U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended February 28, 1998.
[ ] 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
Common Stock, issued and outstanding as of February 28 1998: 8,815,152
PART I
Item 1. Financial Statements
Financial statements are unaudited and included herein
beginning on page F1 Exhibit 99 and are incorporated herein
by this reference.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of operations
The Company realized a net loss on operations of $436,944 for the quarter ended
February 28, 1998, with $ 0 revenues. The Company in the 3-month period ended
February 28, 1998 had losses of $310,344, with $66,092 in revenues.
Plan of operation
Loss on operations for the Company for the quarter ended February 28 1997 was
$310,344 as compared to a loss of $436,944 in first quarter
1998. This is a 41% increase 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 receivables and additional funding
through the sale of common stock or loans colateralized
through common stock. Revenues in fiscal 1997 were $380,642
as compared to $111,163 in year ended November 30, 1996.
The $380,642 in revenue is a 242% increase over revenues
obtained in the same period in 1996. Revenues in the first
quarter of 1998 were $ 0 as compared to $ 66,092.
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.
The Company in the first quarter of 1998 shipped its first
product to Consolidated Edison, Steam Division, a new
customer to PrimeLink. The Company is working diligently on
this account.
Liquidity and capital Resources
As of February 28, 1998, the Company had a negative working capital of
$659,254, consisting of $10,052 in current assets plus
627,500 in short term notes receivable and $1,296,806 in
current liabilities. The Company had a negative working
capital of $1,012,400 at quarter ended February 28, 1997.
This is a decrease in negative working capital compared to
February 28, 1997. 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 $1,717,510 as of February
28, 1998, and total liabilities of $1,296,805. Shareholder equity is
$420,705, as compared to $554,436 fiscal quarter ended February 28, 1997.
Cash Flows
The Company had a net loss for the quarter ended February
28, 1997, of $ 436,944. The cash used in operations toward
this loss was $246,346. The largest area of loss was the
result of non-cash transactions to the Company. $91,515
(20%) was the result of depreciation and amortization
expenses. The Company had a $69,832 (15%) dollar increase
in accrued compensation to its officers and directors. The
cash provided by investing was $279,374. The Company sold
approximately $25,000 worth of its stock under Regulation S
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 quarter ended February
28, 1997. 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 provides 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
reflect 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).
PART II
Other Information
Item 1. Legal Proceedings
There are two legal proceedings to which the Company is a
party. The first 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 if 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. The Plaintiff has filed subsequent to
the year ended November 30, 1997, with its conclusions and
findings, and is requesting that the Company disgorge
alleged profits plus interest totaling $1,013,514.60. The
Company has filed objections to their claims. 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.
The second case was brought by Clamar Capital Corp. (the
"Plaintiff ") against Smith Benton & Hughes; Michael Zaman;
Claudia Zaman; Andrew Pitt and Conectisys Corp.
(collectively the "Defendants"). The case was brought
before the District Court of Arapahoe, State of Colorado,
case No. 97-CV-1442, Division 3. The Plaintiff did not
specify an amount of damages that it seeks from the
defendants.
Item 5. Other Information
In March 1998, the Company issued Robert Spigno a related
party 60,000 shares of Preferred Class A Stock to reduce a
portion of outstanding compensation due.
On April 12, 1998 the Company authorized the issuance of
1,200,000 shares of Common stock under Regulation S of the
Securities Act of 1933 (the Act) to non-US persons as
defined in the Act.
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
February 28, 1998, the registrant filed the following
current reports on Form 8-K:
8-K Filed December 17, 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: April 27, 1998 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 27,
(Robert A. Spigno) Chief Executive 1998
Officer, President and
Director
/S/ Richard Dowler Chief Financial Officer April 27, 1998
(Richard Dowler) (Principal Financial
Officer and Principal
Accounting Officer),
and Director
/S/ Patricia A. Spigno Secretary, Treasurer April 27, 1998
(Patricia A. Spigno)
_Exhibit 99 Unaudited Financial Statements
CONECTISYS CORP.
