U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended November 30, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to
_______
Commission File Number 33-3560D
CONECTISYS CORPORATION
(Name of small business issuer in its charter)
Colorado 84-1017107
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
7260 Spigno Place
Agua Dulce, 91350
California
(Address of (Zip Code)
principle
executive offices)
Issuer's telephone number: (805) 268-0305
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained herein, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $111,163
The aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock
sold on January 14, 1997, was $ 11,241,770. For purposes of the
foregoing calculation only, all directors and executive officers
of the registrant have been deemed affiliates.
The number of shares outstanding of each of the issuer's
classes of common equity, as of January 14, 1997, was 2,775,729
PART I
Item 1. Description of Business
General
Conectisys Corporation, formerly known as BDR Industries, Inc.
(the "Company"), was incorporated on February 3, 1986, in
Colorado. In November 1995, the name of the Company was changed
to Conectisys Corporation, and is in the development stage.
For several years prior to 1994, the Company was a shell
corporation with no assets and no revenues. Originally, the
Company was engaged in the manufacture of yachts but that
business ultimately was unsuccessful. Creditors foreclosed on
the assets of the Company in lieu of foreclosure on the Company.
During 1995, the Company's only operations consisted of
Creative Image Products, Inc., a wholly owned subsidiary acquired
in 1994 that manufactured organic insecticide. The Company
invested in substantial improvements to the factory and
equipment, but sales anticipated for fiscal 1995 did not occur.
Management of Creative Image Products requested that the Company
"unwind" its acquisition of Creative Image Products by the
Company due to the financial needs of Creative Image Products.
The Board of Directors of the Company agreed. Creative Image
Products signed a promissory note in the amount of $1,302,500
for the funds previously advanced to Creative Image Products by
the Company.
In September 1995, the Company purchased 80% of the outstanding
stock of TechniLink, Inc., a California corporation
("TechniLink"), and 80% of the outstanding stock of PrimeLink,
Inc., a Kansas corporation ("PrimeLink"), in exchange for an
aggregate of 200,000 shares of common stock in the Company and
500,000 shares of common stock for licenses and technology. As a
result, TechniLink and PrimeLink became subsidiaries of the
Company.
TechniLink has developed the Cube 2001 series for the
monitoring and controlling of various devices in the petroleum
and gas industry.
PrimeLink has developed a product line that uses cutting edge
communications to assist in the monitoring of meters for utility
companies and the petroleum industry. This technology, while
eliminating the need for a meter reader, is more significant in
enabling the utility companies to utilize energy conservation
and, in the case of power companies, re-routing of electrical
power to areas where it is needed. The devices are also in use in
vending machines to monitor sales and functions of the vending
machine without the physical inspection usually needed.
Business and Products of PrimeLink
Government regulation and the need to lower operational costs
are requiring many businesses to acquire operating information
from widespread or mobile operations. The cost of the computer
equipment to acquire the data is only part of the overall costs.
Communication equipment capital cost and recurring charges are
often higher than the cost of the computer.
An opportunity exists to combine a reliable low-cost
communications technology with proven remote data monitoring to
provide a unique solution to these cost-sensitive, data
acquisition opportunities. The key technologies are narrowband
PCS, which has been developed by Mtel Corporation for two-way
paging, and data communications protocol conversion for pipeline
control systems. PrimeLink and Mtel's SkyTel business unit have
agreed to jointly market narrowband-PCS data acquisition
solutions.
Potential applications are numerous, including electric and gas
utility meters; pipeline gas flow measurement; vending machine
monitoring; and transportation monitoring and tracking are just
some of the potential applications of the technology. PrimeLink
proposes to enter the market with a gas pipeline product (about
600,000 unit market) because of the experience of the principals
of PrimeLink, but the electricity meter market (over 65 million
unit market) is being aggressively pursued as PrimeLink
establishes itself.
The key concept behind PrimeLink's business is the unique
combination of existing technologies to provide low cost
monitoring and control equipment combined with low cost
communications for sites where real-time monitoring is not
required. The monitoring and control products will be based on
an industry-leading data acquisition software kernel. The
benefit of using this kernel is that it is well proven and
already supports a wide range of industry communication
protocols.
PrimeLink's current product line consists of the following:
TransComm- This product provides two-way access to
SkyTel 2 Way networks which provides inexpensive data transfer
services for small amounts of data. TransComm is ideal for
applications where small amounts of data (about 128 bytes per
day) are required infrequently, such as electric utility meter
reading, gas utility meter reading, pipeline gas flow
measurement, pipeline cathodic protection monitoring, pipeline
leak detection monitoring, transpiration diagnostic and location
monitoring, etc.
UtiliComm- This product comprises a TransComm unit
with a single board computer (or remote terminal unit (RTU))
connected to the electric or gas meter and to the narrowband PCS
transceiver. The RTU will include programming to monitor the
meter, calculate energy usage and send the data to the utility
company on a regular schedule and in a data format which is
compatible with their central computer system.
LiquiComm- This product comprises a TransComm unit
with a single board computer (the same board used in the
UtiliComm unit) connected to the oil, water, or other liquid
meter and to the narrowband PCS transceiver. The RTU will
include programming to monitor the meter, calculate liquid flow
based on pulse inputs programming to monitor the meter, calculate
liquid flow based on pulse inputs from the meter and send the
data to the owner/operator on a regular schedule and in a data
format which is compatible with their central computer system.
FloComm- This product comprises a TransComm unit with a
single board computer (the same as the UtiliComm RTU except for
the addition of three analog inputs) connected to the gas flow
measurement orifice run and to the narrowband PCS transceiver.
The RTU will include programming to monitor the meter, calculate
gas flow and send the data to the owner/operator on a regular
schedule and in a data format which is compatible with their
central computer system.
PrimeServer- In order to simplify integration of the
PrimeLink data into a customer's system, we will provide a
gateway product called PrimeServer which handles all network
interaction and delivers the data to the customer in the optimum
protocol and physical interface, i.e., MODBUS over Ethernet.
PrimeServer may be located at the customer's site or at Mtel's
Networking Operating Center (NOC).
Although the standard package is small, low-powered and very
cost-effective, PrimeLink will offer options which are designed
to provide flexible, customer orientated solutions.
Initial marketing efforts will be concentrating on launching
FloComm. The primary reason for this approach is the experience
the key personnel have in the gas pipeline market. The market is
a niche market compared to remote electric meter reading and has
therefore not attracted the interest of giants such as AT&T.
The target market for FloComm is replacement of mechanical
chart recorders (MCR) on gas pipelines. Some 600,000 sites have
been identified by the Gas Research Institute.
On February 15, 1996, PrimeLink entered into a Joint Marketing
and Development Agreement ("Agreement") with SkyTel Corp.
pursuant to which PrimeLink agreed to customize and develop a
paging technology based receiver for use in connection with
SkyTel's two-way wireless messaging services and system (the
"SkyTel Network") and both parties agreed to assist each other in
the marketing of the PrimeLink product and the SkyTel Network.
The Company believes that the joint marketing of its product with
the SkyTel System could have significant potential for the
Company. However, the Agreement does not require any purchases
of the PrimeLink product by SkyTel, and may not necessarily
result in any significant revenues for the Company. The
Agreement is for a two-year term, and will automatically renew
for additional one-year terms until terminated by either party.
On February 16, 1996, PrimeLink received an order from SkyTel
for the production of 1,000 serial interface board units to be
utilized by Coca Cola. Although the revenues to be received by
the Company from this order are not material, the Company is
hopeful that additional orders will be received for the units.
To date, however, no other orders have been received, and there
can be no assurance that there will be any additional orders. The
above mentioned order from SkyTel, was transferred in April 1996,
Coca Cola requested that PrimeLink sell and consult directly to
Coca Cola.
In June of 1996, PrimeLink signed a pilot project with Wiltech
a division of Williams Natural Gas. The total value of this
project is approximately 1.8 million dollars. The initial
Flowcomm units for this pilot were installed in November and are
transmitting data very successfully.
In November 1996 PrimeLink delivered its first UtiliComm units
to Transdata. These units are the first for electric meters from
PrimeLink. Transdata supplies Enron Corp. with these meters. To
date, other orders have been received, but of no significant
dollar value and there can be no assurance that there will be any
additional orders.
Business and Products of TechniLink
TechniLink Technology Manufacturing, Inc. ("TechniLink") is a
multifaceted corporation who provides products and services for
the Industrial Automation Market. The products consist of
hardware and software to ensure an industrial plant's ability to
automate more efficiently.
