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 quarter ended August 31, 1997.
[ ] Transition report under section 13 or 15(d) of the
Securities Exchange Act of 1934
[no fee required]
Commission File Number 33-3560D
CONECTISYS CORP.
(Name of small business issuer in its charter)
Colorado 84-1017107
(state or other jurisdiction (I.R.S. Employer
Incorporation or Organization Identification No.)
7260 Spigno Place 91350
Agua Dulce, California
(Address of principal (Zip Code)
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(b) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
[X]Yes[ ]No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B Contained herein, and 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-QSB. [X]
State Issuer's revenues for it's 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 was sold
on August 29, 1997 was $ $ 329,930.25. For the purpose 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 August 31, 1997 was 3,245,429
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.
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 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.
In April 1997, PrimeLink signed a lease agreement with Enogex Inc., a
subsidiary of OEG Energy Group. PrimeLink will provide the equipment to Enogex
for the purpose of wireless data gathering from remote gas wells. The lease is
for an initial 26 pilot sites. After 45 days of the pilot, the lease calls for
an additional 224 units to be installed within 18 months. The lease will
continue for an additional 48 months.
In late April 1997 Primelink signed a Development and Marketing Alliance with
Williams Wireless. The alliance provides for joint development of a wide range
of products and cross licensing of the technology. This agreement provides
Primelink with immediate entry into the fastest growing new wireless market in
the country: data gathering and remote monitoring.
In May 1997, PrimeLink received an order for 150 of its TransComm units from
Corn Dancer Inc. to be utilized in their water vending machines. A portion of
the purchase order is to develop host soft ware exclusive for the needs of Corn
Dancer Inc.
In June 1997, PrimeLink received from Sonat marketing Company LP an order for
a pilot program to begin later this year.
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
was $ 513,311 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. Several months later S.W. Carver requested that its 800,000
shares be returned to the treasury. This leaves 200,000 shares of Robert
Spigno's stock in this account 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 300,000 shares of Rule 144 common stock were issued to
Savoia Corporation, 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.
On December 10, 1996, The Company signed a promissory note to the order
of Black Dog Ranch LLC (BDR). This note was rewritten in June 1997 and reduced
to $ 171,396.50 to properly reflect the amount that the company received from
the sale of stock that BDR owned.
On March 26, 1997, the Company agreed to issue Noel Guardi 4,550 shares of
its restricted common stock for partial payment of services rendered.
On April 4, 1997, Conectisys issued 16,000 shares of restricted common
stock to settle its law suit with the former directors Case # 96 cv 2585
On July 10, 1997 , Conectisys issued 30,000 shares to James Sharmat for
a portion of his attorney fees
On July 14, 1997, the Company issued 300,000 shares of restricted common stock
under rule 144 to an investor in a private placement
On August 11, 1997 the Company issued the Board of Directors in lieu of cash
compensation for attendance to meetings of the Board of Directors shares of
restricted common stock under rule 144.
On August 21, 1997 Patricia Spigno resigned as a member of the Board of
Directors. The remaining board members have accepted Karl Elliott's desire
to become a member of the Board until the next shareholders vote on such matter
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 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. Williams
Wireless and Coca Cola. Williams Wireless is part of The Williams Companies,
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 August, 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 1100 square feet of space from Johnson County
Business Tech Center for $ 1200.00 per month. TechniLink is located at
7260 Spigno Place Agua Dulce, CA 91350
Item 3. Legal Proceedings
There is one legal proceeding 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 permanent injunctions from violating securities laws.
The SEC does not seek any civil penalties from the Company. The courts having
conducted a trial of this matter without a jury and taken it under submission
, found for the plaintiff as follows: against Conectisys on the claim that
the defendent violated section 5(a), 5(C), 17(a). Conectisys was NOT found to
have violated section 10(b), 10(b-5), or 15(c). The Plaintiff was ordered
to file proposed findings of fact and conlusions of law. After the court
settles the findings and conclusions, the court will enter further orders
with respect remedy or remedies to be granted to the plaintiff.