Unaudited Consolidated Balance Sheet (Quarter Ended)
Feb-28-1998
<TABLE>
Caption
Feb-28-1998 Feb-28-1997 Nov-30-1997
Unaudited Unaudited Unaudited
Assets
Current Assets
<S> <C> <C> <C>
Cash 8,441 8,029 3,411
Accounts Receivable-trade
(net allowance for doubtful of ($379) 1,611 27,003 0
Stock Subscription Receivable 0 0 0
Other Current Asset 0 0 0
Total Current Assets 10,052 35,032 20,677
Notes Receivable net (note 4) 627,500 446,625 181,270
Interest Receivable net (note 4) 0 7,947 0
Property and Equipment Net (note 5) 118,596 140,373 118,904
Licenses and Technology, net of accumulated amortization 962,362 1,652,193 985,716
Other Assets 0 4,500 0
Total Assets 1,717,510 2,286,670 1,306,567
</TABLE>
CONECTISYS CORP.
Unaudited Consolidated Balance Sheet (continued)
Feb-28-1998
<TABLE>
<CAPTION>
Feb-28-1998 Feb-28-1997 Nov-30-1997
Unaudited Unaudited Unaudited
Liabilities and Shareholder equity
Current Liabilities
<S> <C> <C> <C>
Accounts Payables 438,501 522,138 410,455
Accrued Compensation (note 9) 293,280 148,849 223,448
Notes Payables (notes 3 and 6)
Related Party 0 0 0
Other 444,048 247,719 445,679
Other Current Liabilities 18,777 7,691 35,050
Accrued interest payable 102,199 121,035 92,752
Total Current Liabilities 1,296,806 1,047,432 1,207,384
Long term liabilities
Notes Payables (notes 3 and 6)
Related Party 0 522,965 0
Other 0 161,838 0
Total Long term liabilities 0 684,803 0
Minority Interest 0 0 0
Shareholders Equity
Preferred Stock - Class A 1,000,000 Shares Authorized 20,500 20,500 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 9,108,045 6,457,221 8,349,581
8,815,152 Authorized Issued and Outstanding
Accumulated Gain (Deficit) During Development Stage (8,707,840) (5,923,285) (8,270,896)
Total Shareholder Equity 420,705 554,436 99,183
Total Liabilities and Shareholders Equity 1,717,510 2,286,671 1,306,567
</TABLE>
CONECTISYS CORP.
Condensed Statement of Operations (Quarter ended)
Feb-28-1998
<TABLE>
<CAPTION>
December 1,1990
(Inception) through
Feb-28-1998 Feb-28-1997 Feb-28-1998
Unaudited Unaudited Unaudited
<S> <C> <C> <C>
Revenues 0 66,092 491,805
Cost of Goods Sold 60,180 26,228 385,071
Gross Profit (60,180) 39,864 106,734
General and Administrative 365,440 334,091 5,147,591
Bad Debt Write-offs 0 0 1,680,522
Loss From Operations (425,619) (294,227) (7,168,004)
Non-Operating Income (Expense) 30 101 (259,396)
Interest Expense (11,355) (16,218) (771,098)
Minority Interest 0 0 121,747
Net Loss $ (436,944) $ (310,344) (7,630,099)
Weighted Average Shares Outstanding 1,985,025 2,608,613
Net loss per share $ (0.22) $ (0.12)
</TABLE>
CONECTISYS CORP.
Condensed Statement of Cash Flows (Quarter End)
Feb-28-1998
<TABLE>
<CAPTION> December 1,1990
Feb-58-1998 Feb-28-1997 (Inception)through
Unaudited Unaudited Feb 28, 1998
Operating activities
<S> <C> <C> <C>
Net Income (loss) (436,944) (310,344) (7,630,099)
Adjustments to reconcile net income (loss)
to net cash Provided by (used in)
operating activities:
Depreciation and amortization 91,515 120,435 1,114,995
Provision for bad debt 0 0 1,644,156
Stock issued for services 6,234 0 2,159,382
Stock issued for interest 0 0 537,727
Minority interest 0 0 (121,747)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 1,797 8,529 (3,236)
Interest receivable 0 0 43,740
Deposits 0 0 (4,792)
Increase (decrease) in liabilities
Accounts payable 28,046 183,316 438,501
Accrued interest payable 9,446 15,518 (3,218)
Accrued compensation 69,832 12,668 293,280
Other current liabilities (16,273) (4,554) 124,194
Net cash provided by (used in) operating activities (246,346) (25,670) (1,407,117)
Investing activities
Increase in notes receivable 279,374 0 (1,043,126)
Costs of licenses & technology (58,400) (35,392) (152,459)
Purchase of equipment (8,452) 0 (73,519)
Net cash from (used) in investing activities 212,522 (35,392) (1,269,104)
</TABLE>
CONECTISYS CORP.
