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 30, 1998.
|_| Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 [no fee required]
Commission File Number 33-3560D
CONECTISYS CORP.
(Name of small business issuer in its charter)
Colorado 84-1017107
(state or other jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
7260 Spigno Place 91350
Agua Dulce, California
(Address of principal (Zip Code)
Executive offices
Issuer's telephone number: (805) 268-0305
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(b) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. |X| Yes|_| No
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: $ 000.
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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 November 30, 1998 was
$10,792,139. 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, 1998 was 12,662,212.
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 for monitoring of meters for utility
companies. This technology eliminates the need for a meter reader and for
electric utilities provides a method for energy conservation and load
management.
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Business and Products of PrimeLink
Government electric deregulation and the need to lower operational costs are
requiring many businesses to acquire operating information from widespread or
mobile operations.
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, water and gas utility meters,
pipeline gas flow measurement are some of the potential applications of the
technology. PrimeLink entered the market with a vending machine product, which
was unsuccessfully marketed. PrimeLink has been targeting the electricity meter
Automated Meter Reading (AMR) market.
The key concept behind PrimeLink's business is the unique combination of
existing technologies to provide low cost monitoring equipment combined with low
cost communications for sites where real-time monitoring is not required. These
monitoring products will be based on an industry stadard 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.
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. PrimeServer is located at PrimeLink's
California Office.
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
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terminated by eitherparty.
In April 1997, PrimeLink signed a lease agreement with Enogex Inc., a subsidiary
of OEG Energy Group. PrimeLink will provide the equipment to Enogex for the
purpose of wireless data gathering from remote gas wells. The lease is for an
initial 26 pilot sites. After 45 days of the pilot, the lease calls for an
additional 224 units to be installed within 18 months. The lease will continue
for an additional 48 months. 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 other Conectisys products within the Consolidated Edison
organization.
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.
TechniLink utilizes the Echelon Corporation LON (local operating network)
power-line carrier technology. This technology creates an easy to use, and
flexible system. By dramatically reducing the installation cost of
aComputer-controlled valve and motor network, customers are now able to
affordthe benefits associated with around-the-clock diagnostics, auditing
documentation and sequence monitoring.
The LonWorks based "Cube 2001" System offers the following key benefits:
Cost savings from simplified design and minimization of installation
costs.
Cost 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.
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The Company believes that the product's ease of installation makes the product
and versatile as any other device currently being the marketed.
Competition
Conectisys and its subsidiaries, PrimeLink and TechniLink, have competition in
their respective markets. PrimeLink's automatic meter reading (AMR) device 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 competitor 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.
B] DCS & PLC based I/O systems. DCS (Digital Control System) & PLCs
(Programmable Logic Controller) are microprocessor based industrial
type computers.
C] MANUFACTURERS SYSTEMS are created by the valve actuator
manufacturers.
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
The Company has signed in the last quarter of 1997 a purchase order with
Consolidated Edison, but no revenues were received in 1997 from this order.
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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, 1998, 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 S.W. Carver, 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 and
January 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 1999. There are
no current plans to lease any additional space.
The PrimeLink office location is 24730 Avenue Tibbitts Unit 130, Valencia, CA
91355. PrimeLink leased approximately 600 square feet of office space and 400
square feet warehouse space for $1400 a month for a one-year term. TechniLink is
located at 7260 Spigno Place, Agua Dulce, and CA 91350.
Item 3. Legal Proceedings
In May 1999, the United States District Court for the Central District of
California (Civ. Action No. 96-4164-MRP) entered an Amended Final Judgment of
Permanent Injunction and Other Relief against the Company in a civil action
filed by the U.S. Securities and Exchange Commission. The judgment
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permanently enjoins the Company from any future violations of Section 5(a) and
(c) of the Securities Act of 1933 (registration provisions), and of Section
17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder (anti-fraud provisions). The Court ordered
disgorgement of $175,000 and post-judgment interest which was waived based upon
the financial condition of the Company as reflected in certain reports filed
with the SEC.
Item 4. Submission of Matters to a Vote of Security Holders
An annual stockholders meeting was not held during the fiscal year ending
November 30, 1998.
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, low & closing information for the common stock for each fiscal quarter in
1998.
All prices have been converted to reflect the 1:250 and the 1:20 reverse stock
splits, which occurred in prior to 1998.