For many years people have opened and closed valves manually in
the petrochemical and utility industries. In some cases, they
still do. In most modernized industrial plants today, MOVs, AOVs
and motors have replaced people. This process is called
Industrial Automation. Major U.S. industrial related corporations
are down-sizing internally to compete in a global environment.
The main technology that TechniLink is involved with is LON
(local operating network) by Echelon. This technology creates an
easy to use, and very interoperable system. By dramatically
reducing the installation cost of a computer controlled valve and
motor network, customers are now able to afford the benefits
associated with around-the-clock diagnostics, auditing
documentation and sequence monitoring.
The LonWorks based "Cube 2001" System offers the following key
benefits:
Substantial cost savings from simplified design and
minimization of installation costs.
Significant reductions in material quantities with
regard to cables, distribution and junction boxes.
Sophisticated software packages providing historical
audits of each device on the network and continuous
serial/digital diagnosis of an array of vital
functions.
Major reductions in the space required for control room
apparatus.
High flexibility in the planning or expansion of each
installation.
By far the most important benefits offered by the Cube 2001 are
improved efficiency and productivity through reductions in labor,
maintenance and downtime costs.
The Cube's unique advantages using the neuron chip by
Echelon can be expected to arrive at a winning position in the
consumer's mind. Now the customer can install a device knowing
he can hook up other devices and is not locked to sole source
vendors. The resulting selling basis for our product is
interoperability. Simply stated, the product will work with any
other Lon based product and all other Lon based products will
work with it. The Company believes that the product's ease of
installation makes the product as versatile on retrofit as
anything on the market.
Other Matters
On January 2, 1996, S.W. Carver ("SWC") a California
corporation owned primarily by Robert Spigno, loaned the Company
an additional amount of $50,000. The loan is payable on demand
and the unpaid principal is due and payable December 15, 1996.
The loan bore interest at the rate of 10% per annum. Interest was
waived to the $50,000 loan at the same time 800,000 restricted
share was issued for collateral to the $400,000 loan from SWC to
TechniLink. The restricted shares that were issued to this
transaction were returned to the Corporation in June of 1996 and
interest was reinstated to the loans, There has been no
principal or interest payments towards the $ 400,000 note as of
November 30, 1996. In March of 1996 SWC sold to the company's
subsidiary TechniLink a vehicle for the use of its president. The
cost of the vehicle was $12,000 on account. The terms of this
note are 3 years at 12% interest No interest or principal was
paid in fiscal 1996 for this loan The total outstanding principal
to SWC is $ 519,795 as of November 30, 1996
On February 21, 1996, the Company entered into an Investment
Banking Agreement (The Agreement) with Chalet Capital Corp. (CCC)
The term of the agreement is for a period of two years. CCC will
perform investment banking services consisting of consulting on
the public securities market, investor relations, possible merger
candidates. In consideration of their services the Company shall
grant an option to purchase 1,000,000 shares at $2.50 per share.
As part of the agreement CCC was required to exercise its option
for 100,000 shares within 30 days for a total of $ 250,000. CCC
as of May 1996 paid the company approximately $ 250,000. CCC has
also performed consulting services to the Company. In October
the Company issued 130,800 shares to CCC. The company through an
S-8 registered 1,000,000 shares per the Agreement. The 130,800
shares were returned and converted to free trading shares per the
agreement. At the Company's annual meeting in November, attending
shareholders expressed concern over the S-8. The Company through
an 8-K canceled the issuance of any other shares in regard to the
S-8.
In February 1996, the Company and Hollywood Trenz, Inc.
("HTNZ") mutually agreed to terminate the ADA Sign Purchase
Agreement and Agreement for the Purchase of Common Stock between
them dated March 23, 1995 and to return the shares transferred
pursuant to that agreement. As a result, the Company returned to
HTNZ 600,000 shares of HTNZ common stock and HTNZ returned to the
Company 300,000 shares of the Company's common stock.
On March 19, 1996, the Board of Directors of the Company
authorized the Company to open an account with Oppenheimer & Co.,
Inc. In connection therewith, certificates for an aggregate of
1,000,000 shares of the Company's common stock which are
beneficially owned by Robert A. Spigno were deposited with
Oppenheimer. It is the Company's hope that Oppenheimer will
become a market maker in the Company's common stock.
On July 17, 1996, the Company issued 500,000 shares to
Adventuress Productions Inc. for the purpose of securing a loan.
This transaction was not completed and the shares were returned
to the Company in September 1996. These shares are not included
in the outstanding shares
On July 25, 1996, Conectisys signed an agreement with Avonni
Holding Group Inc. (AHG). The agreement was for the investment of
6,000,000 shares of Rule 144 Common Stock with Avonni for 366
days The return on this investment would have been approximately
12% if funds were delivered, but because of the instability in
the stock over the following months funding could not be secured
and the stock certificates were returned to the Company, and
are not included in the outstanding shares.
On August 20,1996 1,000,000 and 300,000 shares of Rule 144
common stock were issued to Lloyd Hawk and Associates and Savoia
Corporation respectively, for a loan secured by the shares. The
shares were returned, when funding could not be acquired. These
shares are not included in the outstanding shares.
On September 3, 1996, 1727 shares of Rule 144 common stock
were issued to Micro Automation Development (MAD) to reduce debt
in the Company's subsidiary TechniLink. The debt was for services
provided to TechniLink
On September 12, 1996, The Company issued to Internet Stock
Guide Inc., 10,000 shares of Rule 144 common stock for payment
of an advertising contract on there World Wide Web and consulting
services. The agreement is for a one year term with the option of
a second year
On September 23, 1996, The company issued 4155 shares of
Preferred stock to Robert Spigno, President of Conectisys Corp.
for the reduction of compensation accrued to Mr. Spigno.
The Company entered into License agreements with the
Presidents of both Primelink and Technilink. The license
agreements were entered into on September 20, 1995, in connection
with the acquisition of Primelink and Technilink (see Note 1),
and are for a period of five years. As consideration for these
license agreements the Company issued each of the licensee
250,000 shares of its restricted common stock and will pay the
licensee a royalty of 5% of net sales of the applicable product.
In addition, in the event of a sale of the license or the
acquisition or merger of Technilink or Primelink, a royalty sum
of 20% of the sales price of the license shall be paid to the
licensee, the sales price shall not be less than 1,500,000 . the
licenses were valued at the fair market value of the stock issued
to obtain the licenses.
Competition
Conectisys with its subsidiaries PrimeLink and TechniLink
have minimal competition in most markets. PrimeLink's device
FloComm that replaces mechanical chart recorders in the field for
the petro-chemical industry has no known competition to date
using two-way paging technology. Mechanical chart recorders are
predominant in the industry today. The closest competitor uses
spread spectrum radio which the FlowComm product is adaptable to.
The TransComm unit is utilized in the vending machine market has
no competition using SkyTel's Two-Way Paging technology. Cellular
and dedicated line telephone are the closest competition to the
TransComm device The device that PrimeLink uses for automatic
meter reading (AMR) has the most competition. The major
difference between the competition and PrimeLink's device is that
the competition utilizes spread spectrum radios that either have
a drive by collection process or require the build out of
cellular transmission sites. PrimeLink in connection with SkyTel
uses Two-Way Paging technology to accomplish this without the
extra costs
.
TechniLink's Cube 2001 system for real time control of valve
and actuators, are believed to have no known competition using
the Echelon neuron chip currently. The most competitive forces in
the CUBE's market fall in three categories:
A] Powell C2, a mechanical relay technology that has been
around for over 30 years. This type of system is susceptible to
random operation from lightning strikes. TechniLink's Cube 2001
uses processor technology. Processor technology is a viable
replacement to mechanical relays and is not subject to the random
operation condition
B] DCS & PLC based I/O systems. DCS (Digital Control
System) & PLCs (Programmable Logic Controller) are micro
processor based industrial type computers. These are inherently
expensive. The cube 2001 is much more cost effective, low voltage
keeps wire replacement to a minimum, self acquiring network keeps
programming costs down
C] MANUFACTURERS SYSTEMS are created by the actuator
manufacturers. It gets a lot of notoriety because the
manufacturers that sell actuators to the refineries also want to
control their future. This is best done by supplying the control
system for the actuators. TechniLink's system will work with any
actuator that needs control (universal control) therefore
releasing the plant from being "locked" into a system that may
not conform to their needs The CUBE 2001 System is inexpensive
to maintain as well
Suppliers
The company has three key suppliers: Echelon Corporation,
producers of the neuron processor chip, SkyTel; providers of the
telecommunication network; and Motorola, producers of the Two-Way
pager component
Both subsidiaries, PrimeLink and TechniLink will be using
outside vendors for the assembly of their respective products.
