U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSBA
(Mark One)
|X| Annual 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.)
24730 Avenue Tibbitts, Suite 130 Valencia, California 91355
(Address of principal Executive offices) (Zip Code)
Issuer's telephone number: (661) 295-6763
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-KSB. |X|
State Issuer's revenues for it's most recent fiscal year: $ 0.
<PAGE>
The aggregate number of shares of the voting stock held by non-affiliates on
August 31, 1999 was 11,613,222. The market value of these shares, computed by
reference to the market closing price on August 31, 1999 was $ 14,516,527. 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 issuer's classes of equities as of August 31, 1999 was
15,816,892.
PART I
Item 1. Description of Business
General
Conectisys Corporation (the "Company") was incorporated on February 3, 1986, in
Colorado. It is in the development stage. Conectisys is the parent company of
several subsidiaries and divisions including TechniLink Technology
Manufacturing, Inc., Primelink, Inc., United Telemetry Co., Inc., and eEnergy
Services. It is a commercial telecommunications company.
Business and Products of Conectisys
Conectisys and its subsidiaries have developed systems and products for the
wireless telemetry markets. Conectisys is focused on several specific
communication technologies. Conectisys, through Primelink Inc, has developed a
wireless network for automatic meter reading (AMR) for industrial markets
utilizing paging technology. The company is not actively marketing the Primelink
technology at this time.
Currently, Conectisys is developing a low-cost AMR solution for both residential
and industrial markets. The product is called H-Net and will be marketed by
United Telemetry Company (UTC ). H-Net utilizes a proprietary communication
protocol for bi-directional communication using a wireless radio network. This
technology will enable the company to deliver a low-cost wireless network, which
is inexpensive to deploy and operate. This technology may also be utilized for
other remote data acquisition and/or control applications, where traditional
communication is not available because of cost.
The Conectisys network architecture includes a second component, the "Network
Operating Center" or NOC. The H-Net wireless network AMR data will then be
transmitted to the "Network Operating Center ". The NOC is a state of the art
operating center built to support, one million wireless meter reading devices
four times an hour, twenty four hours a day. The H-Net Network will be deployed
with several up-link capabilities including ISM band or satellite.
<PAGE>
Through the NOC, the company will offer a full array of value added services to
the utility distribution industry in addition to the AMR meter data. These
services will include energy management, data archiving and E-commerce systems,
which allows an end-user real-time data, for evaluation and cost analysis via
the Internet using standard web browsers. eEnergy Services will provide the
accounting and financial transaction services. Energy suppliers, energy brokers
and energy service providers along with energy consumers are the potential
customers for these services.
There is currently no dominant AMR technology in the market, today. The company
believes that UTC/eEnergy Services wireless network model presents an effective,
low-cost, total solution for the AMR market.
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. The Company is presently still in
research and development on various control devices.
Proprietary Information
The Company relies on proprietary knowledge and employs various methods to
protect its trade secrets, concepts, ideas and designs. The Company has filed
for patent protection on the H-Net product line. 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.
<PAGE>
Item 2. Description of Property
The Company's principal operation center is located at 24370 Avenue Tibbitts,
Suit 130, Valencia, California 91355. This 1000 sq. ft. space is leased for
$1,244.50 per month.
Additional office space is located at 7260 Spigno Place, Agua Dulce, California
91350. This space is leased from a related party. The lease is for executive
office space (1090 Square feet) and office equipment. The lease payment is
$2,500 per month. There are no current plans to lease any additional office
space.
Item 3. Legal Proceedings
On March 5, 1999 the Company entered into an Amended Final Judgment of Permanent
Injunctive Relief with the Securities and Exchange Commission ("SEC") in
Securities and Exchange Commission v. Conectisys Corp. et al., Civil Case number
96-4146 (MRP). The Company and the SEC agreed on a settlement in which the
Company would dismiss its then pending appeal and take a permanent injunction
that the company would not in the future violate sections 5(a), 5(c), 17(a) d,
10(b), 10(b-5), or 15(c); in return the SEC would not demand the previously
ordered discouragement of $175,000.00.
On March 26, 1999 the District Court of Arapahoe, State of Colorado dismissed
the civil case against Conectisys Corp. brought by Clamar Capital Corporation.
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.