Condensed Statement of Cash Flows (quarter ended) (continued)
Feb-28-1998
<TABLE>
<CAPTION>
Financing Activities
<S> <C> <C> <C>
Common Stock issued for cash 25,000 0 985,635
Dividends received 0 0 0
Preferred Stock issuance 0 0 16,345
Proceeds from debts
Related party 0 0 223,244
Other 0 0 1,501,479
Payments on debt
Related 0 (4,863) (46,945)
Other 0 (1,881) (15,904)
Decrease in subscription receivable 0 0 20,000
Contributed capital 0 0 515
Net cash from (used) in financing activities 25,000 (6,744) 2,688,524
Net Increase (decrease) in cash (8,824) (16,466)
Cash beginning of period 24,495 1,911
Cash end of period 17,265 24,495 17,265
Cash paid during the year for
Interest 0 0 0
Taxes 0 0 2,732
Non Cash Activities
Common stock issued for
PP&E 0 0 140,156
Licenses & technology 0 0 2,166,964
Repayment of debt 0 0 1,753,786
Services & interest 6,234 0 2,728,250
</TABLE>
CONECTISYS CORP.
Statement of Shareholders Equity
Feb-28-1998
<TABLE>
<CAPTION>
Deficit Accumu-
Preferred Stock lated During
Class A Common Stock Development
Shares Amount Shares Amount Stage Total
Balance, December 1, 1990 (re-entry
<S> <C> <C> <C> <C> <C> <C>
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>
Shares issued in exchange for:
<S> <C> <C> <C> <C> <C> <C>
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>
________________________________________________________________________________
CONECTISYS CORP.
Statement of Shareholders Equity (continued)
Feb-28-1998
<TABLE>
<CAPTION>
Shares issued in exchange for:
<S> <C> <C> <C> <C> <C>
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>
<CAPTION>
Shares issued in exchange
for(Note 7):
<S> <C> <C> <C> <C> <C> <C>
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>
CONECTISYS CORP.
Statement of Shareholders Equity (continued)
Feb-28-1998
<TABLE>
<CAPTION>
Shares issued in exchange
for (see note 7):
<S> <C> <C> <C> <C> <C> <C>
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
Restatement for 1:20
reverse stock split 20,500 $20,500 162,271 $6,849,420 $ - $ -
Adjustment for
partial shares - - 113 - - -
Restated totals 20,500 $20,500 162,385 $6,849,420 $ - $ -
Shares issued in exchange
Officer compensation
October, 1997 - - 465,013 186,004 - 186,004
Director Compensation
October, 1997 - - 60,500 24,200 - 24,200
Services October 1997 - - 944,153 377,661 - 377,661
Debt October 1997 - - 1,540,267 620,507 - 620,507
Note Receivable - - 1,500,000 281,250 - 281,250
Services November 1997 - - 4,950 10,538 - 10,538
Net loss to November, 30 1997 - - - - (2,657,954) (2,657,954)
Balance, November 30, 1997 20,500 $20,500 4,677,268 $8,349,581 $(8,270,897) $ 99,183
Shares issued in exchange
for:
Services December, 1997 - - 4,550 6,234 - 6,234
Cash January 1998 - - 133,334 25,000 - 25,000
Note receivable January 1998 - - 4,000,000 727,230 - 727,230
Net loss to February,28 1998 - - - - (436,944) (436,944)
Balance, February 28, 1998 20,500 $20,500 8,815,152 $9,108,045 $(8,707,841) $ 420,704
</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 Technology Manufacturing,
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 Non-cash Consideration
Shares of the Company's no par value common stock issued in
exchange for goods or services are valued at the cost of the
goods or services received or at the market value of the shares
issued depending on the ability to estimate the value of the
goods or services received.
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.
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,
1997, 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, 1997 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. Technilink's carrying value was
reduced by $625,000 in 1997 due to the lack of income generated
form this license.