This will reduce capital costs since there are a vast number of
vendors to choose from.
Customers
Revenues for the Company have come from two major companies.
Wiltech and Coca Cola. Wiltech is a division of Williams Natural
Gas, One of the largest natural gas suppliers in the U.S.
Proprietary Information
The Company relies on proprietary knowledge and employs
various methods to protect its trade secrets, concepts, ideas and
designs. However, such methods may not afford complete
protection, and there can be no assurance that others will not
independently develop such processes, concepts, ideas and
designs. The Company, through its subsidiaries, manufactures and
markets its technology. However, such technology is not
presently patented in the United States, and although the Company
has undertaken to file one or more applications for U.S. patents
pertaining to the technology, there can be no assurance that
patents will ultimately be issued, Further, the possibility
exists that the technology may be deemed to infringe upon other
technology which is already patented or subject to an application
filed prior to the Company's application when filed, In that
event, the Company could be subject to liability for damages for
infringement and could be required to cease production of
equipment until appropriate licensing arrangements are made, The
Company could also be subject to competition from the party
deemed to be the owner of the patent pertaining to the
technology.
Employees
As of January 14, 1997, the Company and its subsidiaries
employed 7 full time employees, of whom 3 are officers of
Conectisys. At this time there are no grievances of any kind from
the employees of the Company.
Item 2. Description of Property
The Company's principal executive offices are located at
7260 Spigno Place, Agua Dulce, California 91350. The space is
leased from SWC, a related party. The lease is for office space
(1090 Square feet) and equipment to run the day to day operations
of the corporation. The lease was for a period 11 months at $
2000.00 per month that expired in December 1996. The lease was
renewed in January 1997 for an additional 12 months and there is
an option to purchase at the end of the period The terms of the
lease are below what could be obtained from an outside 3rd party.
Management believes that its corporate offices are suitable and
more than adequate for its present needs. There are no plans to
lease any additional space.
The location for PrimeLink is 9875 Widmer Rd, Lenexa, Kansas
66215. PrimeLink rents approximately 560 square feet of space
from Johnson County Business Tech Center for $ 600.00 per month.
TechniLink is located at 7260 Spigno Place Agua Dulce, CA 91350
Item 3. Legal Proceedings
There is one legal proceeding pending to which the Company
is a party. The case, Securities and Exchange Commission
(Plaintiff) Vs. Andrew S. Pitt, Conectisys Corp., Devon
Investments Advisors, Inc., B & M Capital Corp., Mike Zaman, and
Smith Benton & Hughes, Inc. (Defendants) Civil Case # 96-4164.
The Case Alleges that a fraudulent scheme was orchestrated and
directed by the defendants to engage in the sale and distribution
of unregistered shares of Conectisys by creating the appearance
of an active trading market for the stock of Conectisys and
artificially inflating the price of its shares. In the suit the
SEC seeks disgorgment of profits from illegal activity and
permanent injunctions from violating securities laws. The SEC
does not seek any civil penalties from the Company.
The Company has brought suit against former directors and
officers of the Corporation. The suit is for the improper
issuance of stock to the former Directors and Officers. The case
is scheduled to be heard in the second quarter of 1997
Item 4. Submission of Matters to a Vote of Security Holders
Matters were submitted to a vote of security holders during
the Annual Meeting of Stockholders held on November 15, 1996:
1. The election of 3 directors to serve until the next
annual meeting and until their successors are duly elected.
2. To consider and ratify the amendment to the Articles
of Incorporation changing the name to Conectisys Corporation.
3. To conduct such other business as may properly come
before the meeting.
All directors and matters were voted on and through a
majority of votes were accepted.
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
When traded, the Company's shares are traded on the NASDAQ
electronic over-the-counter bulletin board. Bid and asked
quotations are reported on the bulletin board under the symbol
CNES. As of January 10, 1997, there were three market makers
quoting the stock. The following table indicates the range of
high and low Ask/Bid information for the common stock for each
fiscal quarter since December 1, 1993: All prices have been
converted to reflect the 250-1 reverse stock split.
Quarter ending Bid Ask Bid Ask
High High Low Low
November 93 0 25.000 0 25.000
February 94 0 25.000 0 25.000
May 94 .250 25.000 .250 25.000
August 94 1.000 25.250 .250 25.000
November 94 11.250 37.500 1.000 5.000
February 95 13.125 15.000 10.000 13.250
May 95 12.875 19.000 1.000 5.250
August 95 9.000 19.500 .125 5.000
November 95 7.063 12.000 2.500 5.500
February 96 12.000 15.000 6.125 6.125
May 96 20.625 22.000 10.875 12.00
August 96 22.750 25.000 6.000 6.000
November 96 12.625 15.000 .500 4.000
Current January 27, 2.500 5.000
1996
The above quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual
transactions.
The Company has been advised by the Division of Enforcement
of the Securities and Exchange Commission that the Division is
conducting an investigation concerning recent trading in the
Company's common stock. The price of the common stock had risen
dramatically from February 1996, through June 1996, despite the
fact that the Company continues to have operating losses and has
not received any material purchase commitments from customers.
The price of the stock fell when the Securities and Exchange
commission placed a temporary restraining order on Smith Benton
and Hughes, a principal market maker at that time.
As of November 30, 1996, there were 551 shareholders of
record of the Company's common stock.
Holders of the common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors.
The Company has not declared any cash dividends on its common
stock since inception, and its Board of Directors have no present
intention of declaring any dividends.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Results of operations
The Company realized a net loss on operations of $ 2,238,933
for the year ended November 30, 1996, with $ 111,163 of revenues.
The Company in the year ending November 30, 1995, had losses
of $ 2,293,867 with no revenues
Plan of operation
Loss on operations for the Company for the fiscal year ended
1995 was $2,293,867 as compared to a loss of $ 2,238,933 in
fiscal 1996. This is a 2% reduction in losses from the prior
year. The Company will, over the next 12 months, rely on the
revenues from its subsidiaries, collection of notes receivable
and additional funding through the sale of common stock or loans
colateralized through common stock. The decrease in losses was
a result of the start of revenues ($ 111,163) and no additional
acquisitions to the company. Development for the subsidiaries'
products will be ongoing throughout the year with no expected
purchase of significant equipment or plants at this time. There
is no expected significant change in the number of employees at
this time Pilot projects that were started in the third quarter
of 1996 should roll over into full production by the end of the
second quarter in fiscal 1997, generating larger revenues in the
beginning of the third quarter. Additional pilot projects are in
negotiations and are expected to come on-line at the beginning of
the second quarter of 1997
Liquidity and capital Resources
As of November 30, 1996, the Company had a negative working
capital of $ 780,357, consisting of $ 60,027 in current assets
and $840,384 in current liabilities. The Company had a negative
working capital of $ 984,498 at year ended November 1995, This is
a 21% increase in working capital compared to November 30, 1995.
The Company is dependent on achieving profitable operations
through its recent acquisitions and the collection of outstanding
receivable to continue as a going concern.
The independent Certified Public Accountants, for the
Company have issued an opinion on the financial statements of the
Company which is unqualified, subject to the ability of the
Company to continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the deficiency in working
capital of $ 780,357 and $ 984,498 as of November 30, 1996 and
1995, respectively, and the operating losses incurred since the
Company's return to a development stage raise substantial doubt
about its ability to continue as a going concern Management's
plans for correcting these deficiencies include the future sales
of their newly licensed products and to raise capital through the
issuance of common stock to assist in providing the Company with
the liquidity necessary to retire the outstanding debt and meet
operating expenses. in the longer term the company plans to
achieve profitability through the operations of its newly
acquired subsidiaries. The consolidated financials do not include
any adjustment that might result from the outcome of this
uncertainty.
The Company had total assets of $ 2,396,711, at November 30,
1996, and total liabilities of $ 1,531,933 The Company has a net
operating loss carry forward of approximately
$ 3,454,392 available to offset future taxable income, due to the
fact that it is more likely than not to realize this deferred tax
asset, a 100% valuation allowance has been recorded. Shareholder
equity is $ 864,778 as compared to $ 1,674,169 year ended
November 1995. The major portion of the loss in equity resulted
from the exercise of options. The options were granted in 1995
as part of a note to the company. The options were exercised to
relieve outstanding debt to the Company. The difference between
market price and the option price was posted to interest expense.