Quarter ending High Low Close
November 30, 1998 $1.50 $0.125 $0.50
August 31, 1998 $4.25 $1.187 $1.25
May 31, 1998 $5.875 $2.187 $2.50
February 28, 1998 $3.875 $2.00 $3.687
As of November 30, 1998, there were 608 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 the companies inception, and its Board
of Directors has no present intention
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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
$4,420755 for the year ended November 30, 1998, with no revenues. The Company in
the 12 month period ended November 30, 1997, had losses of $2,739,268 with
$380,642 in revenues.
Plan of operation
Loss on operations for the Company for the year ended 1997 was $2,739,268 as
compared to a loss of $4,420,755 in fiscal 1998. This is a 61% 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 1998 was $zero as
compared to $380,642 in year ended November 30, 1997. 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.
Liquidity and capital Resources
As of November 30, 1998, the Company had a negative working capital of
$1,428,450, consisting of $5,734 in current assets and $1,434,184 in current
liabilities. The Company had a negative working capital of $123,549 at year
ended November 30, 1997. This is a 16% increase in negative working capital
compared to November 30, 1997. 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.
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 $1,281,136 as of November 30, 1998, and total
liabilities of $1,434,184. Shareholder equity is $(153,048), as compared to
$17,869 for fiscal year ended November 30, 1997.
Cash Flows
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The Company had a net loss for the year ended November 30, 1998, of $4,420,755 .
The cash used in operations toward this loss was $1,402,435. The largest area of
loss was the result of non-cash transactions to the Company. $1,777,521 (40%)
was the result of services that were paid through the issuance of Common stock.
The Company also had depreciation and amortization expenses of $1,357,155, which
is approximately 31% of the total net loss. The cash investing was $122,414
(2.8%) of the total loss. The Company sold approximately $1,274,178 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, 1998. 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 review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has implementation
plan to resolve the issue. Any of the
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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 with
modifications to existing software and converting to new software, which the
Company is implementing 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
There were no accounting changes for the Company.
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:
Robert A. Spigno, Chief Executive Officer/President, and Chairman of the Board
Patricia A. Spigno, Secretary/Treasurer
Lawrence P. Muirhead, Chief Technology Officer
Robert A. Spigno, President and Chief Executive Officer
Robert A. Spigno, age 44, has been Chairman of the Board and Chief Executive
Officer, since August 1995. He has for 22 years of experience in management and
majority ownership of several closely held companies. Prior to joining
Conectisys, Mr. Spigno was President of S. W. Carver Corp. He has been
instrumental in bringing each of his previous companies to profitability.
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Patricia A. Spigno, Secretary and Treasurer
Patricia A. Spigno, age 40, 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.
Ms. 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.
Lawrence P. Muirhead, Chief Technology Officer
Mr. Muirhead, age 40, has been Chief Technology Officer and Member of the Board
of Directors, since March 1998. He has for 18 years of experience in management
and technology . Prior to joining Conectisys, Mr. Muirhead was System Specialist
at TRW. His current focus is on new product development.
Item 10. Executive Compensation
Renumeration
Cash renumeration accrued for services in all capacities rendered to the Company
ended November 30, 1998 to all directors and officers as a group was as follows:
Cash or cash
Capacities in equivalent forms
Name which served of remuneration
Robert A. Spigno CEO/President $76,784
Patricia A. Spigno Secretary/Treasurer $40,003
Lawrence P. Muirhead CTO $34,242
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 1999,
but has not yet adopted any such programs.
In 1994, the Company established a compensatory benefit plan, pursuant to which
up to 20,000
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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 no
shares were granted under this program in 1998.
Stock
Robert A. Spigno and Lawrence P. Muirhead were respectively granted 90,000 and
135,000 shares of stock restricted under rule 144. This stock was for services
in all capacities rendered to the Company during the fiscal year ending November
30, 1998. Ms. Spigno was not granted stock during the fiscal year.
Stock Option Exercises and option values
Fiscal year end option number and value.
Exercisable Unexercisable Exercisable Unexercisable
Robert A. Spigno 1,471,195 0 $3,677,987 $ 0
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1998, the Company had 12,662,212 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 60,500 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
common stock shares to 1 share Preferred Class B of which no shares currently
are issued and outstanding.
