation product for approval for
commercialization and sale and received FCC certification for this product in
January 2006.
In January 2007, we signed an Independent Contractor Agreement with
Trimark Associates Inc. for the installation of our H-Net(TM) technology for a
key irrigation district cooperative in Northern California. Trimark Associates
Inc. is expected to provide Meter Service Provider and Meter Data Management
Agent services for this project. We expect that the project has a revenue
potential of up to $500,000 and that this contract will be the first in a series
of contracts for H-Net(TM) technology installations throughout California.
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 a deficiency in
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
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
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.
Going Concern Assumption
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. As of December 31,
2006, we had a deficiency in working capital of approximately $4.8 million and
had incurred cumulative net losses since our return to the development stage in
fiscal 1994 of approximately $36.4 million, which raise substantial doubt about
our ability to continue as a going concern. Our plans for correcting these
deficiencies include the future sales and licensing of our products and
technologies, and the raising of capital through the issuance of common stock
<page>3
and from continued officer advances, which are expected to help provide us with
the liquidity necessary to meet operating expenses. An investor group has
advanced us an aggregate amount of approximately $6.2 million. Over the longer-
term, we plan to achieve profitability through our operations from the sale and
licensing of our H-Net (TM) automatic meter-reading system. Our 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 we be unable to
continue our existence.
Stock-Based Compensation
Our compensation of consultants and employees with our capital stock is
recorded and/or disclosed at estimated market value. The volatile nature of the
price of our common stock causes wide disparities in certain valuations.
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation," establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from non- employees in exchange for equity
instruments. We adopted this accounting standard on January 1, 1996. SFAS No.
123 also encourages, but does not require, companies to record compensation cost
for stock- based employee compensation.
We adopted the provisions of SFAS No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS 123R"), on January 1, 2006. Accordingly, compensation costs for
all share-based awards to employees are measured based on the grant date fair
value of those awards and recognized over the period during which the employee
is required to perform service in exchange for the award (generally over the
vesting period of the award). We have no awards with market or performance
conditions. Excess tax benefits as defined by SFAS 123R (when applicable) will
be recognized as an addition to additional paid-in capital. Effective January
1, 2006 and for all periods subsequent to that date, SFAS 123R supersedes our
previous accounting under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 107
("SAB 107") relating to SFAS 123R. We have applied the provisions of SAB 107 in
our adoption of SFAS 123R.
We adopted SFAS 123R using the modified prospective transition method,
which provides for certain changes to the method for valuing share-based
compensation. The valuation provisions of SFAS 123R apply to new awards and to
awards that are outstanding at the effective date and subsequently modified or
cancelled. Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In
accordance with the modified prospective transition method, our consolidated
financial statements for prior periods were not restated to reflect, and do not
include, the effect of SFAS 123R.
The value of the stock-based award is determined using a pricing model
whereby compensation cost is the excess of the fair market value of the stock as
determined by the model at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Shares of our common stock
issued in exchange for goods or services are valued at the cost of the goods or
services received or at the market value of the shares issued, depending on the
ability to estimate the value of the goods or services received.
<page>4
Results of Operations
Comparison of Results of Operations for the Three Months Ended December
31, 2006 and 2005
We did not generate any revenues for the three months ended December 31,
2006 and 2005. Cost of prototypes and samples for the three months ended
December 31, 2006 was $30,166 as compared to $74,846 for the three months ended
December 31, 2005, representing a decrease of $44,680, or 60%. This decrease in
cost of prototypes and samples primarily was due to a decrease in production of
models and prototypes of our H-Net(TM) products used for sales and marketing
purposes.
General and administrative expenses increased by $24,457, or 8%, to
$338,743 for the three months ended December 31, 2006 as compared to $314,286
for the same period in 2005. This increase was primarily due to increased
expenses associated with legal and consulting services.
Interest expense increased by $112,437, or 53%, to $326,332 during the
three months ended December 31, 2006 as compared to $213,895 for the same period
in 2005. The increase in interest expense was primarily attributable to
increased amortization of convertible debt discount on our convertible
debentures and notes.