<PAGE>
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. The following table indicates the range of high, low &
closing information for the common stock for each fiscal quarter in 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 September 30, 1999, there were over 600 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 company's 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
Loss on operations for the Company for the year ended 1997 was $2,739,268 as
compared to a loss of $4,928,682 in fiscal 1998. This is approximately a 79%
increases in losses from the prior year in the same period. The Company, over
the next 12 months will rely primarily on funding through the sale of common
stock or loans collateralized through common stock. Revenue in fiscal 1998 was
$zero as compared to $380,642 in year ended November 30, 1997. Development of
H-Net 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 working capital deficit of
$1,290,009, consisting of $5,734 in current assets and $1,295,743 in current
liabilities. The Company had a working capital deficit of
<PAGE>
$123,549 at year ended November 30, 1997. This is a significant increase in the
working capital deficit compared to November 30, 1997. The Company has incurred
operating losses in its development stage.
Management's plans for correcting these deficiencies include the future sales of
the H-Net product line and services and to raise capital through the issuance of
common stock to assist in providing the Company with the liquidity necessary to
meet operating expenses. In the longer term, the Company plans to achieve
profitability through its operations. The consolidated financial statements do
not include any adjustments that might result from the outcome of the
uncertainty.
The Company had total assets of $533,097 as of November 30, 1998, and total
liabilities of $1,295,743. Shareholder deficit is $762,646, as compared to
$17,861 shareholder equity as of November 30, 1997.
Cash Flows
The Company had a net loss for the year ended November 30, 1998, of $4,928,682.
The cash used in operations toward this loss was $1,397,435. The largest area of
loss was the result of non-cash transactions to the Company. $2,398,264 was the
result of services that were paid through the issuance of Common stock
(approximately 49% of the total net loss). The Company also had write offs to
intangible assets of 632,257 and depreciation and amortization expenses of
$394,020 (approximately 21% of the total net loss).
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.
Y2K Compliance
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Y2K" issue and has implementation plan to
resolve the issue. The Company presently believes that with modifications to
existing software and converting to new software, which the Company is
implementing on a timely basis, the "Y2K" 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, there can be no assurance that the Company will not be
materially adversely affected as a result of the "Y2K" compliance measures or
the failure of any such measures.
<PAGE>
The Financial Accounting Standards Board (FASB) Impact
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.
Item 7. Financial Statements
Financial statements are audited and included herein beginning on Exhibit, page
1 and are incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company changed its auditors from BDO Seidman, LLP to Hurley & Company. This
change was not predicated upon any disagreement as to accounting principals or
financial disclosures.
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:
<PAGE>
Cash or cash equivalent
Name Capacity forms of remuneration
---- -------- ---------------------
Robert A. Spigno CEO/President $76,784
Patricia A. Spigno Secretary/Treasurer $40,003
Lawrence P. Muirhead CTO $34,242
Item 10. Executive Compensation
Remuneration
Cash remuneration 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 equivalent forms
Name Capacity 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 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 ended November 30, 1998
Stock Options Exercise Price Term
Robert A. Spigno 3,000,000 $.20 - 1.55 24-36 Months
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of August 31, 1999, the Company had 15,816,892 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 100,000 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.
Beneficial Owners Owning Number of Percentage of
5% or more Shares common Stock
Braemar Management 2,000,000 12.6%
Pacific Trade Services 1,789,000 11.3%
Security ownership of
Management
Robert A. Spigno (1) 218,308 1.4%
Patricia A. Spigno (2) 61,362 0.4%
Lawrence P. Muirhead 135,000 0.9%
Total Directors and Officers
as a whole 414,670 2.7%
Percentage of
Number of class A
Class A Preferred Stock shares Preferred
Robert A. Spigno 100,000 100%
(1) Does not include 61,362 shares owned by Patricia A. Spigno (spouse).
(2) Does not include 550,809 shares owned by Robert A. Spigno (spouse).
Item 12. Certain Relationships and Related Transactions
In February 1996, the Company entered into an office space and office equipment
lease agreement with S. W. Carver Corp. S.W. Carver is a
<PAGE>
privately owned corporation owned by Robert A. Spigno and Patricia A. Spigno,
the CEO and CFO, respectively, of Conectisys. The initial term of this lease was
for 11 months at a rate of $2,000 per month. The lease is for a period of twelve
months, renewable annually in April at the option of the lessee.
In April, 1998, the monthly lease payment was increased from $2,000 to $2,500.
Lease expense for the years ended November 30, 1998 and 1997 was $28,000 and
$20,000, respectively.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
Financial statements
(b) During the Registrant's fiscal year ended November 30, 1998, 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: October 11, 1999 By /S/ Robert A. Spigno
Robert A. Spigno, President
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated have signed this Report below.
