1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSBA
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the year ended November 3, 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: $380,642.
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
February 17, 1998 was $7,052,385. 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 November 30, 1997 was 4,677,268.
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. It 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 has agreed to jointly market narrowband-PCS data
acquisition solutions.
Potential applications are numerous. 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 entered the market with a vending machine product. 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.
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, 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 the Internet.
PrimeServer is located at PrimeLink's California Office.
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.
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.
In April 1997, PrimeLink signed a lease agreement with Enogex Inc., a subsidiary
of OEG Energy Group. PrimeLink will providethe 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. This agreement was terminated in
October of 1997.
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 software exclusive for the needs of Corn
Dancer Inc.
In September 1997, Consolidated Edison (ConEd) of New York placed an order
with PrimeLink for the monitoring of its Steam operations in the Manhattan
Area. PrimeLink believes that this initial order with ConEd will lead to the
introduction of its product into other markets within the Consolidated Edison
organization (i.e. electric and gas meter reading).
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 downsizing 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 for the $50,000 loan at the same time 800,000 restricted
shares were 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
had 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 three 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. In October
1997 all Notes to S.W. Carver and Robert Spigno were paid through the issuance
of Conectisys Common Stock Restricted under Rule 144.
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 were returned to the transfer agent in October 1997.
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 sent back to the
transfer agent to be canceled.
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 were returned to the transfer
agent in October 1997and canceled.
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 $171,397 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 in
November 1996. Mr. Guardi was authorized to receive an additional 4,550
shares of restricted common stock for services.
On April 4, 1997, Conectisys issued 16,000 shares of restricted common
stock to settle its lawsuit 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, 5,958 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.
In October 1997, the Company issued the officers of the corporation, in lieu of
cash, restricted Common stock for unpaid salaries that had accrued through
August 1997. The Board of Directors resolved to change transfer agents of the
Company to Signature Stock Transfer located in Dallas, Texas. The Company
approved a 1:20 Common stock reverse split that it expects to ratify at the
next annual shareholders meeting. The Company saw it in its best interests to
contract with two consultants to expand its development, marketing, and sale
of its products. An agreement with an investment banker was also signed. The
Company agreed with Donald Wallace, the former president of PrimeLink, to a
separation, which included his resignation as an Officer and from its Board of
Directors
In November 1997, the Company issued 500,000 shares Common Stock to two
attorneys ,and two consultants for services rendered, and Restricted Common
Stock to a printer for services rendered.
A note receivable from CIPI was deemed to be uncollectible and was written
down in 1997. Additionally, the license and deferred technology for TechniLink
was written down to their net realizable value.
Competition
Conectisys and 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
only one competitor to date using Two-Way paging technology. Mechanical chart
recorders are predominant in the industry today. The TransComm unit, which is
utilized in the vending machine market, has no competition using SkyTel's
Two-Way Paging technology to the company's knowledge. 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.
One competitor uses the similar two-way paging technology. The major difference
between the other competitors devices 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, is currently believed to have no competition using the
Echelon neuron chip. 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 microprocessor
based industrial type computers. These are inherently expensive.
The cube 2001 is much more cost effective. Low voltage keeps
wire replacement to a minimum, while self acquiring network keeps
programming costs down.
C] MANUFACTURERS SYSTEMS are created by the actuator
manufacturers. They have a lot of notoriety because the manufacturers
that sell actuators to the refineries also want to control their futures.
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 in 1997 have come from one major company , Williams
Wireless . Williams Wireless is part of The Williams Companies. The Company
has signed in the last quarter of1997 a purchase order with Consolidated
Edison, but no revenues were received in 1997 from this order.
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 November 30, 1997, the Company and its subsidiaries employed seven full
time employees, of whom three 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 11 months at
$2,000.00 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 Company plans
to renew the lease again in 1998. 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 has moved from Widmer Rd, Lenexa, Kansas 66215,
to 24730 Avenue Tibbitts Unit 130, Valencia, CA 91355. PrimeLink
leased approximately 600 square feet of office space and 400
square feet warehouse space for $500 a month for a one-year term.
TechniLink is located at 7260 Spigno Place, Agua Dulce, and CA
91350.
Item 3. 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 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 accrued $50,000 for legal fees on the
future settlement of this case. 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 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 electronic over-
the-counter bulletin board. Bid and asked quotations are reported on the
bulletin board under the symbol CNES. As of February 15, 1997,
there were approximately 7 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 1:250
and the 1:20 reverse stock splits.