Number of Percentage of
Beneficial Owners Owning 5% or more Shares common Stock
Cede & Co 2,663,577 21.0%
Braemar Management 2,000,000 15.8%
S.W. Carver Corp. 1,873,682 14.8%
Pacific Trade Services 1,750,000 13.8%
Security ownership of Management
Robert A. Spigno (1) 550,809 4.4%
Patricia A. Spigno (2) 61,362 0.5%
Lawrence Muirhead 135,000 1.1%
Total Directors and Officers as a whole 608,061 6.0%
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Number of Percentage of
Beneficial Owners Owning 5% or more Shares common Stock
Robert A. Spigno 60,500 100%
(1) Does not include 61,362 shares owned by Patricia Spigno (spouse) nor the
1,873,682 shares owned by S.W. Carver Corp. The aggregate beneficially owned by
Robert A. Spigno is 2,285,853 Shares (19.6%).
(2) Does not include 550,809 shares owned by Robert A. Spigno (spouse) nor the
1,873,682 shares owned by S.W. Carver Corp. The aggregate beneficially owned by
Patricia A. Spigno is 2,285,853 Shares (19.6%).
Item 12. Certain Relationships and Related Transactions
In August, 1995 Conectisys contracted S.W. Carver Corp. (SWC), to maintain the
day to day accounting needs of the company. Costs were included in the general
and administrative expenses for period. This contract was terminated in
September, 1997. S.W. Carver Corp. (SWC) is a closely held corporation, which is
owned by Robert A. Spigno and Patricia A. Spigno.
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 February 1996, the Company entered into an equipment lease/purchase agreement
with SWC. The initial term of this lease was for 11 months at a rate of $2,000
per month. The lease was extended in January, 1997 & January, 1998 with 12 month
terms. The Conectisys has the right to purchase the leased right for
approximately $83,000. However, the lessor has the right to revoke the purchase
option at anytime and for any reason.
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
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(a) Exhibits
Financial Data Schedule
Financial statements
(b) During the Registrant's fiscal year ended November 30, 1997, the
registrant filed the following current report on Form 8-K:
8-K Filed December 17, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
CONECTISYS CORPORATION
Date: July 15, 1999 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, Chief July 15, 1999
- --------------------------- Executive Officer, President
(Robert A. Spigno) and Director
/S/ Patricia A. Spigno Secretary, Treasurer July 15, 1999
- ---------------------------
(Patricia A. Spigno)
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Consolidated Balance Sheets
November 30, 1998 1997
Assets
Current assets
Cash $ 5,734 $ 17,265
Accounts receivable - trade (net of
allowance for doubtful accounts
of $379) -- 3,411
Total current assets 5,734 20,676
Notes receivable, net (Notes 4 and 6) 300,000 181,270
Property and equipment, net (Note 5) 133,986 118,904
Other assets
Licenses and technology, net of accumulated
amortization of $0 and $656,337 in 1998
and 1997 (Notes 1 and 9) -- 954,403
Deposit 841,416 --
Total other assets 841,416 954,403
$ 1,281,136 $ 1,275,253
Liabilities and Shareholders'
Equity (Deficit)
Current liabilities
Accounts payable $ 275,438 $ 410,455
Accrued compensation (Note 9) 343,799 223,448
Accrued expenses 74,957 50,000
Notes payable (Note 6) 739,990 444,463
Other current liabilities -- 127,802
Total current liabilities 1,434,184 1,256,168
Long-term liabilities
Notes payable (Notes 6) -- 1,216
Total long-term liabilities -- 1,216
Commitments and contingencies (Note 9)
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Shareholders' equity (deficit) (Note 7)
Preferred stock - Class A, 1,000,000 shares
authorized, $1.00 par value; 80,500 and
20,500 issued and outstanding in 1998
and 1997 80,500 20,500
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; 12,662,212 and 4,677,268
shares issued and outstanding in 1998