Signature Title Date
/S/ Robert A. Spigno Chairman of the Board, Chief October 11, 1999
(Robert A. Spigno) Executive Officer, President
and Director
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INDEPENDENT AUDITORS' REPORT 1-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 4-5
Consolidated Statements of Operations 6
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) 7-10
Consolidated Statements of Cash Flows 11-13
Notes to Consolidated Financial Statements 14-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Conectisys Corporation and Subsidiaries
Agua Dulce, California
We have audited the accompanying consolidated balance sheet of Conectisys
Corporation and Subsidiaries (a development stage company) (the "Company") as of
November 30, 1998, and the related consolidated statements of operations,
changes in shareholders' equity (deficit), and cash flows for the years ended
November 30, 1998 and 1997 and from December 1, 1990 (inception of development
stage), through November 30, 1998, except that we did not audit these financial
statements for the period December 1, 1990 (inception of development stage)
through November 30, 1997; these financial statements were audited by other
auditors, whose report dated March 6, 1998 has been furnished to us and included
herein, expressing a going concern uncertainty. Our opinion, insofar as it
relates to the amounts included for these periods, is based solely on the report
of the other auditors. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Conectisys Corporation
and Subsidiaries as of November 30, 1998, and the results of their operations
and their case flows for the years ended November 30, 1998 and 1997 and from
December 1, 1990 (inception of development stage) through November 30, 1998, in
conformity with generally accepted accounting principles.
1
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a deficiency in working capital at November 30, 1998 that raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Hurley & Company
Granada Hills, California
September 15, 1999
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Conectisys Corporation and Subsidiaries
Agua Dulce, California
We have audited the accompanying consolidated statements of operations and cash
flows of Conectisys Corporation and Subsidiaries (a development stage company)
(the "Company") as of November 30, 1997. 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
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Conectisys Corporation and Subsidiaries for the year ended
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 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a deficiency in working capital at November 30, 1998 that raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BDO Seidman, LLP
Los Angeles, California
March 6, 1998
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
November 30, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 5,734
--------
Total current assets 5,734
Property and equipment, net 133,984
Other assets
Licenses and technology, net of
accumulated amortization of
$28,099 393,379
--------
Total assets $533,097
========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
November 30, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and
current portion of long-term debt $ 439,990
Accounts payable 275,437
Accrued compensation 471,465
Other current liabilities 108,851
------------
Total current liabilities 1,295,743
Long-term debt, net of current portion --
Commitments and contingencies --
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized, 80,500
shares issued and outstanding 80,500
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000 shares
authorized, -0- shares issued and
outstanding --
Common stock, no par value; 250,000,000
shares authorized, 12,662,212
shares issued and outstanding 12,437,747
Deficit accumulated during the development stage (13,280,893)
------------
Total shareholders' deficit (762,646)
------------
Total liabilities and
shareholders' deficit $ 533,097
============
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended November 30, 1998 and 1997
and the Cumulative Period
From December 1, 1990 (Inception) Through November 30, 1998
Dec. 1, 1990
Year Ended (Inception)
November 30, Through
1998 1997 Nov. 30, 1998
------------ ------------ -------------
Net revenues $ -- $ 380,642 $ 491,805
Cost of sales 400,671 237,914 725,562
------------ ------------ ------------
Gross profit (loss) (400,671) 142,728 (233,757)
Operating expenses:
General and administrative 3,797,483 1,961,535 8,629,635
Bad debt write-offs -- 446,625 1,680,522
------------ ------------ ------------
Loss from operations (4,198,154) (2,265,432) (10,543,914)
Interest income 1,640 -- 102,688
Interest expense (40,664) (89,365) (807,697)
Write-off of
intangible assets (632,257) (384,471) (1,016,728)
Minority interest (59,247) -- 62,500
------------ ------------ ------------
Net loss $(4,928,682) $ (2,739,268) $(12,203,151)
============ ============ ============
Weighted average shares
outstanding -
basic and diluted 8,891,629 813,327
Net loss per share -
basic and diluted $ (.55) $ (3.37)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception)
Through November 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During the Total
Class A No Par Value Development Shareholders'
Shares Value Shares Value Stage Equity (Deficit)
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 1, 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 -- -- -- -- (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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception)
Through November 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During the Total
Class A No Par Value Development Shareholders'
Shares Value Shares Value Stage Equity (Deficit)
----------- ----------- ----------- ----------- ----------- ----------------