Net loss for the three months ended December 31, 2006 increased by
$89,336, or 15%, to $692,363 as compared to a net loss of $603,027 for the same
period in 2005. The increase in net loss primarily resulted from the increases
in general and administrative expenses and amortization of convertible debt
discount, as discussed above.
Liquidity and Capital Resources
During the three months ended December 31, 2006, we financed our
operations solely 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
significant accumulated and working capital deficits. 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 September 30, 2006 and for the years ended September 30, 2006
and 2005 have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business.
As of December 31, 2006, we had a working capital deficit of
approximately $4.8 million and an accumulated deficit of approximately $36.4
million. As of that date, we had approximately $115,000 in cash and cash
equivalents and short-term investments. We had accounts payable and accrued
compensation expenses of approximately $2.2 million. We had other current
liabilities, including amounts due to officers, accrued interest and current
portion of convertible debentures of approximately $2.8 million, including debts
incurred prior to the beginning of fiscal year 2006. To the extent convertible
debentures or promissory notes that we have issued are converted into shares of
common stock, we will not be obligated to repay the converted amounts.
Cash used in our operating activities totaled approximately $331,000 for
the three months ended December 31, 2006 as compared to approximately $415,000
for the three months ended December 31, 2005. Cash provided by our investing
activities totaled approximately $317,000 for the three months ended December
31, 2006 as compared to no cash provided by or used in our investing activities
for the three months ended December 31, 2005. The increase in cash provided by
our investing activities was primarily caused by the sale of $322,000 in short-
term investments.
<page>5
Unpaid principal and accrued and unpaid interest on our convertible
debentures and notes becomes immediately due and payable from one to three years
from their dates of issuance, depending on the debenture or note, or earlier in
the event of a default. The events of default under the convertible debentures
and notes are similar to those customary for convertible debt securities,
including breaches of material terms, failure to pay amounts owed, delisting of
our common stock from the OTC Bulletin Board or failure to comply with the
conditions of listing on the OTC Bulletin Board and cross-defaults on other debt
securities.
As of February 16, 2007, we were in default under our obligations to
register for resale shares of our common stock underlying certain of our
outstanding convertible debentures and notes due to our failure to timely
register for resale a sufficient number of shares of our common stock upon
conversion of those convertible debentures and notes. Our registration
obligations require us to register for resale 200% of all registrable
securities, which are largely comprised of the shares of common stock issuable
upon conversion or exercise of our outstanding convertible debentures, notes and
warrants. We have historically been unable to register for resale the full
required amounts of shares of common stock due in part to limitations in our
available authorized capital. As we have increased our authorized capital from
time to time, we have often been reluctant to utilize all or nearly all
available authorized capital to satisfy our registration obligations. This
reluctance arises from our need to maintain available authorized capital for
other potential financing transactions that we may need to conduct to fund our
research and development and otherwise maintain sufficient capital resources to
fund our operations. In addition, because the number of registrable securities
is calculated based on a discount to the prevailing market price of our common
stock, and market prices for our common stock have generally declined throughout
the duration of our convertible debenture and note financings, the number of
registrable securities has substantially increased. Accordingly, although we
may have been in compliance initially, the decline in market prices for our
common stock has caused us to fall out of compliance with our registration
obligations.
As of February 16, 2007, we were also in default under our obligations
to make interest payments under nearly all of our outstanding convertible
debentures and notes due to our lack of liquidity to fund those interest
payments. Although we received substantial cash investments in connection with
our convertible debenture and note financing transactions, we have been
reluctant to make quarterly cash interest payments to our investors. This
reluctance arises from our need to maintain sufficient capital resources to fund
our research and development and our operations. However, on various occasions,
we have prepaid certain interest amounts in connection with convertible
debenture and note financing transactions. In these instances, we were able to
at least temporarily, and on occasion fully, comply with our interest payment
obligations until the convertible debentures or notes were fully converted into
shares of our common stock. In our most recent February 2007 and March 2006
convertible note financing transactions, we did not prepay any interest amounts
and we expect to continue indefinitely to be in default of our obligations to
make quarterly interest payments under those convertible notes as well as
numerous other convertible debentures and notes outstanding from prior financing
transactions.