Quarter ending Bid Ask Bid Ask
High High Low Low
November 93 0 500.000 0 500.000
February 94 0 500.000 0 500.000
May 94 5.000 500.000 5.000 500.000
August 94 20.000 505.000 5.000 500.000
November 94 225.00 750.000 20.000 100.000
0
February 95 262.50 300.000 200.000 265.000
0
May 95 257.50 380.000 2.500 105.000
0
August 95 180.00 390.000 50.000 100.000
0
November 95 141.26 240.000 122.500 110.000
0
February 96 240.00 300.000 122.500 122.500
0
May 96 412.50 440.000 217.500 240.000
0
August 96 455.00 500.000 120.000 120.000
0
November 96 252.50 300.000 10.000 80.000
0
February 97 230.00 150.000 20.000 10.000
0
May 97 45.000 47.400 15.000 20.000
August 97 25.000 25.000 5.000 5.000
November 97 5.000 17.600 .750 .750
Current February 27, 3.490 4.000
1998
The above quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
As of November 30, 1997, there were approximately 566 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 has no present intention of declaring any dividends.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of operations
The Company (A Development Stage Company), realized a net loss on
operations of $2,689,268 for the year ended November 30, 1997,
with $380,642 of revenues. The Company in the 12 month period
ended November 30, 1996, had losses of $2,238,933, with $111,163
in revenues.
Plan of operation
Loss on operations for the Company for the year ended 1996 was
$2,238,933 as compared to a loss of $2,739,268 in fiscal 1997.
This is a 22 increases in losses from the prior year in the same
period. The Company, over the next 12 months will 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 fiscal 1997 were $380,642 as compared to $111,163 in year ended
November 30, 1996. The $380,642 in revenues are a 242% 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. The Company in the first quarter of
fiscal 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 November 30, 1997, the Company had a negative working capital of
$1,235,492 , consisting of $20,676 in current assets and
$1,256,168 in current liabilities. The Company had a negative working
capital of $780,357 at year ended November 30, 1996. This is a 58% increase
in negative working capital compared to November 30, 1996 . The Company 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. Also the Company is a party to
an investigation by the Securities and Exchange Commission.
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 the subsidiaries. The consolidated financial
statements do not include any adjustments that might result from
the outcome of the uncertainty.
The Company had total assets of $1,275,253 as of November 30,
1997, and total liabilities of $1,257,384. Shareholder equity is
$17,869 , as compared to $864,778 for fiscal year ended November
30, 1996.
Cash Flows
The Company had a net loss for the year ended November 30, 1997, of
$2,739,268 . The cash used in operations toward this loss was
$377,616 . The largest area of loss was the result of non-cash
transactions to the Company. $690,602 (25%) was the result of
services that were paid through the issuance of Common stock.
The Company also had depreciation and amortization expenses of
$487,396 , which is approximately 18% of the total net loss.
The Company had a $447,915 dollar provision for bad debt (16
%). The cash used in investing was $67,561 (2.4%) of the total
loss. The Company sold approximately $399,980 worth of its stock
under rule 144 and Regulation S to finance a portion of its
losses.
Effect of inflation
Inflation did not have any significant effect on the operations of the
company during the fiscal year ending November 30, 1997. Further, inflation is
not expected to have any significant effect on future operations
of the Company.
The Financial Accounting Standards Board (FASB) Impact
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.
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning
after December 15, 1997. Earlier adoption is permitted. SFAS 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of
SFAS No. 130 to have an effect, if any, on its financial position
or its results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure
About Segments Of An Enterprise And Related Information," (SFAS
131) issued by the FASB is effective for financial statements
with fiscal years beginning after December 15, 1997. Earlier
application is permitted. SFAS No. 131 requires that public
companies report certain information about operating segments,
products, services and geographical areas in which they operate
and their major customers. The Company does not expect adoption
of SFAS No. 131 to have an effect on its financial position or
results of operations; however, additional disclosures may be
made relating to the above items.
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the
"Year 2000" issue and is developing an implementation plan to
resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company presently
believes that , with modifications to existing software and
converting to new software, which the Company expects to
implement on a timely basis, the Year 2000 problem will not pose
significant operational problems for the Company's computer
systems as so modified and converted. Estimated costs associated
with this conversion are anticipated to be minimal. However, if
such modifications and conversions are not completed timely, the
Year 2000 problem may have a material adverse impact on the
operations of the Company.
Item 7. Financial Statements
Financial statements are audited 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
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 44, 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, for which Mr. Spigno served as President and Chairman of the Board
since 1989.
Richard Dowler, Director, Chief Financial Officer Controller
Richard Dowler, age 38, 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 39, 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 have 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 42, 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, 1997, 1996, and 1995 , 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 $75,335 1997
62,998 1996
12,787 1995
The Company has plans for profit sharing, insurance, and stock option plans
for the benefit of its officers, directors or other employees for fiscal year
1998, 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. There were none
granted in 1997.
Stock Option Exercises and option values
Fiscal year end option values
Number of Unexercised Value of Unexercised
Option Shares at Fiscal the Money Options at
Year End Fiscal Year End
Name Exercisable Unexercisable Exercisable Unexercisable
Robert Spigno 1,471,195 0 $3,677,987 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 effect 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 effect 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 effect 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 November 30, 1997, the Company had 4,677,804 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
Mandarin Overseas 1,377,536 29.42%
Investment
Robert A. Spigno (1) 478,581 10.22%
S.W. Carver Corp. 1,944,721 41.54%
Security ownership of
Management
Richard Dowler 48,868 1.04%
Patricia A. Spigno 61,362 1.31%
Robert A. Spigno 478,581 10.22%
Karl E Elliott 19,250 .41%
Total Directors and 608,061 12.99%
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 61,362 shares owned by Patricia Spigno
(spouse). The aggregate beneficially owned by Robert A. Spigno is 468,438
Shares (11.53%).