<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, 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 -- -- 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:
Cash, February, 1996 -- -- 1,389 152,779 -- 152,779
Debt repayment, February 1996 -- -- 10,000 612,000 -- 612,000
Services, February, 1996 -- -- 3,160 205,892 -- 205,892
Cash, March, 1996 -- -- 179 25,000 -- 25,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception)
Through November 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During the Total
Class A No Par Value Development Shareholders'
Shares Value Shares Value Stage Equity (Deficit)
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
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)
---------- ---------- ---------- ---------- ---------- ----------
Balance,
November 30, 1996 20,500 20,500 138,786 6,457,221 (5,612,943) 864,778
Shares issued in exchange for:
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 4,677,268 8,349,580 (8,352,211) 17,869
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Cumulative Period December 1, 1990 (Inception)
Through November 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During the Total
Class A No Par Value Development Shareholders'
Shares Value Shares Value Stage Equity (Deficit)
---------- ---------- ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Services, December, 1997
through November, 1998 -- $ -- 2,551,610 $ 2,338,264 $ -- $ 2,338,264
Debt repayment, April, 1998
through September, 1998 -- -- 250,000 129,960 -- 129,960
Cash, January, 1998 through
July, 1998 -- -- 4,833,334 1,139,218 -- 1,139,218
Acquisition of assets,
July, 1998 -- -- 300,000 421,478 -- 421,478
Acquisition of remaining 20%
minority interest in
subsidiary, July, 1998 -- -- 50,000 59,247 -- 59,247
Services, November, 1998 60,000 60,000 -- -- -- 60,000
Net loss for the year -- -- -- -- (4,928,682) (4,928,682)
---------- ---------- ---------- ------------ ------------ -----------
Balance, November 30, 1998 80,500 $ 80,500 12,662,212 $ 12,437,747 $(13,280,893) $ (762,646)
========== ========== ========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended November 30, 1998 and 1997 and the Cumulative Period
From December 1, 1990 (Inception) Through November 30, 1998
<TABLE>
<CAPTION>
Dec. 1, 1990
Year Ended (Inception)
November 30, Through
1998 1997 Nov. 30, 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (4,928,682) $ (2,739,268) $(12,203,151)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services 2,398,264 690,602 4,462,460
Stock issued for interest -- 88,951 535,591
Provision for bad debt
write-offs -- 447,915 1,422,401
Minority interest 59,247 -- (62,500)
Write-off of intangible
assets 632,257 384,471 1,016,728
Depreciation and
amortization 394,020 487,395 1,402,474
Changes in:
Accounts receivable 3,411 30,831 (4,201)
Accrued interest
receivable -- 7,947 (95,700)
Deposits -- 4,500 --
Accounts payable (135,018) 71,633 275,437
Accrued compensation 248,017 87,267 471,465
Other current liabilities (68,951) 60,140 197,802
------------ ------------ ------------
Total adjustments 3,531,247 2,361,652 9,621,957
------------ ------------ ------------
Net cash used in
operating activities (1,397,435) (377,616) (2,581,194)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended November 30, 1998 and 1997 and the Cumulative Period
From December 1, 1990 (Inception) Through November 30, 1998
<TABLE>
<CAPTION>
Dec. 1, 1990
Year Ended (Inception)
November 30, Through
1998 1997 Nov. 30, 1998
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Issuance of notes receivable $ -- $ -- $(1,322,500)
Costs of licenses and technology -- (60,465) (94,057)
Purchase of equipment (58,855) (7,096) (123,921)
----------- ----------- -----------
Net cash used in
investing activities (58,855) (67,561) (1,540,478)
----------- ----------- -----------
Cash flows from financing activities:
Common stock issuance 1,139,218 300,000 1,999,873
Preferred stock issuance -- -- 16,345
Proceeds from debt, other 129,960 57,894 1,670,691
Proceeds from debt, related -- -- 206,544
Proceeds from stock purchase 181,270 99,980 281,250
Payments on debt, other (5,689) -- (14,640)
Payments on debt, related -- (19,927) (53,172)
Decrease in stock
subscription receivable -- -- 20,000
Contributed capital -- -- 515
----------- ----------- -----------
Net cash provided by
financing activities 1,444,759 437,947 4,127,406
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents (11,531) (7,230) 5,734
Cash and cash equivalents
at beginning of period 17,265 24,495 --
----------- ----------- -----------
Cash and cash equivalents
at end of period $ 5,734 $ 17,265 $ 5,734
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended November 30, 1998 and 1997 and the Cumulative Period
From December 1, 1990 (Inception) Through November 30, 1998
Dec. 1, 1990
Year Ended (Inception)
November 30, Through
1998 1997 Nov. 30, 1998
---------- -------- -------------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 2,767 $ -- $ 130,825
========== ======== ==========
Cash paid for income taxes $ -- $ -- $ 1,650
========== ======== ==========
Non-cash financing activities:
Common stock issued
in exchange for:
Note receivable $ -- $281,250 $ 281,250
Property and equipment $ -- $ -- $ 130,931
Licenses and technology $ 421,478 $ -- $2,191,478
Acquisition of remaining
minority interest in
subsidiary $ 59,247 $ -- $ 59,247
Repayment of debt and
interest $ 129,960 $620,507 $1,804,795
Services and interest $2,338,264 $690,602 $4,969,192
Preferred stock issued
in exchange for:
Services $ 60,000 $ -- $ 60,000
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Conectisys Corporation (the "Company") was incorporated under the laws of
Colorado on February 3, 1986, to analyze and invest in business
opportunities as they may occur.