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 September 15, 1997, there were four
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
February 97 11.50 7.50 1.00 .50
May 97 2.25 2.37 .75 1.00
August 97 1.25 1.25 .25 .25
Current September 15, .25 .88
1997
The above quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
The Company was 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 continued to have
operating losses and had 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. The market dropped twice in the
last 6 months. The first drop coinsided with the the company being enjoined in
the law suit as described in in the legal proceedings section. The second
drop coinsided with the news from the courts ruling
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 $ 425,424 for the Quarter
ended August 31, 1997, with $ 117,308 of revenues. Operations for the 9 month
period ended August 31, 1997 resulted in a $ 1,024,439 net loss with revenues of
$325,402 The Company in the 9 month period ended August 31, 1996, had
losses of $ 1,270,276 with $ 70,197 revenues.
Plan of operation
Loss on operations for the Company for the third quarter ended 1996 was
$1,270,276 as compared to a loss of $ 1,024,439 in fiscal 1997. This is a 19.3%
reduction in losses from the prior year in the same period. 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. Revenues in the first three
quarter fiscal 1997 were $ 325,402 as compared to $ 70,197 in the first
three quarters of last year. The $ 325,402 in revenues are a 216 % the
increase over revenues obtained in the same period in 1996. 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 fourth quarter in fiscal 1997,
generating larger revenues in the beginning of the fourth quarter. Additional
pilot projects are in negotiations.
Liquidity and capital Resources
As of August 31, 1997, the Company had a negative working capital of
$ 1,109,909, consisting of $ 28,875 in current assets and $1,138,748 in
current liabilities. The Company had a negative working capital of
$ 1,154,227 at quarter ended May 30, 1997, This is a 3.8 % increase in
working capital compared to May 30, 1997. In August 1996 the company had a
deficency of $ 1,396,759 The Company is dependent on achieving profitable
operations through its acquisitions and the collection of outstanding
receivables to continue as a going concern.
The Company had total assets of $ 2,097,135, at August 31, 1997, and total
liabilities of $ 1,864,598. Shareholder equity is $ 232,537 as compared to
$864,778 fiscal year ended November 30, 1996.
Cash Flows
The Company had a net loss for the third quarter ended August 31, 1997, of
$ 1,024,440. The cash used in operations toward this loss was $ 298,409. The
largest area of loss was the result of non-cash transactions to the Company
$ 364,775, (35.6%), was the result of amortization and depreciation.
The cash used in investing was $ 56,616 (5.5%), of the total loss. The
Company sold appoximately $ 300,000 worth of its stock under rule 144 to
finance a portion of its losses
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 profitability will be achieved.
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
On March 3, 1997, FASB issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earnings per Share. SFAS 128 provides for the calculation of Basic
and Diluted earning per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common share holders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earning of the entity, similar to fully diluted earnings per share. This
pronouncement is effective for fiscal years and interim periods ending after
December 15, 1997; early adoption is not permitted. The Company has not
determined the effect, if any, of adoption on its EPS computation(s)
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
Karl Elliott Director
Robert A. Spigno, President and Chief Executive Officer,
Director
Robert A. Spigno, age 43, 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 37, 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 .
Patricia A. Spigno, 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.
Karl E. Elliott, Director
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.
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 $ 18833
All officers and directors
as a group (three persons) $ 39598
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.
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 Unexercisable Exercisable Unexercisable
Robert Spigno 1,471,195 0 $ 8,827,170 0
Patricia Spigno 500,000 0 $ 3,000,000 0
Richard Dowler 500,000 0 $ 3,000,000 0
Employment Contracts
On December 4, 1995, the Board of Directors approved employment agreements
with its executive officers (of which two are members of 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
On August 11, 1997 the employment agreements with the executive officers
were amended with the following changes:
Robert Spigno
THIS AMENDMENT AGREEMENT is made and entered into
effective the 11th day of August, 1997, by and between
Conectisys, Inc., a Colorado corporation ("CONECTISYS"),
("Employer"), and Robert Spigno ("Employee").
The following amendments to the language of the
paragraphs as noted herein are hereby amended to the initial
signing of the Employment Agreement, dated October 2, 1995,
as follows;
The amendments are effective September 1, 1997:
1. Employment and term. Employer hereby employs Employee
and Employee hereby accepts employment from Employer to
perform the duties set forth below, for a term of Five (5)
years, subject to the provisions of this Agreement, and
thereafter shall be automatically extended for subsequent
five (5) year terms unless terminated as provided herein.