(2) Does not include 478,581 shares owned by Robert A. Spigno
(spouse). The aggregate beneficially owned by Patricia A. Spigno is 468,438
Shares (11.53%).
Item 12. Certain Relationships and Related Transactions
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 S.W. Carver Corp. (SWC), which is owned by
Robert A. Spigno and Patricia A. Spigno states that SWC is to
maintain the day to day accounting needs of the company. SWC 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. This note was paid with the issuance of
Restricted Common Stock in October 1997.
In October 1997, the Company reduced its debt from $777,888 to
$30,000 with S.W. Carver by issuing 1,944,720 Restricted Common
Stock under rule 144.
Information concerning certain other related party transactions are
contained in response to Item 1 and 11 and which are incorporated
herein by this reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
99.0 Financial statements
(b) During the Registrant's fiscal year ended November 30, 1997, the
registrant filed the following current reports on Form 8-K:
8-K Filed April 3, 1997
8-K Filed April 22, 1997
8-K Filed May 1, 1997
8-K Filed May 28, 1997
8-K Filed June 30, 1997
8-K Filed October 15, 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: March 14, 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, March 14,1997
(Robert A. Spigno) Chief Executive
Officer, President and
Director
/S/ Richard Dowler Chief Financial Officer March 14, 1997
(Richard Dowler) (Principal Financial
Officer and Principal
Accounting Officer),
and Director
/S/ Patricia A. Spigno Secretary, Treasurer March 14, 1997
(Patricia A. Spigno)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10KSBA and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 17265
<SECURITIES> 0
<RECEIVABLES> 181270
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20676
<PP&E> 198249
<DEPRECIATION> (79345)
<TOTAL-ASSETS> 1275253
<CURRENT-LIABILITIES> 1256168
<BONDS> 0
0
20500
<COMMON> 8349580
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1275253
<SALES> 380642
<TOTAL-REVENUES> 380642
<CGS> 237914
<TOTAL-COSTS> 2646074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 384471
<INTEREST-EXPENSE> 89365
<INCOME-PRETAX> (2739268)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2739268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2739268)
<EPS-PRIMARY> (3.37)
<EPS-DILUTED> (3.37)<F1>
<FN>
<F1>Due to the net loss all option and warrants are considered
to be anti-dilutive.
</FN>
</TABLE>
Conectisys Corporation and Subsidiaries
(A Development Stage Company)
Consolidated Financial Statements
Years ended November 30, 1997 and 1996
and from December 1,1990 (inception of Development
Stage) through November 30, 1997
Report on independent certified public accountants 2-3
Consolidated financial statements
Balance sheets 4
Statements of operations 5
Statements of shareholders' equity 6-9
Statements of cash flows 10-11
Summary of accounting policies 12 -16
Notes to consolidated financial statements 17-30
Report of Independent Certified Public Accountants
Board of Directors
Conectisys Corporation and Subsidiaries
Agua Dulce, California
We have audited the accompanying consolidated balance sheets of
Conectisys Corporation and Subsidiaries (a development stage
company) as of November 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and
cash flows for the years ended November 30, 1997 and 1996 and
from December 1, 1990 (inception of development stage) through,
November 30, 1997, except that we did not audit these financial
statements for the period December 1, 1990 (inception of
development stage) through November 30, 1994, these financial
statements were audited by other auditors and whose report dated
January 9, 1995 expressed a going concern uncertainty. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position
of Conectisys Corporation and Subsidiaries as of November 30,
1997 and 1996, and the results of their operations and their cash
flows for the years ended November 30, 1997 and 1996 and from
December 1, 1990 (inception of development stage) through
November 30, 1997, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the deficiency in working capital of $1,235,492 and
$780,357 as of November 30, 1997 and 1996, respectively, and the
operating losses incurred since the Company's return to a
development stage raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these
matters also are described in Note 2. Also the Company is party
to a Securities and Exchange Commission investigation as
described in Note 9. The consolidated financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
BDO Seidman, LLP
Los Angeles, California
March 6, 1998
November 30, 1997 1996
Assets
Current assets
Cash and cash equivalents $ 17,265 $ 24,495
Accounts receivable - trade (net of
allowance for 3,411 35,532
doubtful accounts of $379 and
$1,668)
Total current assets 20,676 60,027
Notes receivable, net (Note 4) 181,270 446,625
Interest receivable, net (Note 4) - 7,947
Property and equipment, net (Note 5) 118,904 150,370
Other assets
Licenses and technology, net of
accumulated
amortization of $656,337 and 954,403 1,727,242
$481,526 in 1997 and 1996
(Notes 1 and 9)
Deposits - 4,500
Total other assets 954,403 1,731,742
$ 1,275,253 $ 2,396,711
November 30, 1997 1996
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 410,455 $ 338,822
Accrued compensation (Note 9) 223,448 136,181
Accrued expenses 50,000 -
Notes payable (Notes 3 and 6)
Related party - -
Other 444,463 247,719
Other current liabilities 127,802 117,662
Total current liabilities 1,256,168 840,384
Long-term liabilities
Notes payable (Notes 3 and 6)
Related - 527,830
Other 1,216 163,719
Total long-term liabilities 1,216 691,549
Commitments and contingencies (Note 9)
Shareholders' equity (Note 7)
Preferred stock - Class A, 1,000,000
shares authorized,
$1.00 par value; 20,500 and 16,435 20,500 20,500
issued and
outstanding in 1996 and 1995
Convertible preferred stock - Class B,
1,000,000 shares -
authorized, $1.00 par value; -0-
issued and outstanding
Common stock, 250,000,000 shares
authorized, no
par value; 4,677,268 and 138,786 8,349,580 6,457,221
shares issued and outstanding
in 1997 and 1996
Deficit accumulated during development (8,352,211) (5,612,943)
stage
Total shareholders' equity 17,869 864,778
$ 1,275,253 $ 2,396,711
See summary of significant accounting policies and notes to
consolidated financial statements.