TechniLink has developed the Cube 2001 series for the monitoring and
controlling of various devices in the petroleum and gas industry.
PrimeLink has developed a product line that uses cutting edge
communications to assist in the monitoring of meters for utility companies
and the petroleum industry. This technology, while eliminating the need
for a meter reader, is more significant in enabling the utility companies
to utilize energy conservation and, in the case of power companies,
re-routing of electrical power to areas where it is needed. The devices
are also in use in vending machines to monitor sales and functions of the
vending machine without the physical inspection usually needed.
Effective December 1, 1994, the Company agreed to acquire all of the
outstanding shares of Progressive Administrators, Inc. ("PAI") in exchange
for 300,000 shares of its no par value common stock. The transaction was
to be accounted for as a purchase transaction. The shares to be issued by
the Company were to be "restricted securities" within the meaning of Rule
144 of the Securities Act of 1933, as amended. Accordingly, PAI would have
been a wholly-owned subsidiary of the Company as of December 1, 1994. PAI
was formed in the state of Colorado on September 14, 1994 and is engaged
in the records storage business.
Effective December 1, 1994, the Company also agreed to acquire all of the
outstanding shares of Creative Image Products, Inc. ("CIPI") in exchange
for 575,000 shares of its no par value common stock. The shares were
issued in February of 1995. The shares issued by the Company were
"restricted securities" within the meaning of Rule 144 of the Securities
Act of 1933, as amended. Accordingly, CIPI was a wholly-owned subsidiary
of the Company as of December 1, 1994. CIPI was formed in the state of
Kansas on April 29, 1994 and is engaged in the insecticide business and,
through its wholly-owned subsidiary, ADA Signature Distributors,
14
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Organization (continued)
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 note receivable as it was deemed uncollectible.
On February 15, 1996, PrimeLink entered into a Joint Marketing and
Development Agreement (the "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 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 8. 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
15
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Organization (continued)
valued at $1,750,000, the fair market value of common stock issued, and is
included in licenses and technology on the balance sheet.
On July 22, 1998, the Company acquired the remaining 20% interest in
TechniLink, Inc. for 50,000 shares of the Company's common stock valued at
$59,247.
Basis of presentation and going concern uncertainty
The accompanying consolidated financial statements include the
transactions of Conectisys Corporation, its wholly-owned subsidiary
TechniLink, Inc., and its 80% owned subsidiary PrimeLink, Inc. All
material intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements. Certain prior year
amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year's presentation.
The Company returned to the development stage in accordance with SFAS No.
7 on December 1, 1990 and during the fiscal year ended November 30, 1995.
The Company has completed two mergers and is in the process of developing
its technology and product lines.
As of November 30, 1998, the Company had a deficiency in working capital
of approximately $1,290,000, and had incurred expanding annual operating
losses since its return to the development stage ($1.8 million in 1996,
$2.3 million in 1997, and $4.2 million in 1998), 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 accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
16
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Use of estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to
determine such amounts. Fair value estimates are made at a specific point
in time and are based on relevant market information and information about
the financial instrument; they are subjective in nature and involve
uncertainties, matters of judgment and, therefore, cannot be determined
with precision. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's entire
holdings of a particular instrument. Changes in assumptions could
significantly affect the estimates.
Since the fair value is estimated at November 30, 1998, the amounts that
will actually be realized or paid at settlement of the instruments could
be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the fair
value because of the liquidity of these instruments. Accounts payable,
accrued compensation, other current liabilities, and notes payable
approximate fair value because of the short maturity of these instruments.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less.
17
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on
property and equipment using the straight-line method over the expected
useful lives of the assets, which are generally five years for vehicles
and office equipment and seven years for furniture and fixtures.
Licensing agreements
The costs of acquiring license rights are capitalized and amortized over
the shorter of the estimated useful life of the license or the term of the
license agreement. The licenses are being amortized over a period of five
years. During the year ended November 30, 1998, the Company acquired
additional license rights in the amount of $421,478. During the year ended
November 30, 1997, the Company generated some revenues from the licenses
it had previously acquired, albeit none from the TecniLink license and
deferred technology. Accordingly, these assets were written-down to their
net realizable value, resulting in an expense of $384,471. Although
management had planned to develop and market the technology, the balance
of the carrying value of the older licenses and deferred technology was
written-off during the year ended November 30, 1998, as a consequence of
persistent competitive pressure. The expense incurred was $632,257.