Costs of the Company are being financed by loans collateralized
by securities, and sale of securities through private placements
and revenues.
Cash Flows
The Company had a net loss for the year ended November 30,
1996, of $2,238,933 The cash used in the operations toward this
loss was $348,857 or 15.5% of the loss. The largest area of the
loss was the result of non-cash transactions to the Company $
519,789, (24%), was the result of amortization and depreciation.
The cash used in investing was $ 61,875 (2%), of the total loss.
The Company received most of its cash, $ 433,316, from financing
activities.
Management's plans for correcting these deficiencies
include, the future sales of the licensed products and to raise
capital through the issuance of common stock to assist in
providing to the company the liquidity necessary to retire the
outstanding debt and meet operating expenses. In the longer term,
the Company plans to achieve profitability through operations of
the subsidiaries, however there are no assurances that
profitablity will be acheived.
Effect of inflation
Inflation did not have any significant effect on the
operations of the company during the fiscal year ending November
30, 1996. Further, inflation is not expected to have any
significant effect on future operations of the Company.
The Financial Accounting Standards Board (FASB) Impact
Statement of FASB standards No. 121 "Accounting for the
impairment of long lived assets and for long lived assets to be
disposed of" (SFAS No. 121) is effective for financial statements
for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment
losses on long lived assets, which include plant and equipment,
certain identifiable intangible assets and goodwill, should be
recognized and how impairment losses should be measured. The
Company does not expect adoption to have a material effect on its
financial position or result of operations SFAS No 123
"Accounting for stock based compensation" (SFAS No 123) Issued by
the FASB is effective for specific transactions entered into
after December 15, 1995. While the disclosure requirements of
SFAS No 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard
establishes a fair value method of accounting for stock based
compensation plans and for transactions in which an entity
acquires goods and services from non-employees in exchange for
equity instruments. At the present time, the Company has not
determined if it will change its accounting policy for stock
based compensation or only provide the required financial
statement disclosures. As such, the impact on the Company's
financial position and results of operation is currently unknown
Item 7. Financial Statements
Financial statements are Unaudited and included herein
beginning on page F1 and are incorporated herein by this
reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
In April 1996 the Company chose to dismiss Cordovano & Co.
and engaged BDO Seidman LLP, Los Angeles, Ca. The dismissal was
at the recommendation and approval of the Company's Board of
Directors. There were no disagreements with the former
accountants on any matter or accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act
Directors and Officers
The Directors and Officers of the corporation, all of whose
terms will expire at the next annual meeting of the shareholders,
or at such time as their successors shall be elected and
qualified, are as follows:
Names Position
Robert A. Spigno Chief Executive Officer, President, and
Chairman of the Board
Richard Dowler Chief Financial Officer and Director
Patricia A. Spigno Secretary, Treasurer and Director
Robert A. Spigno, President and Chief Executive Officer,
Director
Robert A. Spigno, age 42, has been Chief Executive Officer,
President and Chairman of the Board of the Company since August
1995. Prior thereto, Mr. Spigno received his General Contractors
license from the State of California in 1978, and then ventured
out to the Home Building Industries as a sole proprietor. In
1989, he formed a California corporation named S.W. Carver
Corporation, which Mr. Spigno served as, President and Chairman
of the Board since 1989.
Richard Dowler, Director, Chief Financial Officer Controller
Richard Dowler, age 36, is currently the Chief Financial
Officer and Director of Operations for the Company, serving in
such positions since August 1995. Prior to this he was the
Director of Operations for S.W. Carver Corp. for five years.
From 1986 to 1990, Mr. Dowler was General Manager for a
construction firm, overseeing the estimating, purchasing and
accounting departments. Mr. Dowler has been directly responsible
for up to eight projects running simultaneously with over one
hundred fifty employees with budgets of over $ 1,000,000 each.
Patricia A. Spigno, Director, Secretary and Treasurer
Patricia A. Spigno, age 38, has been Secretary, Treasurer
and a director of the Company since August 1995. Prior thereto,
she has for nineteen years acted as a key management person in
the operation of privately held companies. Since January 1990,
she has acted as Secretary and Treasurer of S. W. Carver Corp.
Her involvement in these and other companies has been from the
conceptual stage of the formation of the company through startup
and then on to the daily operations.
Her skills in the area of detailed accounting has aided her
in the duties of asset management. She has been responsible for
all aspects of accounting in a company with over two hundred
employees and an average annual gross sales of several million
dollars. Mrs. Spigno has managed all banking related
transactions including specific account management, wire
transfers, letters of credit, and payroll. She has also managed
all aspects of escrow accounting. She currently holds an active
California Real Estate license. Mrs. Spigno is the spouse of
Robert A. Spigno.
Significant Employees
Don Wallace, age 52, is currently serving as President & CEO
of PrimeLink Inc. a subsidiary of Conectisys Corp. Prior to this
he was President & CEO of Arcom Control Systems Inc., Kansas
City, MO. from September 1991, to November 1995.
Mr. Wallace was responsible to British ownership of Arcom
for complete operation. The owner of Arcom is a publicly traded
company with total sales of $250 million. Achieved sales in 1995
of $6 million with a profitable operation. Arcom develops and
markets various computer-based process control and data
communications products for the oil and gas industry. Mr. Wallace
developed relationships and alliances with major users and
manufacturers such as Williams Companies, Saudi Aramco, Bailey
Controls and Honeywell. He also developed business relationships
in Saudi Arabia and South America.
Karl Elliott, age 41, is currently Serving as President and
Chairman of the Board of TechniLink Technology Manufacturing Inc.
a subsidiary of Conectisys Corporation. He has served in this
capacity since February 1995. Prior to this, from November 1994
to February 1995 he owned a sole proprietorship providing control
system design services. From October 1988 to March 1995 He served
as the MIS Manager/ Systems Integration Manager for Valve Systems
and Controls, A Crane Company.
Responsibilities included implementation of the MIS System.
The system is an IBM RISC 6000 using Sysbase RDMS. Software was
developed using AIX (UNIX) and SQL. The system supports all
aspects of the four district offices and one hundred plus
employees. Other accomplishments include the creation of Systems
Integration Division. Products that came out of this division 2
wire base field networks, Pole Top RTU and the Universal Network
Manager (UNM). The UNM is a STE based 16 port multiple protocol
communication controller
Item 10. Executive Compensation
Renumeration
Cash renumeration accrued for services in all capacities
rendered to the Company ended November 30, 1996, to all directors
and officers as a group was as follows:
Name of individual Capacities in Cash or cash
equivalent
or number of persons in which served forms of
remuneration
in group
Robert A. Spigno CEO/President $ 62,997
All officers and directors
as a group (three persons) $ 148,529
see notes (1)(2)(3)
The Company has plans for profit sharing, insurance and
stock option plans for the benefit of its officer, directors or
other employees for fiscal year 1997, but has not yet adopted any
such programs. In 1994, the Company established a compensatory
benefit plan, pursuant to which up to 20,000 shares of common
stock may be issued to persons that the Board of Directors deems
are owed some form of compensation for services to the Company.
On December 4, 1995, the Company issued restricted shares of
its common stock to each of its executive officers and directors
as incentive for their prior performance during the past year and
in lieu of cash compensation which they did not receive. The
following shares were issued:
104,165 restricted shares to Robert A. Spigno in
payment of $20,833 owed him.(1)
350,000 restricted shares to Robert A. Spigno as
incentive per director's agreement (1)
2,381 restricted shares to Richard Dowler in payment of
$8,333 owed him.