December 1,
1990
(Inception)
through
Years Ended November 30,
November 30,
1997 1996 1997
Revenues $ 380,642 $ 111,163 $ 491,805
Cost of goods sold 237,914 86,977 324,891
Gross profit 142,728 24,186 166,914
Operating expenses
General and administrative 1,961,535 1,715,009 4,782,152
(Note 3)
Bad debt write-offs (Note 446,625 118,611 1,680,522
4)
Loss from operations (2,265,432)(1,809,434) (6,295,760)
Interest income - 98,356 101,048
Interest expense (89,365 ) (648,424) (767,033)
Write-off of intangible (384,471) - (384,471)
assets (Note 1)
Minority interest - 120,569 121,747
Net loss $ (2,739,268) $(2,238,933) $(7,224,469)
Weighted average shares 813,327 130,431
outstanding
Net loss per share $ (3.37 ) $ (17.17 )
See summary of significant accounting policies and notes to
consolidated financial statements.
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred During
Stock
Class A Common Stock Development
Shares Amount Shares Amount Stage Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990
(re-entry - $ - 10,609 $ 1,042,140 $ (1,042,140) $ -
development stage)
Shares issued in exchange
for:
Cash, May 31, 1993 - - 1,000 1,000 - 1,000
Capital contribution, May - - 2,000 515 - 515
31, 1993
Services, March 26, 1993 - - 2,000 500 - 500
Services, March 26, 1993 - - 1,200 600 - 600
Net loss for the year ended - - - - (5,459 ) (5,459)
November 30, 1993
Balance, November 30, 1993 - - 16,809 1,044,755 (1,047,599) (2,844)
Shares issued in exchange
for:
Services, May 1, 1994 - - 2,400 3,000 - 3,000
Cash, September 1, 1994 - - 17,771 23,655 - 23,655
Services, September 15, - - 8,700 11,614 - 11,614
1994
Cash, September 26, 1994 - - 3,000 15,000 - 15,000
Cash, October 6, 1994 16,345 16,345 - - - 16,345
Cash, September and - - 1,320 33,000 - 33,000
October, 1994
Net loss for the year - - - - (32,544) (32,544)
Balance, November 30, 1994 16,345 16,345 50,000 1,131,024 (1,080,143) 67,226
</TABLE>
<TABLE>
<CAPTION>
Preferred
Stock
Class A Common Stock Accumulated
Shares Amount Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Cash, February 13, 1995 - - 1,160 232,000 - 232,000
Debt repayment, February 13, - - 2,040 408,000 - 408,000
1995
Debt repayment, February 20, - - 4,778 477,810 - 477,810
1995
Acquisition of assets, CIPI - - 28,750 1,950,000 - 1,950,000
February 1995
Acquisition of assets, - - 15,000 - - -
April 5, 1995 (Note 10)
Cash and services, April - - 16,000 800,000 - 800,000
and May 1995
Cash, June 1, 1995 - - 500 30,000 - 30,000
Acquisition of assets and - - 4,000 200,000 - 200,000
services, September 26, 195
Cash, September 28, 1995 - - 41 3,000 - 3,000
Acquisition of assets, - - 35,000 1,750,000 - 1,750,000
September 1995
Return of assets, CIPI - - (27,700) (1,950,000) - (1,950,000)
September 1995
Net loss for the year - - - - (2,293,867) (2,293,867)
Balance, November 30, 1995 16,345 16,345 129,569 5,031,834 (3,374,010) 1,674,169
Shares issued in exchange
for (Note7):
Cash, February, 1996 - - 1,389 152,779 - 125,000
Debt repayment, February, - - 10,000 612,000 - 639,779
1996
Services, February, 1996 - - 3,160 205,892 - 205,892
Cash, March, 1996 - - 179 25,000 - 25,000
Shares returned and canceled, - - (15,000) - - -
March, 1996
Services, April, 1996 - - 13 2,069 - 2,069
Services, September, 1996 4,155 4,155 586 36,317 - 40,472
Services, October, 1996 - - 6,540 327,000 - 327,000
Debt repayment, November, 1996 - - 2,350 64,330 - 64,330
Net loss for the year - - - - (2,238,933) (2,238,933)
Balance, November 30, 1996 20,500 20,500 138,786 6,457,221 (5,612,943) 864,778
Shares issued in exchange
for (Note 7):
Services, March, 1997 - - 228 6,879 - 6,879
Services, April, 1997 - - 800 13,120 - 13,120
Services, July 1997 - - 1,500 16,200 - 16,200
Cash, July, 1997 - - 15,000 300,000 - 300,000
Services, August, 1997 - - 5,958 56,000 - 56,000
Adjustment for partial shares - - 113 - - -
due to reverse stock
split (1:20)