Technology
Deferred technology costs include capitalized product development and
product improvement costs incurred after achieving technological
feasibility and are amortized over a period of five years.
Impairment of long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of" (SFAS No. 121) issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements for fiscal years beginning
after December 15, 1995. The standard establishes new guidelines regarding
when impairment losses on long-lived assets, which include plant and
equipment,
18
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Impairment of long-lived assets (continued)
certain identifiable intangible assets and goodwill, should be recognized
and how impairment losses should be measured.
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based 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 No. 123 also encourages, but does not require,
companies to record compensation cost for stock-based employee
compensation. The Company has chosen 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 any, of the fair market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the
stock. Also, in accordance with SFAS No. 123, the Company has provided
footnote disclosures 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 this cost is then recognized as compensation
expense 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 the
grant date or other measurement date over the amount an employee must pay
to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in exchange for
goods or services are valued at the cost of the goods or services received
or at the market value of the shares issued, depending on the ability to
estimate the value of the goods or services received.
19
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
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.
Net loss per common share - diluted
Net loss per common share - diluted is based on the weighted average
number of common and common equivalent shares outstanding for the periods
presented. Common equivalent shares representing the common shares that
would be issued on exercise of convertible securities and outstanding
stock options and warrants reduced by the number of shares which could be
purchased from the related exercise proceeds are not included since their
effect would be anti-dilutive.
New accounting pronouncements
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 No. 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 a material effect 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
20
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
New accounting pronouncements (continued)
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.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company 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, renewable annually in April at the option of the lessee.
Effective April, 1998, the monthly rent was increased from $2,000 to
$2,500. Lease expense for the years ended November 30, 1998 and 1997 was
$28,000 and $20,000, respectively.
The Company also pays S.W. Carver Corporation for bookkeeping services
which are included in general and administrative expenses.
NOTE 3. NOTES RECEIVABLE
A note receivable from CIPI of $1,302,500 was deemed to be uncollectible
and was written-off in the fiscal year ended November 30, 1997, resulting
in a bad debt expense of $446,625. The Company had previously provided a
cumulative allowance for doubtful accounts of $855,875 in fiscal 1996 and
1995. Interest receivable on this note was also written-off accordingly.
A promissory note was received on a stock purchase agreement for 1,500,000
shares in the amount of $281,250 during the year ended November 30, 1997.
An initial payment of $99,980 was received, leaving a balance of $181,270
at year-end. The balance was collected in full during the year ended
November 30, 1998.
21
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at November 30, 1998 consisted of the following:
Office equipment $ 205,133
Furniture and fixtures 16,609
Vehicles 35,362
---------
Total cost 257,104
Accumulated depreciation (123,120)
---------
Net book value $ 133,984
=========
NOTE 5. NOTES PAYABLE
Notes payable at November 30, 1998 consisted of the following:
Note payable to Devon
Investment Advisors,
unsecured, due on demand,
interest payable at an
annual rate of 10% $241,824
Note payable to Black Dog
Ranch LLC, unsecured,
due on demand, interest
payable at an annual rate
of 8% 171,397
Note payable - other 25,000
22
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 5. NOTES PAYABLE (continued)
Note payable to Ford Motor
Credit, secured by vehicle,
interest payable at an
annual rate of 12.9% $ 1,769
---------
Total notes payable 439,990
Current portion (439,990)
---------
Long-term portion $ --
=========
The maturity of long-term debt at November 30, 1998 was as follows:
Year ended November 30,: 1999 $ 439,990
Thereafter --
---------
Total notes payable $ 439,990
=========
23
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 6. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 50,000,000 shares of $1.00 par value
preferred stock, no liquidation preference. One million of the preferred
shares are designated as Class A preferred shares which have super voting
power wherein each share receives 100 votes and has anti-dilution rights.
One million of the preferred shares are designated as Class B preferred
shares which have conversion rights wherein each share may be converted
into ten shares of common stock.
In March, July and November, 1997, the Company issued 6,678 common 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.
On April 4, 1997, the Company issued 800 common shares (converted due to
20:1 reverse stock split) of common stock valued at $13,120, which
approximates the value of the stock at the date of issue, to settle a law
suit with 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 fiscal 1997, 531,471 common shares were issued for compensation to
officers and directors of the Company, valued at $266,204.
In October, 1997, 500,000 common shares, per an agreement, were issued to
two consultants for services valued at $200,000.
In October, 1997, all notes to S.W. Carver were paid through the issuance
of 1,292,640 shares of the Company's common stock valued at $517,056,
along with cash of $2,774 (see Note 5 above).
In fiscal 1997, a 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 the Company's common stock valued at $14,500.