Employee's employment hereunder shall be continued
thereafter from term to term until either party shall give
Sixty (60) days prior written notice of termination.
Notwithstanding the foregoing, this Agreement may be sooner
terminated as provided in Paragraph 8 hereof.
2. Duties. Employee shall devote his full time and
efforts to the business of Employer, and shall be an officer
of Conectisys holding the title of President / CEO.
3. Compensation. During the term of this Agreement,
Employee shall receive as compensation for his services, an
annual base salary of One Hundred Sixty Thousand
Dollars($160,000). During the subsequent terms of employment
under this agreement, Employer shall negotiate Employee's
annual base salary in good faith; provided, however, that
Employer shall pay Employee an annual base salary in such
subsequent terms of employment in an amount no less than the
annual base salary paid Employee during the term hereunder.
Employee shall further receive a bonus, paid at year end,
equal to six percent (6%) of all net profits before taxes
earned by Conectisys. Employee shall further receive a
bonus, paid at year end, equal to fifty percent (50%) of
employee's salary for compensation to the employee's
continuing employment to the Company ("Staying Bonus").
Staying Bonus shall be compensated for, with Conectisys
Corp. restricted common stock under rule 144 ("The Stock").
The calculation for the value of the Stock will be, fifty
percent (50%) of the average bid and ask price for the stock
for the 30 days prior to the issuance. Employee shall have
an option to purchase up to 500,000 shares of Conectisys
Corporation restricted stock under rule 144, at a cost of
Fifty (50%) of the average market value during the prior 30
days of trading; this option shall remain open for Three(3)
years with an option to renew said option for an additional
Three(3) years.
Richard Dowler
THIS AMENDMENT AGREEMENT is made and entered into
effective the 11th day of August, 1997, by and between
Conectisys, Inc., a Colorado corporation ("CONECTISYS"),
("Employer"), and Richard Dowler ("Employee").
The following amendments to the language of the
paragraphs as noted herein are hereby amended to the initial
signing of the Employment Agreement, dated October 2, 1995,
as follows;
The amendments are effective September 1, 1997:
1. Employment and term. Employer hereby employs Employee
and Employee hereby accepts employment from Employer to
perform the duties set forth below, for a term of Three (3)
years, subject to the provisions of this Agreement, and
thereafter shall be automatically extended for subsequent
Three (3) year terms unless terminated as provided herein.
Employee's employment hereunder shall be continued
thereafter from term to term until either party shall give
Sixty (60) days prior written notice of termination.
Notwithstanding the foregoing, this Agreement may be sooner
terminated as provided in Paragraph 8 hereof.
2. Duties. Employee shall devote his full time and
efforts to the business of Employer, and shall be an officer
of Conectisys holding the title of Chief Financial Officer.
3. Compensation. During the term of this Agreement,
Employee shall receive as compensation for his services, an
annual base salary of Eighty Thousand Dollars($80,000).
During the subsequent terms of employment under this
agreement, Employer shall negotiate Employee's annual base
salary in good faith; provided, however, that Employer shall
pay Employee an annual base salary in such subsequent terms
of employment in an amount no less than the annual base
salary paid Employee during the term hereunder. Employee
shall further receive a bonus, paid at year end, equal to
two percent (2%) of all net profits before taxes earned by
Conectisys. Employee shall further receive a bonus, paid at
year end, equal to fifty percent (50%) of employee's salary
for compensation to the employee's continuing employment to
the Company ("Staying Bonus"). Staying Bonus shall be
compensated for, with Conectisys Corp. restricted common
stock under rule 144 ("The Stock"). The calculation for the
value of the Stock will be, fifty percent (50%) of the
average bid and ask price for the stock for the 30 days
prior to the issuance. Employee shall have an option to
purchase up to 500,000 shares of Conectisys Corporation
restricted stock under rule 144, at a cost of Fifty (50%) of
the average market value during the prior 30 days of
trading; this option shall remain open for Three(3) years
with an option to renew said option for an additional
Three(3) years.