Services, October, 1997 - - 1,469,666 587,865 - 587,865
Debt repayment, October, 1997 - - 1,540,267 620,507 - 620,507
Cash, October, 1997 - - 1,500,000 281,250 - 281,250
Services, November, 1997 - - 4,950 10,538 - 10,538
Net loss for the year - - - - (2,739,268) (2,739,268)
Balance, November 30, 1997 20,500 $20,500 4,677,268 $8,349,580 $(8,352,211) $ 17,869
</TABLE>
See summary of significant accounting policies and notes to
consolidated financial statements.
Increase (Decrease) in Cash December 1,
1990
(Inception)
through
Years Ended November 30,
November 30,
1997 1996 1997
Cash flows from operating
activities:
Net loss $(2,739,268) $ (2,238,933) (7,274,469)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued for services 690,602 575,433 2,064,196
Stock issued for interest 88,951 446,640 535,591
Provision for bad debt 447,915 118,611 1,422,401
write-offs
Minority interest - (120,569) (121,747)
Depreciation and 871,866 519,789 1,392,925
amortization
(Increase) decrease in
assets:
Accounts receivable 30,831 (38,862 ) (7,612)
Accrued interest 7,947 (95,281) (95,700)
receivable
Deposits 4,500 - -
Increase (decrease) in
liabilities:
Accounts payable 71,633 295,889 410,455
Accrued expenses 50,000 - 50,000
Accrued compensation 87,267 82,886 223,448
Other current 10,140 105,540 216,753
liabilities
Net cash used in operating (377,616 ) (348,857) (1,183,759)
activities
Cash flows from investing
activities:
Increase in notes receivable - - (1,322,500)
(Note 4)
Costs of licenses and (60,465) (30,340) (94,057)
technology
Purchase of equipment (7,096) (31,535) (65,066)
Net cash used in investing (67,561) (61,875) (1,481,623)
activities
Cash flows from financing
activities:
Common stock issuance 300,000 150,000 860,655
Preferred stock issuance - - 16,345
Proceeds from debt, other 57,894 155,203 1,540,731
Proceeds from debt, related - 150,309 206,544
Proceeds from stock purchase 99,980 - 99,980
Payments on debt, other - (8,951) (8,951)
Payments on debt, related (19,927) (33,245) (53,172)
Decrease in stock - 20,000 20,000
subscription receivable
Contributed capital - - 515
Net cash provided by financing 437,947 433,316 2,682,647
activities
Net increase (decrease) in (7,230) 22,584 17,265
cash
Cash, beginning of year 24,495 1,911 -
Cash, end of year $ 17,265 $ 24,495 $ 17,265
Supplemental disclosure of cash flow information:
Cash paid during the year
for:
Interest $ - $ 41,874 $ 130,825
Taxes - 800 1,650
Noncash financing activities:
Common stock issued in
exchange for:
Purchase of stock $ 281,250 - $ 281,250
Property and equipment $ - $ 35,362 $ 130,931
Licenses and technology $ - $ - $ 1,770,000
Repayment of debt and $ 620,507 $ 257,469 $ 1,674,835
interest
Services and interest $ 690,602 1,017,918 $ 2,630,928
See summary of significant accounting policies and notes to
consolidated financial statements.
Basis of The accompanying consolidated financial
Presentation 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 The Company returned to the development
Stage stage in accordance with SFAS No. 7 on
Company 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 For financial accounting purposes and the
Equivalents statement of cash flows, cash equivalents
include all highly liquid debt instruments
with an original maturity of three months or
less.
Property and Property and equipment are recorded at cost.
Equipment 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 Net loss per common share is based on the
Common Share weighted average number of common and common
equivalent shares outstanding for the
periods presented. Common equivalent shares
representing the common shares that would be
issued on exercise of convertible securities
and outstanding stock options and warrants
reduced by the number of shares which could
be purchased from the related exercise
proceeds are not included since their effect
would be antidilutive.