24
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 6. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In December, 1997, the Company issued 4,550 shares of its common stock in
exchange for legal services valued at $2,733.
In January, 1998, the Company issued 133,334 shares of its common stock to
an investor for $167,730.
In February, 1998, the Company entered into a stock purchase agreement
with two subsidiaries of BVI Corporation, resulting in the purchase of
4,000,000 shares of the Company's common stock at a subscription price of
$.158625 per share, with a total value of $634,500.
In April, June, and September, 1998, 500,000 shares of common stock were
issued to a creditor in exchange for debt of $129,960.
In April and June, 1998, 80,023 shares of the Company's common stock were
issued in exchange for consulting services valued at $132,254.
In July, 1998, 450,000 shares of the Company's common stock were issued to
three investors for cash in the aggregate of $336,988.
In July, 1998, the Company issued 300,000 shares of it common stock to the
minority interest shareholder of TechniLink, Inc. in exchange for the
acquisition of licensed technology valued at $421,478, and issued another
50,000 shares in exchange for the remaining 20% minority interest valued
at $59,247.
In July, 1998, 120,000 shares of the Company's common stock were issued to
four Company directors for director fees totaling $246,186.
In July, 1998, the Company issued 3,000 of its common shares in exchange
for consulting fees of $4,325.
In July, 1998, the Company issued another 425,000 shares of its common
stock at approximately $1.96 per share to two consultants for services
valued at $832,868.
In July, 1998, the Company issued 6,283 shares of its common stock in
exchange for printing services valued at $10,805.
25
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 6. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In August, 1998, the Company issued 58,637 shares of its common stock for
consulting services totaling $91,147.
In September, 1998, the Company issued 1,410,000 shares of its common
stock for market consulting services totaling $880,967.
In October and November, 1998, the Company issued 444,117 shares of its
common stock in exchange for consulting services of $136,979.
In November, 1998, the Company issued 60,000 shares of its Class A $1.00
par value preferred stock as officer compensation.
NOTE 7. INCOME TAXES
Deferred income taxes consisted of the following at November 30, 1998:
Deferred tax asset, benefit
of net operating loss
carryforward $ 5,000,000
Deferred tax liability --
Valuation allowance (5,000,000)
-----------
Net deferred taxes $ --
===========
The valuation allowance offsets the net deferred tax asset, since it is
more likely than not that it would not be recovered.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into five employment agreements with key
Individuals, the terms of the agreements are as follows:
26
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Employment agreements (continued)
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, called 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 15, 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. In
December, 1998, he resigned from the Company (see Note 12(b) below).
3) The President and CEO of the 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
income. The employee shall further receive a bonus, paid at
year-end, equal to 50% of the employee's salary, for continued
employment. The staying bonus will be compensated for with the
Company's restricted common 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 the 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 income. The employee shall further receive a bonus, paid at
year-end, equal to 50% of the employee's salary, for continued
employment. The staying bonus shall be compensated for with the
Company's restricted common 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. Effective February, 1999, he has resigned from the
Company (see Note 12(a) below).
27
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Employment agreements (continued)
5) The Secretary and Treasurer of the Company entered into an Agreement
dated October 2, 1995 (which was amended September 1, 1997) for a
period of three years, and she is entitled to receive a base salary
of $80,000 per year and an annual bonus of 2% of the Company's
pretax income. The employee shall further receive a bonus, paid at
year-end, equal to 50% of the employee's salary, for continued
employment. The staying bonus shall be compensated for with the
Company's restricted common 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 above), 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 each
licensee a royalty of 5% of net sales of the applicable product. In
addition, in the event of the sale 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 and the Company, whereby the President of PrimeLink agreed to
forfeit royalty rights for a $12,000 settlement.
Litigation
There have been two recent legal proceedings in which the Company has been
a party:
The first case, Securities and Exchange Commission (the "Plaintiff") vs.
Andrew S. Pitt, Conectisys Corp., Devon Investments Advisors, Inc., B&M
Capital Corp., Mike Zaman, and
28
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
Litigation (continued)
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 sought permanent injunctions from violating
securities laws. The SEC did not seek any civil penalties from the
Company. The courts, having conducted a trial of this matter without 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),
and 17(a). Conectisys was not found to have violated section 10(b),
10(b-5), or 15(c). The Company was subsequently ordered to disgorge
profits totaling $175,000. On March 5, 1999, the Company entered into an
Amended Final Judgment of Permanent Injunctive Relief with the Securities
and Exchange Commission ("SEC"). The Company and the SEC agreed on a
settlement in which the Company would dismiss its then pending appeal and
take a permanent injunction that it would not in the future violate
sections 5(a), 5(c), 17(a), 10(b), 10(b-5), or 15(c); in return the SEC
would not demand the previously ordered disgorgement of $175,000.