As of February 16, 2007, we owed principal and unpaid interest on our
convertible debentures and notes in an aggregate amount of approximately $2.7
million, net of approximately $104,000 of prepaid interest, all of which we
believe would be immediately due and payable upon demand by the holders of our
secured convertible debentures and notes.
As a result of the above defaults, the holders of our secured
convertible debentures and notes are entitled to pursue their rights to
foreclose upon their security interest in all of our assets. In the event that
the holders of our secured convertible debentures and notes foreclose upon their
security interest in all of our assets, we could lose all of our assets,
including our intellectual property and other technology associated with our H-
Net(TM) system, which would have a material and adverse effect on our business,
<page>6
prospects, results of operations and financial condition. In addition, the
holders of our secured convertible debentures and notes were entitled to demand
immediate repayment of the outstanding principal amounts of the debentures and
notes and any accrued and unpaid interest. The cash required to repay such
amounts would likely have to be taken from our working capital. Since we rely
on our working capital to sustain our day to day operations and the development
of our H-Net(TM) system, a default on the convertible debentures or notes could
have a material and adverse effect on our business, prospects, results of
operations or financial condition. However, as of that date, other than the
receipt of a notice of default, we were not aware of any action taken by the
holders of our secured convertible debentures and notes 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 and notes.
We plan to register for resale with the Securities and Exchange
Commission a portion of the shares of common stock underlying the convertible
debentures and notes under which we are in default and expect that the
convertible debentures and notes 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 and notes.
As of February 16, 2007, we had issued the following secured convertible
debentures and notes, which provide for interest at the rate of 12% per annum,
except for the notes issued in March 2005, which provide for interest at the
rate of 8% per annum, and the notes issued in March 2006 and February 2007,
which provide for interest at the rate of 6% per annum, and warrants to purchase
common stock to various accredited inventors in connection with debenture and
note 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(#)
- --------------- ---------- ----------------- ---------- ---------------- -----------
May 10, 2002..... $ 150,000 $ 125,000 $ - $ 5,600 -
June 17, 2002.... 300,000 238,000 - 72,000 -
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 - 36,000 750,000
November 25, 2003 100,000 76,000 - 24,000 500,000
December 3, 2003 50,000 31,000 - 12,000 250,000
December 31, 2003 50,000 44,000 - 12,000 250,000
February 18, 2004 50,000 35,000 - 12,000 250,000
March 4, 2004.... 250,000 203,000 - 59,000 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 1,400,000 1,148,000 1,068,336 138,500 2,800,000
March 8, 2006 1,270,000 1,250,000 1,041,200 41,600 20,320,000
February 13, 2007 250,000 230,000 250,000 200 5,000,000
---------- ------------ ----------- ----------- ----------
Total:$5,870,000 $ 4,823,000 $ 2,359,536 $ 440,600 37,620,000
========= ============ =========== =========== ==========
________________
(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.
<page>7
(2) Amounts are approximate and represent accrued and unpaid
interest outstanding as of February 16, 2007. The total amount
of accrued and unpaid interest does not account for
approximately $104,000 of outstanding pre-paid interest.
Each of the above outstanding secured convertible debentures or notes,
except for the convertible notes issued in March 2005, March 2006 and February
2007, are due one year following their respective issuance dates. The
convertible notes issued in March 2005 are due two years following their
issuance dates. The convertible notes issued in March 2006 and February 2007
are due three years following their 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 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, (c) $.005 for the November and December 2003 and the
February, March, April, June and September 2004 convertible debentures and the
March 2005 convertible notes, or (d) $.03 for the March 2006 and February 2007
convertible notes. As of February 16, 2007, the applicable conversion price was
approximately $0.00008 per share.