and 1997 12,539,418 8,349,580
Deficit accumulated during development stage (12,772,966) (8,352,211)
Total shareholders' equity (deficit) (153,048) 17,869
$ 1,281,136 $ 1,275,253
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Statements of Operations
<TABLE>
<CAPTION>
December 1, 1990
(Inception) through
Year ended November 30, November 30,
1998 1997 1998
<S> <C> <C> <C>
Revenues $ -- $ 380,642 $ 491,805
Manufacturing expenses 401,373 237,914 726,264
Gross profit (401,373) 142,728 (234,459)
Operating expenses
General and administrative 2,905,272 1,961,535 7,737,424
Bad debt write-offs (Note 4) -- 446,625 1,680,522
Loss from operations (3,306,645) (2,265,432) (9,652,405)
Interest income 1,640 -- 102,688
Interest expense (2,770) (89,365) (769,803)
Write-off of intangible assets (Note 1) (1,112,980) (384,471) (1,375,704)
Net loss $ (4,420,755) $ (2,739,268) $(11,695,224)
Weighted average shares outstanding 8,892,978 813,327
Net loss per share $ (.50) $ (3.37)
</TABLE>
17
<PAGE>
Statements of Shareholders' Equity (Deficit)
December 1, 1990 (Inception of Development Stage) Through November 30, 1998
(Common stock shares have been converted to reflect a 1:20 reverse stock split
in October, 1997)
<TABLE>
<CAPTION>
Deficit
Preferred Accumulated
Stock Common During
Class A Stock Development
Shares Amount Shares Amount Stage Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 (re-entry
development stage) -- $ -- 10,609 $ 1,042,140 $(1,042,140) $ --
Shares issued in exchange for:
Cash, May 31, 1993 -- -- 1,000 1,000 -- 1,000
Capital contribution, May 31, 1993 -- -- 2,000 515 -- 515
Services, March 26, 1993 -- -- 2,000 500 -- 500
Services, March 26, 1993 -- -- 1,200 600 -- 600
Net loss for the year ended
November 30, 1993 -- -- -- -- (5,459) (5,459)
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, 1994 -- -- 8,700 11,614 -- 11,614
Cash, September 26, 1994 -- -- 3,000 15,000 -- 15,000
Cash, October 6, 1994 16,345 16,345 -- -- -- 16,345
Cash, September and October, 1994 -- -- 1,320 33,000 -- 33,000
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
Shares issued in exchange for:
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cash, February 13, 1995 -- -- 1,160 232,000 -- 232,00
Debt repayment, February 13, 1995 -- -- 2,040 408,000 -- 408,000
Debt repayment, February 20, 1995 -- -- 4,778 477,810 -- 477,810
Acquisition of assets, CIPI February 1995 -- -- 28,750 1,950,000 -- 1,950,000
Acquisition of assets, April 5, 1995
(Note 10) -- -- 15,000 -- -- --
Cash and services, April and May 1995 -- -- 16,000 800,000 -- 800,000
Cash, June 1, 1995 -- -- 500 30,000 -- 30,000
Acquisition of assets and services,
September 26, 1995 -- -- 4,000 200,000 -- 200,000
Cash, September 28, 1995 -- -- 41 3,000 -- 3,000
Acquisition of assets, September 1995 -- -- 35,000 1,750,000 -- 1,750,000
Return of assets, CIPI September 1995 -- -- (27,700) (1,950,000) -- (1,950,000)
Net loss for the year -- -- -- -- (2,293,867) (2,293,867)
Balance, November 30, 1995 16,345 16,345 129,569 5,031,834 (3,374,010) 1,674,169
Shares issued in exchange for (Note 7):
Cash, February, 1996 -- -- 1,389 152,779 -- 125,000
Debt repayment, February, 1996 -- -- 10,000 612,000 -- 639,779
Services, February, 1996 -- -- 3,160 205,892 -- 205,892
Cash, March, 1996 -- -- 179 25,000 -- 25,000
Shares returned and canceled, March, 1996 -- -- (15,000) -- -- --
Services, April, 1996 -- -- 13 2,069 -- 2,069
Services, September, 1996 4,155 4,155 586 36,317 -- 40,472
Services, October, 1996 -- -- 6,540 327,000 -- 327,000
Debt repayment, November, 1996 -- -- 2,350 64,330 -- 64,330
Net loss for the year -- -- -- -- (2,238,933) (2,238,933)
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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 due to
reverse stock split (1:20) -- -- 113 -- -- --
Services, October, 1997 -- -- 1,469,666 587,865 -- 587,865
Debt repayment, October, 1997 -- -- 1,540,267 620,507 -- 620,507