Patricia Spigno
THIS AMENDMENT AGREEMENT is made and entered into
effective the 11th day of August, 1997, by and between
Conectisys, Inc., a Colorado corporation ("CONECTISYS"),
("Employer"), and Patricia A. Spigno ("Employee").
The following amendments to the language of the
paragraphs as noted herein are hereby amended to the initial
signing of the Employment Agreement, dated October 2, 1995,
as follows;
The amendments are effective September 1, 1997:
1. Employment and term. Employer hereby employs Employee
and Employee hereby accepts employment from Employer to
perform the duties set forth below, for a term of Three (3)
years, subject to the provisions of this Agreement, and
thereafter shall be automatically extended for subsequent
Three (3) year terms unless terminated as provided herein.
Employee's employment hereunder shall be continued
thereafter from term to term until either party shall give
Sixty (60) days prior written notice of termination.
Notwithstanding the foregoing, this Agreement may be sooner
terminated as provided in Paragraph 8 hereof.
2. Duties. Employee shall devote his full time and
efforts to the business of Employer, and shall be an officer
of Conectisys holding the title of Secretary / Treasurer.
3. Compensation. During the term of this Agreement,
Employee shall receive as compensation for his services, an
annual base salary of Eighty Thousand Dollars($80,000).
During the subsequent terms of employment under this
agreement, Employer shall negotiate Employee's annual base
salary in good faith; provided, however, that Employer shall
pay Employee an annual base salary in such subsequent terms
of employment in an amount no less than the annual base
salary paid Employee during the term hereunder. Employee
shall further receive a bonus, paid at year end, equal to
two percent (2%) of all net profits before taxes earned by
Conectisys. Employee shall further receive a bonus, paid at
year end, equal to fifty percent (50%) of employee's salary
for compensation to the employee's continuing employment to
the Company ("Staying Bonus"). Staying Bonus shall be
compensated for, with Conectisys Corp. restricted common
stock under rule 144 ("The Stock"). The calculation for the
value of the Stock will be, fifty percent (50%) of the
average bid and ask price for the stock for the 30 days
prior to the issuance. Employee shall have an option to
purchase up to 500,000 shares of Conectisys Corporation
restricted stock under rule 144, at a cost of Fifty (50%) of
the average market value during the prior 30 days of
trading; this option shall remain open for Three(3) years
with an option to renew said option for an additional
Three(3) years.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
As of August 31, 1997, the Company had 3,245,429 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 10.78%
Patricia A. Spigno (2) 62,848 1.94%
Robert A. Spigno (1) 405,590 12.50%
Masha Post Commercial 229,962 7.09%
Trading
Donald I. & Elizabeth V. 350,000 10.78%
Wallace
Claudia J. Zaman 355,368 10.95%
Frank Bellusci 260,000 8.01%
Grespinet Investments 300,000 9.24%
Security ownership of
Management
Richard Dowler 37,537 1.16%
Patricia A. Spigno 62,848 1.94%
Robert A. Spigno 405,590 12.50%
Karl E Elliott 350,000 10.78%
Total Directors and 855,975 26.4%
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 62,848 shares owned by Patricia Spigno (spouse). The
aggregate beneficially owned by Robert A. Spigno is Shares 468,438 (14.43%)
(2) Does not include 405,590 shares owned by Robert A. Spigno (spouse). The
aggregate beneficially owned by Patricia A. Spigno is 468,438 Shares. (14.43%)
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 quarter ended
August 31, 1997, the
registrant filed the following current reports on Form 8-K:
8-K Filed June 30, 1997
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: Spetember 19, 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, September 19,
(Robert A. Spigno) Chief Executive 1997
Officer, President and
Director
/S/ Richard Dowler Chief Financial Officer September 19,
(Richard Dowler) (Principal Financial 1997
Officer and Principal
Accounting Officer),
and Director
/S/ Patricia A. Spigno Secretary, Treasurer September 19,
(Patricia A. Spigno) 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10QSB and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 7428
<SECURITIES> 0
<RECEIVABLES> 24345
<ALLOWANCES> 2898
<INVENTORY> 0
<CURRENT-ASSETS> 28875
<PP&E> 200457
<DEPRECIATION> (69728)
<TOTAL-ASSETS> 2097135
<CURRENT-LIABILITIES> 1138748
<BONDS> 0
0
20500
<COMMON> 6849420
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2097135
<SALES> 325402
<TOTAL-REVENUES> 325402
<CGS> 222296
<TOTAL-COSTS> 1323474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64526
<INCOME-PRETAX> (1024440)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1024440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1024440)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)<F1>
<FN>
<F1>due to the fact of a net loss calculation would be anti-dilutive
</FN>
</TABLE>
Exhibit 99 Unaudited Financial Statements
CONECTISYS CORP.