50,000 restricted shares to Richard Dowler as incentive
per director's agreement (2)
33,334 restricted shares to Patricia A. Spigno in
payment for $6,667 owed her.(3)
100,000 restricted shares to Patricia A. Spigno as
incentive per director's agreement (3)
(1) Subsequently the 104,165 and the 350,000 shares have been
returned to the Company's treasury by Mr. Spigno, in June 1996,
reducing the renumeration to him by approximately $ 1,591,556
(2) Subsequently the 50,000 shares have been returned to the
Company's treasury by Mr. Dowler in June 1996, reducing the
renumeration to him by approximately $ 175,000
(3) Subsequently the 33,334 and the 100,000 shares have been
returned to the Company's treasury by Mrs. Spigno in June 1996,
reducing the renumeration to her by approximately
$ 467,341
Stock Option Exercises and option values
Fiscal year end option values
Number of Unexercised Value of Unexercised, In
Option Shares at Fiscal the Money Options at
Year End Fiscal Year End
Name Exercisable Unexercisab Exercisable Unexercisable
Robert 1,471,195 0 $ 8,827,170 0
Spigno
Patricia 500,000 0 $ 3,000,000 0
Spigno
Richard 500,000 0 $ 3,000,000 0
Dowler
Employment Contracts
On December 4, 1995, the Board of Directors approved
employment agreements with its executive officers (who also
constitute the Board of Directors) and the payment of restricted
stock to the officers for their past services. These agreements
are incorporated by reference to the 10-K for the year ended
November 30, 1995
Item 11. Security Ownership of Certain Beneficial Owners and
Management
As of January 27, 1997, the Company had 2,775,729
outstanding shares of common stock. Each common share entitles
the holder to one vote on any matter submitted to shareholders
for approval. The Company has authorized 1,000,000 shares of
Class A Preferred Stock, $1.00 par value per share, of which
20,500 shares currently are issued and outstanding. Preferred
Class A stock has 100 to 1 voting rights. Also authorized are
1,000,000 shares of Class B. Preferred Stock, $1.00 par value per
share. Class B Preferred stock has conversion rights of 10 shares
common stock to 1 share Preferred Class B of which no shares
currently are issued and outstanding.
Beneficial Owners Owning Number Of Percentage
5% or more Shares of common
Stock
Karl E. Elliott 350,000 12.61%
Patricia A. Spigno (2) 28,805 1.04%
Robert A. Spigno (1) 355,426 12.80%
Masha Post Commercial 229,962 8.28%
Trading
Donald I. & Elizabeth V. 350,000 12.61%
Wallace
Claudia J. Zaman 355,368 12.80%
Frank Bellusci 260,000 9.37%
Security ownership of
Management
Richard Dowler 3,494 .13%
Patricia A. Spigno 28,805 1.07%
Robert A. Spigno 355,426 12.80%
Total Directors and 387,739 14%
Officers as a whole
Beneficial Owners Owning Number of Percentage
5% or more shares of class A
Preferred
Robert A. Spigno 20,500 100%
(1) Does not include 28,805 shares owned by Patricia Spigno
(spouse). The aggregate beneficially owned by Robert A. Spigno is
Shares 384,231 (13.84%)
(2) Does not include 355,426 shares owned by Robert A. Spigno
(spouse). The aggregate beneficially owned by Patricia A. Spigno
is 384,231 Shares. (13.84%)
Item 12. Certain Relationships and Related Transactions
In February 1996, the Company's Board of Directors
authorized the purchase of a car for the use of its Chief
Financial Officer, Richard Dowler. The purchase price was
approximately $23,000, of which approximately $18,000 was
financed by the Company. The Board of Directors also determined
that the vehicle would be maintained and fueled in full by the
Company.
In February 1996, the Company entered into an equipment
lease/purchase agreement with SWC. The lease is for 11 months at
a rate of $2,000 per month. The Company has the right to
purchase the leased right for approximately $83,000. However,
the lessor has the right to revoke the purchase option at any
time and for any reason.
The engagement with Carver Accounting Services (CAS), which
is owned by Robert A. Spigno and Patricia A. Spigno. CAS is to
maintain the day to day accounting needs of the company. CAS is
included in the general and administrative expenses.
Effective March 21, 1995, the Board of TechniLink approved
the purchase of a 1990 Ford Bronco from SWC for $12,000. The note
for the vehicle is at 10% interest until March of 1998 No
principal or interest has been paid toward this note
Information concerning certain other related party
transactions are contained in response to Item 1 and 11 and which
are incorporated herein by this reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
99.0 Financial statements
(b) During the Registrant's fiscal year ended November 30,
1996, the registrant filed the following current reports on Form
8-K:
8-K Dated November 1, 1996 Filed April 96
8-K Dated February 15, 1996 Filed May 96
8-K Dated June 26, 1996 Filed June 96
8-K Dated November 18, 1996 Filed November 96
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned
hereunto duly authorized.
CONECTISYS CORPORATION
Date: April 8, 1997 By /S/ Robert A. Spigno
Robert A. Spigno, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/S/ Robert A. Spigno Chairman of the Board, April 8, 1997
(Robert A. Spigno) Chief Executive
Officer, President and
Director
/S/ Richard Dowler Chief Financial Officer April 8, 1997
(Richard Dowler) (Principal Financial
Officer and Principal
Accounting Officer),
and Director
/S/ Patricia A. Spigno Secretary, Treasurer April 8, 1997
(Patricia A. Spigno) and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10KSB/A and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-28-1997
<CASH> 24495
<SECURITIES> 0
<RECEIVABLES> 1347647
<ALLOWANCES> 857543
<INVENTORY> 0
<CURRENT-ASSETS> 60027
<PP&E> 191153
<DEPRECIATION> (40783)
<TOTAL-ASSETS> 2396711
<CURRENT-LIABILITIES> 840384
<BONDS> 0
0
20500
<COMMON> 6457221
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2396711
<SALES> 111163
<TOTAL-REVENUES> 111163
<CGS> 86977
<TOTAL-COSTS> 86977
<OTHER-EXPENSES> 1809434
<LOSS-PROVISION> 118611
<INTEREST-EXPENSE> 648424
<INCOME-PRETAX> (2238933)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2238933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2238933)
<EPS-PRIMARY> (.86)<F1>
<EPS-DILUTED> (.86)<F2>
<FN>
<F1>Shares are the weighted average of shares for
the year ended november 30, 1996
<F2>Due to the net loss all options and warrants are
considered anti-dilutive
</FN>
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F2
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS F3 -F4
STATEMENT OF OPERATIONS F5
STATEMENT OF SHAREHOLDERS EQUITY F6
STATEMENT OF CASH FLOWS F7-F8
SUMMARY OF ACCOUNTING POLICIES F9-F11
NOTES TO CONSOLIDATED FINANCIALS F12-F19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors,
Conectisys Corporation and Subsidiaries
Agua Dulce, California
We have audited the accompanying consolidated balance sheets of Conectisys
Corporation and Subsidiaries (a development stage company) as of November 30,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended November 30, 1996 and
1995 and from December 1, 1990 (inception of development stage) through,
November 30, 1996, except that we did not audit these financial statements for
the period December 1, 1990 (inception of development stage) through November
30, 1994, these financial statements were audited by other auditors and whose
report dated January 9, 1995 expressed a going concern uncertainty. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Conectisys Corporation and
Subsidiaries as of November 30, 1996 and 1995, and the results of their
operations and their cash flows for the years ended November 30, 1996 and 1995
and from December 1, 1990 (inception of development stage) through November 30,
1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the deficiency in working capital of
$780,357 and $984,498 as of November 30, 1996 and 1995, respectively, and the
operating losses incurred since the Company's return to a development stage
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters also are described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BDO Seidman, LLP
Los Angeles, California
Consolidated financial Statements
BALANCE SHEETS
February 15, 1997
November 30,
1996 1995
Assets
Current assets
Cash and cash equivalents $ 24,495 $ 1,911
Accounts receivable - trade
(net of allowance for
doubtful accounts of $1,668) 35,532 -
Stock subscription receivable
(received January 1996) - 20,000
Total current assets 60,027 21,911
Notes receivable, net (Note 4) 446,625 466,625
Interest receivable, net (Note 4) 7,947 7,947
Property and equipment, net (Note 5) 150,370 121,734
Other assets
Licenses and technology,
net of accumulated
amortization of $481,526
in 1996 (Notes 1 and 9) 1,727,242 2,178,430
Deposits 4,500 4,500
Total other assets 1,731,742 2,182,930
$ 2,396,711 $ 2,801,147
See summary of significant accounting policies and notes to consolidated
financial statements.