Cash, October, 1997 -- -- 1,500,000 281,250 -- 281,250
Services, November, 1997 -- -- 4,950 10,538 -- 10,538
Net loss for the year -- -- -- -- (2,739,268) (2,739,268)
Balance, November 30, 1997 20,500 20,500 4,677,268 8,349,580 (8,352,211) 17,869
Shares issued in exchange for (Note 7):
Services, December 1997 4,550 2,733 2,733
Cash, January 1998 133,334 167,730 167,730
Cash, February 1998 4,000,000 639,500 639,500
Services, April 1998 27,263 39,666 39,666
Cash, April 1998 100,000 32,490 32,490
Services, June 1998 52,760 89,489 89,489
Cash, June 1998 300,000 64,980 64,980
Cash, July 1998 450,000 336,988 336,988
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Compensation, July 1998 120,000 246,161 246,161
Services, July 1998 434,283 847,960 847,960
Technilink asset, July 1998 350,000 480,725 480,725
Services, August 1998 58,637 91,147 91,147
Services, September 1998 60,000 66,712 66,712
Deposit, September 1998 1,350,000 839,160 839,160
Cash, September 1998 100,000 32,490 32,490
Services, October 1998 144,117 61,907 61,907
Services, November 1998 300,000 150,000 150,000
Preferred Stock for compensation 60,000 60,000 60,000
Net loss for the year (4,420,755) (4,420,755)
Balance, November 30, 1998 80,500 $ 80,500 12,662,212 $12,539,418 $(12,772,966) $(153,048)
</TABLE>
21
<PAGE>
Statements of Cash Flows
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
December 1, 1990
(Inception) through
Years ended November 30, November 30,
1998 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (4,420,755) $ (2,739,268) $(11,695,224)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services 1,777,521 690,602 3,841,717
Stock issued for interest -- 88,951 535,591
Provision for bad debts -- 447,915 1,422,401
Minority interest -- -- (121,747)
Depreciation and amortization 1,357,155 871,866 2,750,080
(Increase) decrease in assets:
Accounts receivable 3,411 30,831 (4,201)
Accrued interest receivable -- 7,947 (95,700)
Deposits (2,256) 4,500 (2,256)
Increase (decrease) in liabilities:
Accounts payable (135,017) 71,633 275,438
Accrued expenses (102,845) 50,000 (52,845)
Accrued compensation 120,351 87,267 343,799
Other current liabilities -- 10,140 216,753
Net cash used in operating activities (1,402,435) (377,616) (2,586,194)
Cash flows from investing activities
Collection on notes receivable 181,270 -- 181,270
Increase in notes receivable -- -- (1,322,500)
Costs of licenses and technology -- (60,465) (94,057)
Purchase of equipment (58,856) (7,096) (123,922)
Net cash used in investing activities 122,414 (67,561) (1,359,209)
Cash flows from financing activities
Common stock issuance 1,274,178 300,000 2,134,833
Preferred stock issuance -- -- 16,345
Proceeds from debt, other -- 57,894 1,540,731
</TABLE>
22
<PAGE>
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
December 1, 1990
(Inception) through
Years ended November 30, November 30,
1998 1997 1998
<S> <C> <C> <C>
Proceeds from debt, related -- -- 206,544
Proceeds from stock purchase -- 99,980 99,980
Payments on debt, other (5,688) -- (14,639)
Payments on debt, related -- (19,927) (53,172)
Decrease in stock subscription receivable -- -- 20,000
Contributed capital -- -- 515
Net cash provided by financing activities 1,268,490 437,947 3,951,137
Net increase (decrease) in cash (11,531) (7,230) 5,734
Cash, beginning of year 17,265 24,495 --
Cash, end of year $ 5,734 $ 17,265 $ 5,734
Cash paid during the year for:
Interest $ -- $ -- $ 130,825
Taxes -- -- 1,650
Noncash financing and investing activities
Common stock issued in exchange for:
Stock purchase agreement $ -- $ 281,250 $ 281,250
Property and equipment -- -- 130,931
Deposit 839,160 -- 839,160
Licenses and technology 358,979 -- 2,128,979
Repayment of debt and interest -- 620,507 1,674,835
Services and interest 1,777,521 690,602 4,408,449
</TABLE>
See summary of significant accounting policies and notes to consolidated
financial statements.