Unaudited Consolidated Balance Sheet
Aug-31-1997
<TABLE>
<CAPTION>
Aug-31-1997 Aug-31-1996 Nov-30-1996
Unaudited Unaudited Audited
<S> <C> <C> <C>
Assets
Current Assets
Cash 7,428 42,429 24,495
Accounts Receivable-trade
(net allowance for doubtful of (2898) 21,447 0 35,532
Stock Subscription Receivable 0 0 0
Other Current Asset 0 6,283 0
Total Current Assets 28,875 74,070 60,027
Notes Receivable net (note 4) 446,625 466,625 446,625
Interest Receivable net (note 4) 47,393 0 7,947
Property and Equipment Net (note 5) 130,729 173,386 150,370
Licenses and Technology, net of accumulated amortization 1,438,722 2,178,430 1,727,242
Other Assets 4,792 38,211 4,500
Total Assets 2,097,135 2,930,722 2,396,711
</TABLE>
CONECTISYS CORP.
Unaudited Consolidated Balance Sheet (continued)
Aug-31-1997
<TABLE>
<CAPTION>
Liabilities and Shareholder equity
<S> <C> <C> <C>
Current Liabilities
Accounts Payables 524,309 624,697 338,822
Accrued Compensation (note 9) 187,954 44,96 136,181
Notes Payables (notes 3 and 6)
Related Party 0 514,230 0
Other 251,376 282,595 247,719
Other Current Liabilities 7,792 4,346 12,245
Accrued interest payable 167,318 0 105,417
Total Current Liabilities 1,138,748 1,470,829 840,384
Long term liabilities
Notes Payables (notes 3 and 6)
Related Party 529,453 0 527,830
Other 196,397 0 163,719
Total Long term liabilities 725,850 0 691,549
Minority Interest 0 58,259 0
Shareholders Equity
Preferred Stock - Class A 1,000,000 Shares Authorized 20,500 16,345 20,500
$ 1.00 Par Value, 20,500 Issued and Outstanding
Convertible Preferred Stock - Class B 1,000,000 Shares 0 0 0
Authorized, $1.00 Par Value, -0- Shares Issued and
Outstanding
Common Stock - 250,000,000 Shares
Authorized, No Par Value 6,849,420 6,029,574 6,457,221
3,245,429 Authorized Issued and Outstanding
Accumulated Gain (Deficit) During Development Stage (6,637,383) (4,644,286) (5,612,943)
Total Shareholder Equity 232,537 1,401,634 864,778
Total Liabilities and Shareholders Equity 2,097,135 2,930,722 2,396,711
</TABLE>
<PAGE>
CONECTISYS CORP.
Condensed Statement of Operations (9 months ended)
Aug-31-1997
<TABLE>
<CAPTION>
December 1,1990
(Inception) through
Aug-31-1997 Aug-31-1996 Aug-31-1997
Unaudited Unaudited Unaudited
<S> <C> <C> <C>
Revenues 325,402 70,197 436,565
Cost of Goods Sold 222,296 30,276 309,273
Gross Profit 103,106 39,921 127,292
General and Administrative 1,101,178 822,368 3,971,795
Bad Debt Write-offs 0 0 1,233,897
Loss From Operations (998,073) (782,447) (5,078,401)
Non-Operating Income (Expense) 38,159 2,687 139,207
Interest Expense (64,526) (552,825) (742,194)
Minority Interest 0 62,310 121,747
Net Loss (1,024,440) $(1,270,276) (5,559,641)
Weighted Average Shares Outstanding 2,862,848 2,544,839
Net loss per share $ (0.36) $ (0.50)
</TABLE>
<PAGE>
CONECTISYS CORP.