Stock Issued Shares of the Company's no par value common
for Noncash stock issued in exchange for goods or
Consideration 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 The cost of acquiring license rights are
Agreements 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. As of
November 30, 1997 the Company had not
generated any revenues from the Technilink
licenses and the future projected revenues
were revised. As such the Technilink
license and deferred technology were write-
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.
Impairment of Long-Statement of Financial Accounting Standards
Lived Assets 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.
Accounting for Statement of Financial Accounting Standards
Stock-Based No. 123, "Accounting for Stock-Based
Compensation Compensation" (SFAS No. 123) establishes a
fair value method of accounting for stock-
based compensation plans and for
transactions in which an entity acquires
goods or services from non-employees in
exchange for equity instruments. The
Company adopted this accounting standard on
January 1, 1996. SFAS 123 also encourages,
but does not require companies to record
compensation cost for stock-based employee
compensation. The Company has chosen to
continue to account for stock-based
compensation utilizing the intrinsic value
method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly,
compensation cost for stock options is
measured as the excess, if
Accounting for any, of the fair market price of the
Stock-Based Company's stock at the date of grant over
Compensation the amount an employee must pay to acquire
(Continued) the stock. Also in accordance with SFAS No.
123, the Company has provided the stock.
Also in accordance with SFAS No. 123, the
Company has provided footnote disclosure
with respect to stock-based employee
compensation. The cost of stock-based
compensation is measured at the grant date
on the value of the award and recognizes
this cost over the service period. The
value of the stock-based award is determined
using a pricing model whereby compensation
cost is the excess of the fair market value
of the stock as determined by the model at
grant date or other measurement date over
the amount an employee must pay to acquire
the stock.
New Accounting Statement of Financial Accounting Standard
Pronouncements No. 130, "Reporting Comprehensive Income,"
(SFAS No. 130) issued by the FASB is
effective for financial statements with
fiscal years beginning after December 15,
1997. Earlier adoption is permitted.
SFAS 130 establishes standards for reporting
and display of comprehensive income and its
components in a full set of general purpose
financial statements The Company does not
expect adoption of SFAS No. 130 to have an
effect, if any, on its financial position or
its results of operations.
Statement of Financial Accounting standard
No. 131, "Disclosure About Segments of an
Enterprise and Related Information," (SFAS
No. 131) issued by the FASB is effective for
financial statements with fiscal years
beginning after December 15, 1997. Earlier
application is permitted. SFAS No. 131
requires that public companies report
certain information about operating
segments, products, services and
geographical areas in which they operate and
their major customers. The Company does not
expect adoption of SFAS No. 131 to have an
effect on its financial position or results
of operations; however, additional
disclosures may be made relating to the
above items.
Fair Value The carrying amounts of financial
of Financial instruments including cash and cash
Instruments equivalents, accounts 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.
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.
1. Business Nature of Organization (Continued)
(Continued)
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. In 1997, the Company wrote-off
this notes receivable as it was deemed
uncollectible.
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.
1. Business Acquisition of Privately Held Companies
(Continued)
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 pro forma 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 $1,235,492 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.
Also the company is a party to an
investigation by the Securities and Exchange
Commission see Note 9.
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 the subsidiaries. The
consolidated financial statements do not
include any adjustments that might result
from the outcome of the uncertainty.
3. Related Party The Company issued 2,494 and 260,000 shares
Transactions of common stock during the years ended
November 30, 1996 and 1995, respectively, to
a related party in exchange for services.
The services were valued at $17,538 and
$534,961, respectively, which approximates
the fair market value of the shares issued.
The CEO of the Company exercised 28,805 of
his stock options at an exercise price of
$0.20 per share. The Company also issued
the CEO 4,155 shares of Preferred Class A
stock for services rendered.
The Company also leases office space from
S.W. Carver Corporation, a company owned by
a major shareholder of the Company. The
lease is for a period of twelve months at a
rate of $2,000 per month. The Company also
pays S.W. Carver Corporation for bookkeeping
services which are included in general and
administrative expenses.
Rent expense for the years ended November
30, 1997 and 1996 were $20,000 and $24,000,
respectively.
In February 1996, the Company's Board of
Directors authorized the purchase of a car
for the use of its Chief Financial Officer.
The purchase price was approximately
$23,000, of which approximately $18,000 was
financed by the Company. The Board of
Directors also determined that the vehicle
would be maintained and fueled in full by
the Company.
4. Notes A note receivable from CIPI of $1,302,500
Receivable was deemed to be uncollectible and was
written-off in 1997. The Company had
provided an allowance of $855,875 in 1996
and 1995 which was also written-off.
Interest receivable on this note was written-
off accordingly.
A promissory note was received on a stock
purchase agreement in the amount of
$281,250. A payment in the amount of
$99,980 was received leaving a balance at
year end that was subsequently received in
full.