Balance sheets (Continued)
November 30,
1996 1995
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $338,822 $ 42,933
Accrued compensation (Note 9) 136,181 53,295
Notes payable (Notes 3 and 6)
Related party - 456,235
Other 247,719 441,824
Other current liabilities 117,662 12,122
Total current liabilities 840,384 1,006,409
Long-term liabilities
Notes payable (Note 3 and 6)
Related 527,830 -
Other 163,719 -
Total long-term liabilities 691,549 -
Minority interest - 120,569
Commitment (Note 9)
Shareholders'equity (Note 7)
Preferred stock - Class A, 1,000,000
shares authorized,$1.00 par value;
20,500 and 16,435 issued and
outstanding in 1996 and 1995 20,500 16,345
Convertible preferred stock - Class B,
1,000,000 shares authorized,
$1.00 par value; -0- issued and outstanding - -
Common stock, 250,000,000 shares
authorized, no par value;
2,775,729 and 2,591,387 shares issued
and outstanding in 1996 and 1995 6,457,221 5,031,834
Deficit accumulated during
development stage (5,612,943) (3,374,010)
Total shareholders' equity 864,778 1,674,169
$ 2,396,711 $ 2,801,147
See summary of significant accounting policies and notes to consolidated
financial statements.
STATEMENT OF OPERATIONS
December 1, 1990
(Inception)through
Years Ended November 30, November 30,
1996 1995 1996
Revenues $ 111,163 $ - $ 111,163
Costs of goods sold 86,977 - 86,977
Gross profit 24,186 - 24,186
Operating expenses
General and administrative (Note 3) 1,715,009 1,155,608 2,870,617
Bad debt write-offs (Note 4) 118,611 1,115,286 1,233,897
Loss from operations (1,809,434) (2,270,894) (4,080,328)
Interest income 98,356 5,093 101,048
Interest expense (648,424) (29,244)
(677,668)
Minority interest 120,569 1,178 121,747
Net loss $ (2,238,933) $ (2,293,867) $ (4,535,201)
Weighted average shares outstanding 2,608,613 1,984,829
Net loss per share $ (.86) $ (1.16)
See summary of significant accounting policies and notes to consolidated
financial statements.
STATEMENT OF SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
Deficit Accumu-
Preferred Stock lated During
Class A Common Stock Development
Shares Amount Shares Amount Stage Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 1, 1990 (re-entry
development stage) - $ - 212,188 $ 1,042,140 $ (1,042,140) $ -
Shares issued in exchange for:
Cash, May 31, 1993 - - 20,000 1,000 - 1,000
Capital contribution, May 31, 1993 - - 40,000 515 - 515
Services, March 26, 1993 - - 40,000 500 - 500
Services, March 26, 1993 - - 24,000 600 - 600
Net loss for the year ended
November 30, 1993 - - - (5,459) - (5,459)
Balance, November 30, 1993 - - 336,188 1,044,755 (1,047,599) (2,844)
</TABLE>
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Services, May 1, 1994 - - 48,000 3,000 - 3,000
Cash, September 1, 1994 - - 355,426 23,655 - 23,655
Services, September 15, 1994 - - 173,986 11,614 - 11,614
Cash, September 26, 1994 - - 60,000 15,000 - 15,000
Cash, October 6, 1994 16,345 16,345 - - - 16,345
Cash, September and
October, 1994 - - 26,400 33,000 - 33,000
Net loss for the year - - - - (32,544) (32,544)
Balance, November 30, 1994 16,345 16,345 1,000,000 1,131,024 (1,080,143) 67,226
</TABLE>
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Cash, February 13, 1995 - - 23,200 232,000 - 232,000
Debt repayment, February 13, 1995 - - 40,800 408,000 - 408,000
Debt repayment, February 20, 1995 - - 95,562 477,810 - 477,810
Acquisition of assets,
CIPI February 1995 - - 575,000 1,950,000 - 1,950,000
Acquisition of assets,
April 5, 1995 (Note 10) - - 300,000 - - -
Cash and services,
April and May 1995 - - 320,000 800,000 - 800,000
Cash, June 1, 1995 - - 10,000 30,000 - 30,000
Acquisition of assets and services,
September 26, 1995 - - 80,000 200,000 - 200,000
Cash, September 28, 1995 - - 825 3,000 - 3,000
Acquisition of assets,
September 1995 - - 700,000 1,750,000 - 1,750,000
Return of assets, CIPI September 1995 - - (554,000) (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 2,591,387 5,031,834 (3,374,010) 1,674,169
</TABLE>
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for (Note 7):
Cash, February, 1996 - - 27,778 125,000 - 152,779
Debt repayment, February, 1996 - - 200,000 639,779 - 612,000
Services, February, 1996 - - 63,199 205,892 - 205,892
Cash, March,1996 - - 3,571 25,000 - 25,000
Shares returned and
cancelled, March,1996 - - (300,000) - - -
Services, April, 1996 - - 267 2,069 - 2,069
Services, September,1996 4,155 4,155 11,727 36,317 - 40,472
Services, October, 1996 - - 130,800 327,000 - 327,000
Debt repayment, November, 1996 - - 47,000 64,330 - 64,330
Net loss for the year - - - - (2,238,933) (2,238,933)
Balance, November 30, 1996 20,500 $20,500 2,775,729 $6,457,221 $(5,612,943) $ 864,778
</TABLE>
_______________________________________________________________________________
See summary of significant accounting policies and notes to consolidated
financial statements.
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash December 1, 1990
(Inception)through
Years Ended November 30, November 30,
1996 1995
1996
Cash flows from operating activities:
Net loss $ (2,238,933) $ (2,293,867) $ (4,535,201)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Stock issued for services 575,433 907,000 1,462,545
Stock issued for interest 446,640 - 446,640
Provision for bad
debt write-offs 118,611 855,875 974,486
Minority interest (120,569) (1,178) (121,747)
Depreciation and amortization 519,789 946 521,059
(Increase) decrease in assets:
Accounts receivable (38,862) 419 (38,443)
Accrued interest receivable (95,281) (6,283) (103,647)
Deposits - (1,500) (4,500)
Increase (decrease) in liabilities:
Accounts payable 295,889 30,027 338,822
Accrued compensation 82,886 53,295 136,181
Other current liabilities 105,540 7,605 117,662
Net cash used in operating activities (348,857) (447,661) (806,143)
Cash flows from investing activities:
Increase in notes
receivable (Note 4) - (1,036,843) (1,322,500)
Costs of licenses and technology (30,340) (3,252) (33,592)
Purchase of equipment (31,535) (3,909) (57,970)
Net cash used in investing activities (61,875) (1,044,004) (1,414,062)
STATEMENT OF CASH FLOWS (CONTINUED)
December 1, 1990
(Inception) through
Years Ended November 30, November 30,
1996 1995 1996
Cash flows from financing
activities:
Common stock issuance 150,000 338,000 560,655
Preferred stock issuance - - 16,345
Proceeds from debt, other 155,203 785,634 1,482,837
Proceeds from debt, related 150,309 56,235 206,544
Payments on debt, other (8,951) - (8,951)
Payments on debt, related (33,245) - (33,245)
Decrease in stock
subscription receivable 20,000 - 20,000
Contributed capital - - 515
Net cash provided by
financing activities 433,316 1,179,869 2,244,700
Net increase (decrease) in cash 22,584 (311,796) 24,495
Cash, beginning of year 1,911 313,707 -
Cash, end of year $ 24,495 $ 1,911 $ 24,495
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 41,874 $ - $ 41,874
Taxes 800 850
1,650
Noncash financing activities:
Common stock issued in exchange for:
Property and equipment $ 35,362 $ 95,569 $ 130,931
Licenses and technology $ - $ 1,770,000 $ 1,770,000
Repayment of debt $ 257,469 $ 885,810 $ 1,143,279
Services and interest $ 1,017,918 $ 907,000 $ 1,940,326
See summary of significant accounting policies and notes to consolidated
financial statements.
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the transactions
of Conectisys Corporation ( the "Company") and its 80% owned subsidiaries
Technilink, Inc. and Primelink, Inc. All material intercompany transactions and
balances have been eliminated in the accompanying consolidated financial
statements.
Development Stage Company
The Company returned to the development stage in accordance with SFAS No. 7
on December 1, 1990 and during the fiscal year ended November 30, 1995, the
Company completed two mergers and is in the process of developing its technology
and product lines.
Cash Equivalents
For financial accounting purposes and the statement of cash flows, cash
equivalents include all highly liquid debt instruments with original maturities
of three months or less.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method.
Property and equipment is estimated to have a useful life of 5-7 years.
Net Loss Per Common Share
Net loss per common share 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 antidilutive.
Stock Issued for Noncash Consideration
Shares of the Company's no par value common stock issued in exchange for
goods or services are valued at the cost of the goods or services received or at
the market value of the shares issued depending on the ability to estimate the
value of the goods or services received.