23
<PAGE>
Summary of Accounting Policies
Basis of The accompanying consolidated financial statements
Presentation include the accounts of Conectisys Corporation (the
"Company") and its 80% owned subsidiaries Primelink,
Inc. and Technilink, Inc. which was wholly owned as of
July 1998. All material intercompany transactions and
balances have been eliminated in the accompanying
consolidated financial statements.
Development The Company returned to the development stage in
Stage accordance with SFAS No. 7 on December 1, 1990 and
Company 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 statement of
Equivalents 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 are estimated to have a useful life of 5-7
years.
Net Loss Per Net loss per common share is based on the weighted
Common Share 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 common and preferred stock
for Noncash issued in exchange for goods or services are valued at
Consideration 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.
24
<PAGE>
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 capitalized and
Agreements 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 at that
time. As of November 30, 1998, the Company still had not
generated any revenues from the Technilink and Primelink
licenses. As such, the net license and deferred
technology were written down to zero.
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.
25
<PAGE>
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 Statement of Financial Accounting Standards No. 121,
Long-Lived Assets "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 No. 123,
Stock-Based "Accounting for Stock-Based Compensation" (SFAS No. 123)
Compensation establishes a fair value method of accounting for
stock-based compensation plans and for transactions in
which an entity acquires goods or services from
non-employees in exchange for equity instruments. 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
26
<PAGE>
Accounting for any, of the fair market price of the Company's stock at
Stock-Based the date of grant over the amount an employee must pay
Compensation to acquire the stock. Also in accordance with SFAS No.
(Continued) 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.
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. Adoption of SFAS No. 130 did not
have an effect on the Company's 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. Adoption
of SFAS No. 131 did not have an effect on the Company's
financial position or results of operations; however,
required disclosures were made relating to the above
items.
27
<PAGE>
New Accounting In June 1998, the FASB issued SFAS No. 133, "Accounting
Pronouncements for Derivative Instruments and Hedging Activities"
effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 provides a
comprehensive and consistent standards for the
recognition and measurement of derivatives and hedging
activities and requires all derivatives to be recorded
on the balance sheet at fair value. The Company does not
expect the adoption of SFAS No. 133 to have a material
impact, if any, on its results of operations, financial
position or cash flows.
Fair Value The carrying amounts of financial instruments including
of Financial cash and cash equivalents, accounts receivable, accounts
Instruments 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.
28
<PAGE>
Notes
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.
29
<PAGE>
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.
30
<PAGE>
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. In
July 1998, the Company purchased the remaining shares of
Technilink, Inc. and is now 100% owned by the Company.
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. In 1998, the net amount
of these licenses were fully written off.
2. Going Concern As of November 30, 1998, the Company has a deficiency in
working capital of $1,428,450 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.
31
<PAGE>
3. Related Party The Company also leases office space from S.W. Carver
Transactions 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, 1998 and
1997 were $54,919 and $20,000, 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. Note Receivable A note receivable from CIPI of $1,302,500 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.
5. Property and Property and equipment consisted of the following:
Equipment
November 30, 1998 1997
Office equipment $ 205,135 $ 148,518
Furniture and fixtures 16,608 14,369
Vehicles 35,362 35,362
257,105 198,249
Accumulated depreciation (123,121) (79,345)
Total $ 133,984 $ 118,904
Depreciation expense for the years ended November 30,
1998 and 1997 totaled $43,776 and $38,562, respectively.
32
<PAGE>
6. Notes Payable Notes payable consisted of the following:
November 30, 1998 1997
Notes payable to Oxford
International, Inc. due
November 18, 1999 at 12%
interest $ 300,000 $ --
Note payable to Devon
Investment Advisors,
unsecured, due on demand
at 10% interest 241,824 241,824
Note payable to Black Dog
Ranch, LLC, unsecured, due
on demand at 8% interest 171,397 171,397
Note payable to Investor's
Financial 25,000 25,000
Note payable to Ford Motor
Credit, secured by vehicle,
interest at 12.9% 1,770 7,458
Total notes payable 739,991 445,679
Current portion (739,991) (444,463)
Long-term portion $ -- $ 1,216
In November 1998, the Company entered into a financing
arrangement with Oxford International for a bridge loan
of $300,000 along with a line of credit.