Condensed Statement of Operations (3 months ended)
Aug-31-1997
<TABLE>
<CAPTION>
Aug-31-1997 Aug-31-1996
Unaudited Unaudited
<S> <C> <C>
Revenues 117,308 70,197
Cost of Goods Sold 107,882 30,276
Gross Profit 9,426 39,921
General and Administrative 422,850 111,443
Bad Debt Write-offs 0 0
Loss From Operations (413,426) ( 71,522)
Non-Operating Income (Expense) 11,954 (40)
Interest Expense (23,953) (112,467)
Minority Interest 0 11,172
Net Loss $ (425,425) $ (172,858)
Weighted Average Shares Outstanding 2,862,848 2,544,839
Net loss per share $ (0.15) $ (0.07)
</TABLE>
<PAGE>
CONECTISYS CORP.
Condensed Statement of Cash Flows (9 months)
Aug-31-1997
<TABLE>
<CAPTION>
December 1,1990
Aug-31-1997 Aug-31-1996 Nov-30-1996 (Inception)through
Unaudited Unaudited Audited Aug 31, 1997
<S> <C> <C> <C> <C>
Operating activities
Net Income (loss) (1,024,440) (1,270,276) (2,238,933) (5,559,641)
Adjustments to reconcile net income (loss)
to net cash Provided by (used in)
operating activities:
Depreciation and amortization 364,775 0 519,789 885,834
provision for bad debt 47,196 0 118,611 1,021,682
Stock issued for services 72,200 96,538 575,433 1,534,745
Stock issued for interest 0 551,202 446,640 446,640
Minority interest 0 (62,310) (120,569) (121,747)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable (12,854) (5,357) (38,862) (25,589)
Interest receivable (65,410) 0 (95,281) (169,057)
Deposits (292) 0 0 (4,792)
Increase (decrease) in liabilities
Accounts payable 185,487 581,764 295,889 524,309
Accrued interest payable 61,901 0 0 61,901
Accrued compensation 51,773 (8,334) 82,886 187,954
Other current liabilities (4,453) (7,776) 105,540 113,209
Net cash provided by (used in) operating activities (298,409) (124,549) (348,857) (1,104,552)
Investing activities
Increase in notes receivable 0 0 0 (1,322,500)
Costs of licenses & technology (47,312) 0 (30,340) (80,904)
Purchase of equipment (9,304) (51,652) (31,535) (67,274)
Net cash from (used) in investing activities (56,616) (51,652) (61,875) (1,470,678)
</TABLE>
<PAGE>
CONECTISYS CORP.
Condensed Statement of Cash Flows (9 months) (continued)
Aug-31-1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Financing Activities
Common Stock issued for cash 300,000 150,000 150,000 860,655
Dividends received 0 0 0 0
Preferred Stock issuance 0 0 0 16,345
Proceeds from debts
Related party 1,623 41,958 150,309 208,167
Other 36,335 24,761 155,203 1,555,507
Payments on debt
Related 0 0 (33,245) (36,745)
Other 0 (8,951) (8,951)
Decrease in subscription receivable 0 0 20,000 20,000
Contributed capital 0 0 515
Net cash from (used) in financing activities 337,958 216,719 433,316 2,582,658
Net Increase (decrease) in cash (17,298) 40,518 22,584 7,428
Cash beginning of period 24,495 1,911 1,911
Cash end of period 7,428 42,429 24,495 7,428
Cash paid during the year for
Interest 0 0 41,874 41,874
Taxes 851 0 800 1,650
Non Cash Activities
Common stock issued for
PP&E 0 0 35,362 130,931
Licenses & technology 0 0 0 1,770,000
Repayment of debt 0 200,000 257,469 1,143,279
Services & interest 72,200 645,670 1,017,918 2,012,526
</TABLE>
<PAGE>
CONECTISYS CORP.
Statement of Shareholders Equity
Aug-31-1997
<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>
<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>
______________________________________________________________________________
<PAGE>
CONECTISYS CORP.
Statement of Shareholders Equity (continued)
Aug-31-1997
<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 7 ) - - 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>
<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
canceled, 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>
<PAGE>
CONECTISYS CORP.