Estimates
The preparation of the 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SUMMARY OF ACCOUNTING POLICIES (continued)
License Agreements
The cost of acquiring license rights are capitalized and amortized over the
shorter of the estimated useful life of the license or the term of the license
agreement. The licenses are being amortized over a period of five years. At
November 30, 1996, the Company generated some revenues from the licenses it
acquired. Although management has developed a plan to develop and market the
technology, it is reasonably possible that the estimates of expected future
gross revenue will be reduced significantly in the near term due to competitive
pressure. Consequently, the carrying amount of capitalized licenses at November
30, 1996 may be reduced materially in the near term. The carrying value of the
licenses is subject to periodic evaluation and if necessary the amounts will be
written down to their net realizable value.
Technology
Deferred technology costs include capitalized product development and
product improvement cost incurred after achieving technological feasibility and
are amortized over a period of five years.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, which requires the Company to recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets using the enacted rates in effect in the years in which the
differences are expected to reverse.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) issued
by the FASB is effective for specific transactions entered into after December
15, 1995, while the disclosure requirements of SFAS No.123 are effective for
financial statements for fiscal years beginning no later than December 15, 1995.
The new standard establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods and
services from nonemployees in exchange for equity instruments. At the present
time, the Company has not determined if it will change its accounting policy for
SUMMARY OF ACCOUNTING POLICIES (contiued)
stock based compensation or only provide the required financial statement
disclosures. As such, the impact on the Company's financial position and
results of operations is currently unknown.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, stock subscription receivable, accounts
payable, accrued compensation and notes payable other, approximate fair value
because of the short maturity of these instruments. It is not practical to
estimate the fair value of the notes payable related party due to their related
party nature.
Reclassifications
For comparability purposes, certain prior year accounts have been
reclassified to conform with current year presentation.
NOTES TO CONSOLIDATED FINANCIALS
1. Business
Nature of Organization
The Company was incorporated under the laws of Colorado on February 3, 1986, to
analyze and invest in business opportunities as they may occur.
TechniLink has developed the Cube 2001 series for the monitoring and controlling
of various devices in the petroleum and gas industry.
PrimeLink has developed a product line that uses cutting edge communications to
assist in the monitoring of meters for utility companies and the petroleum
industry. This technology, while eliminating the need for a meter reader, is
more significant in enabling the utility companies to utilize energy
conservation and, in the case of power companies, re-routing of electrical power
to areas where it is needed. The devices are also in use in vending machines to
monitor sales and functions of the vending machine without the physical
inspection usually needed.
Effective December 1, 1994, the Company agreed to acquire all of the outstanding
shares of Progressive Administrators, Inc. (PAI) in exchange for 300,000 shares
of its no par value common stock. The transaction was to be accounted for as a
purchase transaction. The shares to be issued by the Company were to be
"restricted securities" within the meaning of Rule 144 of the Securities Act of
1933, as amended. Accordingly, PAI would have been a wholly-owned subsidiary of
the Company as of December 1, 1994. PAI was formed in the state of Colorado on
September 14, 1994 and is engaged in the records storage business.
Effective December 1, 1994, the Company also agreed to acquire all of the
outstanding shares of Creative Image Products, Inc. (CIPI) in exchange for
575,000 shares of its no par value common stock. The shares were issued in
February of 1995. The shares issued by the Company were "restricted securities"
within the meaning of Rule 144 of the Securities Act of 1933, as amended.
Accordingly, CIPI was a wholly-owned subsidiary of the Company as of December 1,
1994. CIPI was formed in the state of Kansas on April 29, 1994 and is engaged
in the insecticide business and through its wholly-owned subsidiary, ADA
Signature Distributors, Inc., the sign manufacturing business.
During 1995, the Company's only operations consisted of CIPI's manufacturing of
organic insecticides prior to its disposal. On September 28, 1995 the Company
entered into an agreement to unwind the acquisition of CIPI. CIPI issued a
promissory note to the Company in the amount of $1,302,500 to reimburse the
Company for cash advances. In accordance with the agreement, the shares issued
to CIPI were exchanged for all shares issued to the Company. The shares
outstanding carry no value on the financial statements.
On February 15, 1996, PrimeLink entered into a Joint Marketing and Development
Agreement ("Agreement") with SkyTel Corp. pursuant to which PrimeLink agreed to
customize and develop a paging technology based receiver for use in connection
with SkyTel's two-way wireless messaging services and system (the "SkyTel
Network") and both parties agreed to assist each other in the marketing of the
PrimeLink product and the SkyTel Network. The Company believes that the joint
1. Business(Continued)
Nature of Organization (Continued)
marketing of its product with the SkyTel System could have significant potential
for the Company. However, the Agreement does not require any purchases of the
PrimeLink product by SkyTel, and may not necessarily result in any significant
revenues for the Company. The Agreement is for a two-year term, and will
automatically renew for additional one-year terms until terminated by either
party.
Change of Control
During the year ended November 30, 1994, the Company issued a combination of
voting common and voting preferred shares to Black Dog Ranch, LLC, an unrelated
party, sufficient to transfer control of the Company to Black Dog Ranch, LLC.
Accordingly, the Company is a subsidiary of Black Dog Ranch, LLC. In connection
with the transfer of control, the Company changed its name to BDR Industries,
Inc. During the year ended November 30, 1995 the Black Dog Ranch, LLC sold its
interest in the Company to Robert Spigno who now has the controlling interest in
the Company. BDR Industries, Inc. then changed its name to Conectisys
Corporation.
Formation of Subsidiary
Effective June 24, 1994, the Company formed a wholly-owned subsidiary, CFC
Capital Corporation. The entity is currently inactive.
Acquisition of Privately Held Companies
In September 1995, the Company acquired 80% of the outstanding stock of
Technilink, Inc. a California Corporation, and 80% of the outstanding stock of
Primelink, Inc., a Kansas corporation, in exchange for an aggregate of 200,000
shares of the Company's common stock. The acquisitions were accounted for as
purchases. Both Primelink and Technilink are start-up companies with no material
operating activity and therefore no proforma statements of operations were
provided for 1995.
The acquisitions of these companies occurred in connection with the signing
of the license agreements discussed in Note 9. The Company issued a total of
700,000 shares of common stock and assumed a loan of $400,000 to acquire the
licenses and the Corporations. The only major asset acquired from Primelink and
Technilink was the license and technology. The stock issued was valued at
$1,750,000, the fair market value of common stock issued, and is included in
licenses and technology on the balance sheet.
2. Going Concern
As of November 30, 1996 and 1995, the Company has a deficiency in working
capital of $780,357 and $984,498, respectively and has incurred operating losses
since its return to the development stage, which raise substantial doubt about
the Company's ability to continue as a going concern.
Management's plans for correcting these deficiencies include the future sales of
their newly licensed products and to raise capital through the issuance of
common
2. Going Concern (Continued)
stock to assist in providing the Company with the liquidity necessary to retire
the outstanding debt and meet operating expenses. In the longer term, the
Company plans to achieve profitability through the operations of its newly
acquired subsidiaries. The consolidated financial statements do not include any
adjustments that might result from the outcome of the uncertainty.
3. Related Party Transactions
The Company utilized office space on a rent-free basis from an officer of the
Company during all periods presented, the value of these transactions was
immaterial.
The Company issued 2,494 and 260,000 shares of common stock during the years
ended November 30, 1996 and 1995, respectively, to a related party in exchange
for services. The services were valued at $17,538 and $534,961, respectively,
which approximates the fair market value of the shares issued.
The CEO of the Company exercised 28,805 of his stock options at an exercise
price of $0.20 per share. The Company also issued the CEO 4,155 shares of
Preferred Class A stock for services rendered.
The Company also leases office space from S.W. Carver Corporation, a company
owned by a major shareholder of the Company. The lease is for a period of
twelve months at a rate of $2,000 per month. The Company also pays S.W. Carver
Corporation for bookkeeping services which are included in general and
administrative expenses. Also, the Company has notes payable to S.W. Carver
Corporation, see Note 6.
Rent expense for the years ended November 30, 1996 and 1995 were $24,000 and
$6,000, respectively.
In February 1996, the Company's Board of Directors authorized the purchase of a
car for the use of its Chief Financial Officer. The purchase price was
approximately $23,000, of which approximately $18,000 was financed by the
Company. The Board of Directors also determined that the vehicle would be
maintained and fueled in full by the Company.