In October 1997, all notes payable to S. W. Carver were
paid through the issuance of the Company's 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 common stock valued at
$14,500.
33
<PAGE>
6. Notes Payable On December 10, 1996, the Company signed a promissory
(Continued) 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.
7. Shareholders' The Company is authorized to issue 50,000,000 shares of
Equity $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.
34
<PAGE>
7. Shareholders' In February 1996, the Company issued 63,199 shares of
Equity common stock to various consultants and to an officer of
(Continued) 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.
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7. Shareholders' On April 4, 1997, the Company issued 800 shares
Equity (converted due to 20:1 reverse stock split) of common
(Continued) stock valued at $13,120, which approximates the value of
the stock at the date of issue, to settle its lawsuit
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.
In December 1997, 4,550 shares were issued for legal
services valued at $2,733.
Throughout 1998, the Company issued 5,083,334 shares for
cash proceeds of $1,274,178, which was approximately
$.25 per share.
In 1998, 1,070,777 shares were issued based on
consulting agreements for services valued at $1,336,075,
which was approximately $1.25 per share.
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<PAGE>
7. Shareholders' In July 1998, 120,000 shares were issued for
Equity compensation to Officers and Directors of the Company
(Continued) valued at $246,160, which was approximately $2.05 per
share.
In July 1998, Conectisys purchased the minority interest
of Technilink valued at $480,725 for 350,000 shares.
In July 1998, the Company issued 6,283 shares for
advertising services valued at the fair value of
$10,805.
In September 1998, a loan commitment fee of 1,350,000
shares of common stock worth $839,160 was made to secure
financing arrangements with Oxford International, Inc.,
this amount is recorded as interest expense.
8. Income Taxes Deferred income taxes consisted of the following:
November 30, 1998 1997
Deferred tax asset, net
operating loss
carryforward $ 8,716,018 $5,286,496
Deferred tax liability -- --
Valuation allowance (8,716,018) (5,286,496)
Net deferred taxes $ -- $ --
The valuation allowance offsets the net deferred tax
asset since it is more likely than not it would not be
recovered.
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<PAGE>
9. Commitments Employment Agreements
and
Contingencies 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. 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. The Chief Financial Officer
left the Company in 1998. All monies owed to him have
been accrued.
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.
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<PAGE>
9. Commitments License Agreements
and
Contingencies The Company has entered into License agreements with the
(Continued) 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.
Litigation
There were two legal proceeding to which the Company was
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. Subsequent to year
end, this case was closed by court order.
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. Subsequent to
year end, this case was dismissed without liability to
the Company by order of the court.
10. Stock Options The pro forma information required by SFAS 123 is not
included as there were no options granted during fiscal
year 1998.
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<PAGE>
10. Stock Options The Company has granted various options and warrants to
(Continued) 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, 1996, 1997
and 1998 is as follows:
Options Weighted
and Average
Warrants Price
Balance outstanding,
November 30, 1995 4,420,000 $1.00
Expired (860,00) .20
Granted 1,000,000 2.50
Exercised (359,605) 1.48
Balance outstanding,
November 30, 1996 4,200,395 1.48
Canceled and expired (1,331,195) (.71)
Balance outstanding,
November 30, 1997 2,869,200 1.84
Expired (869,200) (.29)
Balance outstanding,
November 30, 1998 2,000,000 1.55
Options and warrants
exercisable,
November 30, 1998 2,000,000 1.55
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<PAGE>
10. Stock Options The following table summarizes information about stock
(Continued) options at November 30, 1998.
Outstanding Exercisable
Weighted Average Weighted Average
Exercise Life Exercise Exercise
Price Options (Months) Price Options Price
$1.55 2,000,000 24 $1.55 2,000,000 $1.55
11. Subsequent As mentioned in Note 9, both legal proceedings to which
Events the Company was a party, were subsequently closed by
court order without any liability to the Company.
Subsequent to year end, an additional 1,550,000 shares
valued at $200,000 were issued to Oxford to increase the
same note payable and pledge agreement in Note 6. In
June 1999, the note payable was ultimately cancelled and
these shares along with the original 1,350,000 shares
were returned. Accordingly, the related note receivable
was cancelled as no funds were received by this Company.
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