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
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 provides
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
reflect 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. The Receivable to this loan was written down to zero
in 1997.
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"). 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, 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 Performa 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, 1997 and 1996, the Company has a deficiency in
working capital of $1,186,807 and $780,357, 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 2,515,891 shares of common stock
during the years ended November 30, 1996 and 1997, respectively,
to a related party in exchange for services, debt and
compensation. which approximates the fair market value of the
shares issued.
The Company also rents office space from S.W. Carver Corporation,
a company owned by a major shareholder of the Company. The rent
is continued on a month to month basis. The Company also paid
S.W. Carver Corporation for bookkeeping services, which are
included in general and administrative expenses. These services
have been discontinued. Also, the Company had notes payable to
S.W. Carver Corporation, see Note 6.
4. Notes Receivable
During the year ended November 30, 1995 and 1994, the Company
advanced to CIPI $1,302,500. A note payable to the Company
evidences this advance, 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. In 1997 the Company provided an allowance for the
entire amount of the Note.
5. Property and Equipment
Property and equipment consisted of the following:
February 98, 1998 1997
Office equipment / $ 171,340 $ 155,791
furniture
Vehicles 35,362 35,362
Sub-total 206,702 191,153
Less: accumulated
depreciation (89,106) (50,780)
Total $ 117,596 $ 140,373
Depreciation expense for the years ended November 30, 1996 and
1997, totaled $38,263 and $79,345, respectively.
6. Notes Payable
The notes payable consisted of the following:
February 28, 1998 1998 1997
Notes payable to S.W. Carver
Corporation
(a related party) unsecured,
due on $ -0- $ 513,311
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 171,397 171,397
January 15, 1998
Note payable to Investor's Financial 25,000 25,000
Note payable to Ford Motor Credit,
secured by vehicle, interest at
12.9%, 5,828 12,530
unpaid balance on February 25,
1999
Note payable to Robert Spigno
(related
party) unsecured, due on demand
at -0- 8,000
10% interest, unpaid balance on
February 15, 1998
Total notes payable 444,049 972,062
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 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 lawsuit 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.
In October 1997, the Company entered into two consulting
agreements. In consideration for services to the Company, the
consultants were paid 500,000 shares of common stock for services
rendered. The company entered in to an agreement for funding and
issued 1,500,000 for a note receivable that has been subsequently
paid in full.
8. Income Taxes
Deferred income taxes consisted of the following:
November 30, 1997 1996
Deferred tax asset, net $3,454,392 $3,454,392
operating
loss carryforward
Deferred tax liability - -
Valuation allowance (3,454,392) (3,454,392)
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,
1996, 1997
Litigation
There are two legal proceedings to which the Company is a party.
The first 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 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. The Plaintiff has filed subsequent
to the year ended November 30, 1997, with its conclusions and
findings and is requesting that the Company disgorge alleged
profits plus interest totaling $1,013,514.60. The Company has
filed objections to their claims. 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.
The second case was brought by Clamar Capital Corp. (the
"Plaintiff ") against Smith Benton & Hughes; Michael Zaman;
Claudia Zaman; Andrew Pitt and Conectisys Corp. (collectively the
"Defendants"). The case was brought before the District Court of
Arapahoe, State of Colorado, case No. 97-CV-1442, Division 3.
The Plaintiff did not specify an amount of damages that it seeks
from the defendants.
<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> 1-MO
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 8441
<SECURITIES> 0
<RECEIVABLES> 629111
<ALLOWANCES> 379
<INVENTORY> 0
<CURRENT-ASSETS> 10052
<PP&E> 206702
<DEPRECIATION> (89106)
<TOTAL-ASSETS> 1717510
<CURRENT-LIABILITIES> 1296806
<BONDS> 0
0
20500
<COMMON> 9108045
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1717510
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 60180
<TOTAL-COSTS> 425619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11355
<INCOME-PRETAX> (436944)
<INCOME-TAX> 0
<INCOME-CONTINUING> (436944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (436944)
<EPS-PRIMARY> (.22)<F1><F2>
<EPS-DILUTED> (.22)<F1>
<FN>
<F1>Due to the net loss all option and warrants are considered
anti-dilutive
<F2>Earning per share are calculated on the weighted average
</FN>
</TABLE>