4. Notes Receivable
During the year ended November 30, 1995 and 1994, the Company advanced to CIPI
$1,302,500. This advance is evidenced by a note payable to the Company, due on
demand or October 1, 1998, whichever is first. Interest on the note is at the
rate of ten percent per year. As of November 30, 1996 and 1995, the Company has
provided an allowance of $855,875 against this receivable. Interest receivable
on this note has also been reserved accordingly.
5. Property and Equipment
Property and equipment consisted of the following:
November 30, 1996 1995
Office equipment $ 141,422 $ 124,254
Furniture and fixtures 14,369 -
Vehicles 35,362 -
191,153 124,254
Less: accumulated depreciation (40,783) (2,520)
Total $ 150,370 $ 121,734
Depreciation expense for the years ended November 30, 1996 and 1995, totalled
$38,263 and $946, respectively.
6. Notes Payable
The notes payable consisted of the following:
November 30, 1996 1995
Notes payable to S.W. Carver Corporation
(a related party) unsecured, due on
demand at 10% interest, unpaid
balance payable on February 15, 1998 $ 519,830 $ 456,235
Note payable to Devon Investment Advisors
unsecured, due on demand at 10%
interest 241,824 441,824
Note payable to Black Dog Ranch, LLC
unsecured, due on demand at 8%
interest, unpaid balance on January
15, 1998 130,203 -
Note payable to Investor's Financial 25,000 -
Note payable to Ford Motor Credit,
secured by vehicle, interest at 12.9%,
unpaid balance on February 25, 1999 14,411 -
6. Notes Payable (Continued)
November 30, 1996 1995
Note payable to Robert Spigno (related
party) unsecured, due on demand at
10% interest, unpaid balance on
February 15, 1998 8,000 -
Total notes payable 939,268 898,059
Less: current portion (247,719) (898,059)
Long-term portion $ 691,549 $ -
Long-term debt maturity consist of the following as of November 30, 1996:
Amount
1997 $ 247,719
1998 689,735
1999 1,814
Total notes payable $ 939,268
7. Shareholders' Equity
The Company is authorized to issue 50,000,000 shares of $1.00 par value
preferred stock, no liquidation preference. One million of the preferred shares
are designated as Class A preferred shares which have super voting power wherein
each share receives 100 votes and has anti-dilution rights. One million of the
preferred shares are designated as Class B preferred shares which have
conversion rights wherein each share may be converted into ten shares of common
stock.
In February, 1996, the Company entered into an investment banking agreement for
a period of two years. In consideration for services the Company granted the
investment banker options to purchase 1,000,000 shares at $2.50 per share, the
fair value at the date of grant. In October of 1996 the Company issued the
investment banker 130,800 shares of common stock for services rendered. These
shares resulted in the Company recording consulting fees of $327,000 which is
the fair value of the stock at the date issued.
In February and November of 1996, the Company issued 200,000 and 47,000 shares,
respectively, of common stock in settlement of outstanding obligations, which
included principal and interest. The total debt reduced amounted to $257,469
and interest of $446,640 for a total of $704,109. The value of the transaction
was based upon the value of the stock on that date.
In February 1996, the Company issued 63,199 shares of common stock to various
consultants and to an officer of the Company for services rendered. The
transactions were recorded at a total of $205,892 which approximates the fair
value of the stock given at that date.
7. Shareholders' Equity (Continued)
In February 1996, the Company and Hollywood Trenz, Inc. ("HTNZ") mutually agreed
to terminate the ADA Sign Purchase Agreement and Agreement for the Purchase of
Common Stock between them dated March 23, 1995 and to return the shares
transferred pursuant to that agreement. As a result, the Company returned to
HTNZ 600,000 shares of HTNZ common stock, which is valued at zero, and HTNZ
returned to the Company 300,000 shares of the Company's common stock.
On September 3, 1996, 1,727 shares of common stock were issued to Micro
Automation Development (MAD) for services provided to Technilink. The
transaction was recorded at $4,317, which approximates the fair value of the
stock given at that date.
On September 12, 1996, the Company issued to Internet Stock Guide Inc., 10,000
shares of common stock for payment of an advertising contract on there World
Wide Web and consulting services. The transaction was recorded at $32,000 which
approximates the fair value of the stock given at that date.
On September 23, 1996, the Company issued 4,155 shares of Preferred stock to
Robert Spigno, President of Conectisys Corp. for the reduction of compensation
accrued to Mr. Spigno, the shares were issued at their par value of $1.00 per
share.
8. Income Taxes
Deferred income taxes consisted of the following:
November 30, 1996 1995
Deferred tax asset, net operating
loss carryforward $ 3,454,392 $ 450,000
Deferred tax liability - -
Valuation allowance (3,454,392) (450,000)
Net deferred taxes $ - $ -
The valuation allowance offsets the net deferred tax asset since it is more
likely than not it would not be recovered.
9. Commitments and Contingencies
Employment Agreements
The Company has entered into five employment agreements with key individuals,
the terms of the agreements are as follows: 1) The President and CEO of
Primelink entered into an agreement dated September 15, 1995 for a period of
three years. He is entitled to receive a base salary of $90,000 per year and a
bonus equal to 15% of the net profits before taxes earned by Primelink, Inc. He
is also granted an option to purchase up to 250,000 shares of the Company's
restricted common stock at a price equal to 50% of the average market value of
the stock on the date of
9. Commitments and Contingencies (Continued)
Employment Agreements (Continued)
purchase. 2) The President and CEO of Technilink entered into an agreement dated
September 13, 1995 for a period of three years. He is entitled to receive a
base salary of $90,000 per year and an annual bonus equal to 15% of the net
profits before taxes earned by Technilink, Inc. He is also granted an option to
purchase up to 250,000 shares of the Company's restricted common stock at a
price equal to 50% of the average market value of the stock on the date of
purchase. 3) The President and CEO of Company entered into an agreement dated
October 2, 1995 for a period of three years and he is entitled to receive a base
salary of $125,000 per year and an annual bonus of 15% of the Company's pretax
net income. He is also granted an option to purchase up to 500,000 shares of
the Company's restricted common stock at a price equal to 60% of the average
market value at the date of purchase. 4) The Chief Financial Officer of Company
entered into an agreement dated October 2, 1995 for a period of three years and
he is entitled to receive a base salary of $50,000 per year and an annual bonus
of 1% of the Company's pretax net income. He is also granted an option to
purchase up to 500,000 shares of the Company's restricted common stock at a
price equal to 60% of the average market value at the date of purchase. 5) The
Secretary and Treasurer of Company entered into an agreement dated October 2,
1995 for a period of three years and he is entitled to receive a base salary of
$40,000 per year and an annual bonus of 2% of the Company's pretax net income.
She is also granted an option to purchase up to 500,000 shares of the Company's
restricted common stock at a price equal to 60% of the average market value at
the date of purchase.
License Agreements
The Company has entered into License agreements with the Presidents of both
Primelink and Technilink. The license agreements were entered into on September
20, 1995, in connection with the acquisition of Primelink and Technilink (see
Note 1), and are for a period of five years. As consideration for these license
agreements the Company issued each licensee 250,000 shares of its restricted
common stock and will pay the licensee a royalty of 5% of net sales of the
applicable product. In addition, in the event of the sale of the license or the
acquisition or merger of Technilink or Primelink, a royalty sum of 20% of the
sales price of the license shall be paid to the licensee, the sales price shall
not be less than $1,500,000. The licenses were valued at the fair market value
of the stock issued to obtain the licenses.
Litigation
The Company is a party in the case, Securities and Exchange Commission
(Plaintiff) Vs. Andrew S. Pitt, Conectisys Corp., Devon Investments Advisors,
Inc., B&M Capital Corp., Mike Zaman, and Smith Benton & Hughes, Inc.
(Defendants) Civil Case #96-4164. The Case alleges that a fraudulent scheme was
orchestrated and directed by the defendants to engage in the sale and
distribution of unregistered shares of Conectisys by creating the appearance of
an active trading market for the stock of Conectisys and artificially inflating
the price of its shares. In the suit the SEC seeks disgorgment of profits from
illegal activity and permanent injunctions from violating securities laws.
9. Commitments and Contingencies (Continued)
Litigation (Continued)
The Company has also brought suit against former directors and officers of the
Corporation. The suit is for the improper issuance of stock to the former
Directors and Officers. The case is scheduled to be heard in the second quarter
of 1997.
10. Major Customers
For the year ended November 30, 1996, the Company had sales to two customers
comprising 86.0% and 10.4%, respectively of total sales. Accounts receivable
from these customers at November 30, 1996 were $30,381 and $5,151, respectively.