5. Property and Property and equipment consisted of the
Equipment following:
November 30, 1997 1996
Office equipment $ 148,518 $ 141,422
Furniture and fixtures 14,369 14,369
Vehicles 35,362 35,362
198,249 191,153
Accumulated depreciation (79,345) (40,783)
Total $ 118,904 $ 150,370
Depreciation expense for the years ended
November 30, 1997 and 1996 totaled $38,562
and $38,263, respectively.
6. Notes Payable The notes payable consisted of the
following:
November 30, 1997 1996
Notes payable to S.W. Carver
Corporation (a related
party) unsecured, due on
demand at 10% interest $ - $ 519,830
Note payable to Devon
Investment Advisors
unsecured, due on demand at 241,824 241,824
10% interest
Note payable to Black Dog
Ranch, LLC unsecured, due
on demand at 8% interest,
unpaid balance on January 171,397 130,203
15, 1998
6. Notes Payable 1997 1996
(Continued)
Note payable to Investor's 25,000 25,000
Financial
Note payable to Ford Motor
Credit, secured by vehicle,
interest at 12.9%, unpaid 7,458 14,411
balance on February 25,
1999
Note payable to Robert Spigno
(related party) unsecured,
due on demand at 10% - 8,000
interest
Total notes payable 445,679 939,268
Current portion (444,463) (247,719)
Long-term portion $ 1,216 $ 691,549
Long-term debt maturity consist of the
following as of November 30, 1996:
Year ending
November 30, Amount
1998 $ 444,463
1999 1,216
Total notes payable $ 445,679
In October 1997 all notes to S. W. Carver
were paid through the issuance of Conectisys
common stock valued at $517,056 and cash of
$2,774.
6. Notes Payable In 1997 the note payable to Robert Spigno
(Continued) increased by $16,700. In October, 1997 the
full amount was paid off in cash of $10,200
and in common stock valued at $14,500.
On December 10, 1996, the company signed a
promissory note to the order of Black Dog
Ranch LLC. This note was rewritten in June
1997 and reduced to $171,396 to properly
reflect the amount that the Company received
from the sale of stock that BDR owned.
7. Shareholders' The Company is authorized to issue
Equity 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.
7. Shareholders' In February 1996, the Company issued 63,199
Equity shares of common stock to various
(Continued) 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 payment of an advertising
contract on there World Wide Web and
consulting services. The transaction was
recorded at $32,000 which approximates the
fair value of the stock given at that date.
On September 23, 1996, the Company issued
4,155 shares of Preferred stock to Robert
Spigno, President of Conectisys Corp. for
the reduction of compensation accrued to Mr.
Spigno, the shares were issued at their par
value of $1.00 per share.
In March, July and November, 1997 the
Company issued 6,678 shares (converted due
to 20:1 reverse stock split) for legal
services. The transaction was recorded at
$33,617 which approximates the fair value of
the stock given at the dates of the
transactions.
7. Shareholders' On April 4, 1997, Conectisys issued 800
Equity shares (converted due to 20:1 reverse stock
(Continued) split) of common stock valued at $13,120,
which approximates the value of the stock at
the date of issue, to settle its law suit
with the former directors.
On July 14, 1997 the Company issued 15,000
shares of restricted common stock in a
private placement for $20.00 per share.
In October 1997, the Company approved a 1:20
reverse stock split on its common stock.
All shares have been retroactively restated
to reflect this change.
In 1997 531,471 shares were issued for
compensation to Officers and Directors of
the Company valued at $266,204.
In October 1997, 500,000 shares were issued
to two consultants for services based on an
agreement valued at $200,000.
In October 1997 all notes to S. W. Carver
were paid through the issuance of 1,292,640
shares of Conectisys common stock valued at
$517,056 and cash of $2,774.
In 1997 the note payable to Robert Spigno
increased by $16,700. In October, 1997 the
full amount was paid off in cash of $10,200
and in 36,250 shares of common stock valued
at $14,500.
8. Income Taxes Deferred income taxes consisted of the
following:
November 30, 1997 1996
Deferred tax asset, net
operating $ 5,286,496 $ 3,454,392
loss carryforward
Deferred tax liability - -
Valuation allowance (5,286,496) (3,454,392)
Net deferred taxes $ - $ -
8. Income Taxes The valuation allowance offsets the net
(Continued) deferred tax asset since it is more likely
than not it would not be recovered.