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
September 30, 2006 and for the years ended September 30, 2006 and 2005 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 report and in Note 2 to our condensed consolidated financial statements
included in this report, we have suffered recurring losses from operations and
at December 31, 2006 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 registered public
accounting firm to modify its 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 and note
investors have provided us with an aggregate of approximately $6.2 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
and note 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 and note 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
<page>8
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 our operations during
the three months ended December 31, 2006. Further, inflation is not expected to
have any significant effect on our future operations.
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.
In June 2006, the FASB released FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based on
the technical merits of the position. Once it is determined that a position
meets the more-likely-than-not recognition threshold, the position is measured
to determine the amount of benefit to recognize in the financial statements.
This interpretation is effective for fiscal years beginning after December 15,
2006. Earlier application of the provisions of this interpretation is
encouraged if the enterprise has not yet issued financial statements, including
interim financial statements, in the period this interpretation is adopted.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets," which provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. This Statement amends FASB SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", with respect to the accounting for separately recognized
servicing assets and servicing liabilities. The Statement (1) requires an entity
to recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
certain situations; (2) requires that a separately recognized servicing asset or
servicing liability be initially measured at fair value, if practicable; (3)
permits an entity to choose either the amortization method or the fair value
method for subsequent measurement for each class of separately recognized
servicing assets or servicing liabilities; (4) permits at initial adoption a
one-time reclassification of available- for-sale securities to trading
securities by an entity with recognized servicing rights, provided the
securities reclassified offset the entity's exposure to changes in the fair
value of the servicing assets or liabilities; and (5) requires separate
presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is effective
for all separately recognized servicing assets and liabilities as of the
beginning of an entity's fiscal year that begins after September 15, 2006, with
earlier adoption permitted in certain circumstances. The Statement also
describes the manner in which it should be initially applied.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments", which amends SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities" and SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." SFAS No. 155 amends SFAS No. 133 to narrow the scope exception for
<page>9
interest-only and principal-only strips on debt instruments to include only such
strips representing rights to receive a specified portion of the contractual
interest or principal cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interests that itself is a derivative
instrument. This statement shall be effective for all financial instruments
acquired, issued or subject to a remeasurement (new basis) event occurring after
the beginning of an entity's first fiscal year that begins after September 15,
2006.
ITEM 3. CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) has concluded,
based on his evaluation as of December 31, 2006 (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 changes in our internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our
most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In November 2006, we issued an aggregate of 792,575,423 shares of common
stock to four accredited investors upon conversion of an aggregate of $73,000 in
principal plus certain related interest on our convertible debentures.
In December 2006, we issued an aggregate of 530,082,267 shares of common
stock to four accredited investors upon conversion of an aggregate of $38,000 in
principal plus certain related interest on our convertible debentures.
The issuances of our securities described above were made in reliance
upon the exemption from registration available under Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving a public
offering. This exemption was claimed on the basis that these transactions did
not involve any public offering and the purchasers in each offering were
sophisticated and had sufficient access to the kind of information registration
would provide, including our most recent Annual Report on Form 10-KSB and our
most recent Quarterly Report on Form 10-QSB.
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
<page>10
future. We are restricted from paying dividends on our common stock under state
law, and the terms of our secured convertible debentures. We currently
anticipate that we will retain any earnings for use in the continued development
of our business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Unpaid principal and accrued and unpaid interest on our convertible
debentures and notes becomes immediately due and payable from one to three years
from their dates of issuance, depending on the debenture or note, or earlier in
the event of a default. The events of default under the convertible debentures
and notes are similar to those customary for convertible debt securities,
including breaches of material terms, failure to pay amounts owed, delisting of
our common stock from the OTC Bulletin Board or failure to comply with the
conditions of listing on the OTC Bulletin Board and cross-defaults on other debt
securities.