Statement of Shareholders Equity (continued)
Aug-31-1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange
for (see note 7):
Services, March 1997 - - 4,550 6,879 - 6,879
Debt, April 1997 - - 16,000 13,120 - 13,120
Services, July 1997 - - 30,000 16,200 - 16,200
Cash, July 1997 - - 300,000 300,000 - 300,000
Services August 1997 - - 119,150 56,000 - 56,000
Net loss to August 31 1997 - - - - (1,024,440) (1,024,440)
Balance, February 28, 1997 20,500 $20,500 3,245,429 $6,849,420 $(6,637,383) $ 232,537
</TABLE>
_______________________________________________________________________________
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 anti-dilutive.
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
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.
On March 3, 1997, FASB issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earnings per Share. SFAS 128 provides for the calculation of Basic
and Diluted earning per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common share holders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earning of the entity, similar to fully diluted earnings per share. This
pronouncement is effective for fiscal years and interim periods ending after
December 15, 1997; early adoption is not permitted. The Company has not
determined the effect, if any, of adoption on its EPS computation(s)
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
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 August 31, 1997 and 1996, the Company has a deficiency in working capital
of $ 1,109,909 and $1,396,759, 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 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 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. During the fiscal
year 1997 the Company has issued related parties 119,150 shares of common stock
The services were valued at $56,000
In fiscal 1996 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.
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:
August 97, 1997 1996
Office equipment / $ 165,095 $ 140,545
furniture
Vehicles 35,362 35,362
Sub-total 200,457 175,907
Less: accumulated
depreciation (69,728) (2,520)
Total $ 130,729 $ 173,387
Depreciation expense for the years ended November 30, 1996 and 1995, totaled
$38,263 and $946, respectively. Depreciation for the three quarters in 1997 is
$69,728.
6. Notes Payable
The notes payable consisted of the following:
August 97, 1997 1996
Notes payable to S.W. Carver Corporation
(a related party) unsecured, due on $ 514,953 $ 518,230
demand at 10% interest, unpaid
balance payable on February 15,1998
Note payable to Devon Investment
Advisors
unsecured, due on demand at 10% 241,824 241,824
interest
Note payable to Black Dog Ranch, LLC
unsecured, due on demand at 8%
interest, unpaid balance on 171,397 -
January 15, 1998
Note payable to Investor's Financial 25,000 -
Note payable to Ford Motor Credit,
secured by vehicle, interest at
12.9%, 9,552 15,771
unpaid balance on February 25,
1999
Note payable to Robert Spigno
(related party) unsecured, due on demand
10% interest, unpaid balance on
February 15, 1998 14,500 8,000
Total notes payable 962,726 775,825
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.
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 partial payment of an advertising contract on there
World Wide Web and consulting services. An additional 2000 shares of common
stock were transferred to Internet Stock Guide Inc. from Black Dog Ranch. The
transaction was recorded at $32,000 and 12,000 respectively 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.
In March & July 1997, the Company issued 4,550 and 30,000 shares of common stock
respectively for attorney fees in relation to various legal matters
In April 1997, Settled a law suit with the former directors of the Company. The
Company issued to the former directors 16,000 shares of common stock
In July the Company issued 300,000 shares of common stock to an investor for
cash
In August 1997 the Company issued 119,150 shares of common stock to the members
of the board of directors for services.
8. Income Taxes
Deferred income taxes consisted of the following:
November 30, 1996 1995
Deferred tax asset, net $ 3,454,392 $ 450,000
operating
loss carryforward
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
Incorporated by reference 10KSB year ended November 30, 1995
Litigation
/fsrThe 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 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
permanent injunctions from violating securities laws. The SEC does not seek any
civil penalties from the Company. The courts having conducted a trial of this
matter without a jury and taken it under submission, found for the plaintiff as
follows: against Conectisys on the claim that the defendant violated section
5(a), 5(C), 17(a). Conectisys was NOT found to have violated section 10(b),
10(b-5), or 15(c). The Plaintiff was ordered to file proposed findings of
fact and conclusions of law. After the court settles the findings and
conclusions, the court will enter further orders with respect remedy or
remedies to be granted to the plaintiff.