9. Commitments Employment Agreements
and
Contingencies The Company has entered into five employment
agreements with key individuals, the terms
of the agreements are as follows: 1) The
President and CEO of PrimeLink entered into
an agreement dated September 15, 1995 for a
period of three years. This agreement along
with his royalty agreement were mutually
terminated. The separation agreement as of
October 31, 1997, agreed for a settlement of
$12,000 to be paid $1,000 monthly for the
following twelve months. 2) The President
and CEO of TechniLink entered into an
agreement dated September 13, 1995 for a
period of three years. He is entitled to
receive a base salary of $90,000 per year
and an annual bonus equal to 15% of the net
profits before taxes earned by TechniLink,
Inc. He is also granted an option to
purchase up to 250,000 shares of the
Company's restricted common stock at a price
equal to 50% of the average market value of
the stock on the date of purchase. 3) The
President and CEO of Company entered into an
agreement dated October 2, 1995 which was
amended September 1, 1997 for a period of
five years and he is entitled to receive a
base salary of $160,000 per year and an
annual bonus of 6% of the Company's pretax
net income. Employee shall further receive
a bonus, paid at year end, equal to 50% of
employee's salary for continued employment.
The staying bonus shall be compensated for
with Conectisys Corp. restricted stock. He
is also granted an option to purchase up to
500,000 shares of the Company's restricted
common stock at a price equal to 50% of the
average market value at the date of
purchase. 4) The Chief Financial Officer of
Company entered into an agreement dated
October 2, 1995 which was amended September
1, 1997 for a period of three years and he
is entitled to receive a base salary of
$80,000 per year and an annual bonus of 2%
of the Company's pretax net income. Employee
shall further receive a bonus, paid at
9. Commitments Employment Agreements (Continued)
and
Contingencies year end, equal to 50% of employee's salary
(Continued) for continued employment. The staying bonus
shall be compensated for with Conectisys
Corp. restricted stock. He is also granted
an option to purchase up to 500,000 shares
of the Company's restricted common stock at
a price equal to 50% of the average market
value at the date of purchase. 5) The
Secretary and Treasurer of Company entered
into an agreement dated October 2, 1995
which was amended September 1, 1997 for a
period of three years and he is entitled to
receive a base salary of $80,000 per year
and an annual bonus of 2% of the Company's
pretax net income. Employee shall further
receive a bonus, paid at year end, equal to
50% of employee's salary for continued
employment. The staying bonus shall be
compensated for with Conectisys Corp.
restricted stock. She is also granted an
option to purchase up to 500,000 shares of
the Company's restricted common stock at a
price equal to 50% of the average market
value at the date of purchase.
License Agreements
The Company has entered into License
agreements with the Presidents of both
PrimeLink and TechniLink. The license
agreements were entered into on September
20, 1995, in connection with the acquisition
of PrimeLink and TechniLink (see Note 1),
and are for a period of five years. As
consideration for these license agreements
the Company issued each licensee 250,000
shares of its restricted common stock and
will pay the licensee a royalty of 5% of net
sales of the applicable product. In
addition, in the event of the sale of the
license or the acquisition or merger of
TechniLink or PrimeLink, a royalty sum of
20% of the sales price of the license shall
be paid to the licensee, the sales price
shall not be less than $1,500,000. The
licenses were valued at the fair market
value of the stock issued to obtain the
licenses. In 1997, there was a separation
agreement between the President of PrimeLink
agreeing to forfeit royalty rights for a
$12,000 settlement.
9. Commitments Litigation
and
Contingencies There are two legal proceeding to which the
(Continued) 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 finding and is requesting
that the Company disgorge alleged profits
plus interest totaling $1,013,514. The
Company has accrued $50,000 for legal fees
on the future settlement of this case. 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 is 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.
10 Major For the year ended November 30, 1997, the
. Customers Company had sales to one customer comprising
100% of total sales. Accounts receivable
from this customer at November 30, 1997 was
$0.
11 Stock Options The pro forma information required by SFAS
. 123 is not inlcuded as there were no options
granted during fiscal year 1997.
The Company has granted various options and
warrants to employees, the options and
warrants are granted at fair market value at
date of grant and vest immediately. The
activity during the years ended November 30,
1995, 1996 and 1997 is as follows:
Options Weighted
and Average
Warrants Price
Balance outstanding, 1,860,000 $ .20
December 1, 1994
Exercised (320,000) .20
Granted 2,880,000 1.43
Balance outstanding, 4,420,000 1.00
November 30, 1995
Expired (86,000) .20
Granted 1,000,000 2.50
Exercised (359,605) 1.48
Balance outstanding, 4,200,395 1.48
November 30, 1996
Canceled and expired (1,331,195) (.71)
Balance outstanding, 2,869,200 1.84
November 30, 1997
Options and warrants
exerciseable, November 2,869,200
30, 1997
11 Stock Options The following table summarizes information
. (Continued) about stock options at November 30, 1997.
Outstanding Exerciseable
Weighted Weighted
Average Average
Exercise Life Exercise Exercise
Price Options (Months) Price Options Price
$1.55 2,000,000 36 $1.55 2,000,000 $1.55
2.50 869,200 3 $2.50 869,200 2.50
2,869,200 26 $1.84 2,869,200 $1.84
12 Subsequent On February 26, 1998, Conectisys entered
. Events into a stock purchase agreement with two
subsidiaries of BVI Corporation offering a
purchase of 4,000,000 shares of Conectisys
common stock at a subscription price of
$.1875 a share with a total value of
$750,000.