As of February 16, 2007, we were in default under our obligations to
register for resale shares of our common stock underlying certain of our
outstanding convertible debentures and notes due to our failure to timely
register for resale a sufficient number of shares of our common stock upon
conversion of those convertible debentures and notes. Our registration
obligations require us to register for resale 200% of all registrable
securities, which are largely comprised of the shares of common stock issuable
upon conversion or exercise of our outstanding convertible debentures, notes and
warrants. We have historically been unable to register for resale the full
required amounts of shares of common stock due in part to limitations in our
available authorized capital. As we have increased our authorized capital from
time to time, we have often been reluctant to utilize all or nearly all
available authorized capital to satisfy our registration obligations. This
reluctance arises from our need to maintain available authorized capital for
other potential financing transactions that we may need to conduct to fund our
research and development and otherwise maintain sufficient capital resources to
fund our operations. In addition, because the number of registrable securities
is calculated based on a discount to the prevailing market price of our common
stock, and market prices for our common stock have generally declined throughout
the duration of our convertible debenture and note financings, the number of
registrable securities has substantially increased. Accordingly, although we
may have been in compliance initially, the decline in market prices for our
common stock has caused us to fall out of compliance with our registration
obligations.
As of February 16, 2007, we were also in default under our obligations
to make interest payments under nearly all of our outstanding convertible
debentures and notes due to our lack of liquidity to fund those interest
payments. Although we received substantial cash investments in connection with
our convertible debenture and note financing transactions, we have been
reluctant to make quarterly cash interest payments to our investors. This
reluctance arises from our need to maintain sufficient capital resources to fund
our research and development and our operations. However, on various occasions,
we have prepaid certain interest amounts in connection with convertible
debenture and note financing transactions. In these instances, we were able to
at least temporarily, and on occasion fully, comply with our interest payment
obligations until the convertible debentures or notes were fully converted into
shares of our common stock. In our most recent February 2007 and March 2006
convertible note financing transactions, we did not prepay any interest amounts
and we expect to continue indefinitely to be in default of our obligations to
make quarterly interest payments under those convertible notes as well as
numerous other convertible debentures and notes outstanding from prior financing
transactions.
As of February 16, 2007, we owed principal and unpaid interest on our
convertible debentures and notes in an aggregate amount of approximately $2.7
million, net of approximately $104,000 of prepaid interest, all of which we
believe would be immediately due and payable upon demand by the holders of our
secured convertible debentures and notes.
<page>11
As a result of the above defaults, the holders of our secured
convertible debentures and notes are entitled to pursue their rights to
foreclose upon their security interest in all of our assets. In the event that
the holders of our secured convertible debentures and notes foreclose upon their
security interest in all of our assets, we could lose all of our assets,
including our intellectual property and other technology associated with our H-
Net(TM) system, which would have a material and adverse effect on our business,
prospects, results of operations and financial condition. In addition, the
holders of our secured convertible debentures and notes were entitled to demand
immediate repayment of the outstanding principal amounts of the debentures and
notes and any accrued and unpaid interest. The cash required to repay such
amounts would likely have to be taken from our working capital. Since we rely
on our working capital to sustain our day to day operations and the development
of our H-Net(TM) system, a default on the convertible debentures or notes could
have a material and adverse effect on our business, prospects, results of
operations or financial condition. However, as of that date, other than the
receipt of a notice of default, we were not aware of any action taken by the
holders of our secured convertible debentures and notes 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 and notes.
We plan to register for resale with the Securities and Exchange
Commission a portion of the shares of common stock underlying the convertible
debentures and notes under which we are in default and expect that the
convertible debentures and notes 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 and notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits
Exhibit No. Description
----------- -----------
31.1 Certification 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
31.2 Certification 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
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
<page>12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONECTISYS CORPORATION
Date: February 20, 2007 By: /s/ ROBERT A. SPIGNO
-----------------------------
Robert A. Spigno,
Chairman of the Board,
President, Chief Executive
Officer and Chief Financial
Officer (principal executive
officer and principal
financial and accounting
officer)
<page>13
EXHIBITS FILED WITH THIS REPORT ON FORM 10-QSB
Exhibit No. Description
----------- -----------
31.1 Certification 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
31.2 Certification 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
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
<page>14