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 #
97-CV-1442, Division 3. The Plaintiff did not specify an amount of damages
that it sought from the Defendants. On March 26, 1999, the District Court
of Arapahoe, State of Colorado, dismissed the civil case against
Conectisys Corp. brought by Clamar Capital Corp.
The Company is involved in business disputes in the ordinary course of
business but management believes none will have a material adverse effect
on the financial state of the Company.
NOTE 9. MAJOR CUSTOMERS
The Company, as a development stage enterprise, did not have any revenues
during the year ended November 20, 1998. For the year ended November 30,
1997, the Company had sales to one customer comprising 100% of total
sales. Accounts receivable from this customer at November 30, 1997 were
$0.
29
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 10. STOCK OPTIONS
The pro forma information required by SFAS No. 123 is not included as
there were no stock options granted during the fiscal years ended November
30, 1998 and 1997, respectively.
The Company has granted various options and warrants to employees; the
options and warrants were granted at the fair market value at the date of
grant and vested immediately. The stock option activity during the years
ended November 30, 1998 and 1997 was as follows:
Options Weighted
and Average
Warrants Price
---------- ----------
Balance outstanding,
November 30, 1996 5,200,395 $ 1.23
Canceled and expired (1,331,195) $ (.71)
----------
Balance outstanding,
November 30, 1997 3,869,200 $ 1.42
Canceled and expired (869,200) $ (2.50)
----------
Balance outstanding,
November 30, 1998 3,000,000 $ 1.10
========== ==========
The following table summarizes information about stock options at November
30, 1998:
Outstanding Exercisable
Weighted Weighted Weighted
Range of Average Average Average
Exercise Stock Life Exercise Stock Exercise
Prices Options (Months) Price Options Price
- ------------- --------- ------- ----- ---------- -----
$ .20 - $ .20 1,000,000 36 $ .20 1,000,000 $ .20
$1.55 - $1.55 2,000,000 24 $1.55 2,000,000 $1.55
$ .20 - $1.55 3,000,000 28 $1.10 3,000,000 $1.10
========= ======= ===== ========= =====
30
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 11. YEAR 2000 ISSUE
The Year 2000 readiness issue, which is common to most businesses, arises
from the inability of information systems, and other time and
date-sensitive products and systems, to properly recognize and process
date-sensitive information or system failures. Assessments of the
potential cost and effects of Year 2000 issues vary significantly among
businesses, and it is extremely difficult to predict the actual impact.
Recognizing this uncertainty, management is continuing to actively
analyze, assess and plan for various Year 2000 issues in its business.
The Year 2000 issue has an impact on both information technology ("IT")
systems and non-IT systems, such as the Company's physical facilities
including, but not limited to, security systems and utilities. Although
management believes that a majority of the Company's IT systems are Year
2000 ready, such systems still have to be tested for Year 2000 readiness.
The Company is replacing or upgrading those systems that are identified as
non-Year 2000 compliant. Certain IT systems previously identified as
non-Year 2000 compliant are being upgraded or replaced, which should be
complete by October 15, 1999. Non-IT system issues are more difficult to
identify and resolve. The Company is actively identifying non-IT Year 2000
issues concerning its products and services, as well as its physical
facility locations. As non-IT areas are identified, management formulates
the necessary actions to ensure minimal disruption to its business
processes. Although management believes that its efforts will be
successful and the costs will be immaterial (i.e., less than $5,000) to
its financial position and results of operations, it also recognizes that
any failure or delay could cause a potential impact.
The Company has initiated efforts to ensure Year 2000 readiness of its
products and services. The Company's key financial and other in-house
systems are already materially compliant.
The Company has also initiated efforts to assess the Year 2000 readiness
of its key suppliers. The Company's direction of this effort is to ensure
the adequacy of resources and supplies to minimize any potential business
interruptions. Management also plans to complete this part of its Year
2000 readiness plan by October 15, 1999.
31
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
NOTE 11. YEAR 2000 ISSUE (continued)
The Year 2000 issue presents a number of other risks and uncertainties
that could impact the Company, such as public utilities failures,
potential claims against it for damages arising from products and services
that are not Year 2000 compliant, and the response ability of certain
government commissions of the various jurisdictions where the Company
conducts business. While the Company continues to believe the Year 2000
issues described above will not materially affect its financial position
or results of operations, it remains uncertain as to what extent, if any,
the Company may be impacted.
NOTE 12. SUBSEQUENT EVENTS
(a) On November 11, 1998 Richard Dowler presented the Board of Directors
with his resignation as a member of the Board of Directors and as
Chief Financial Officer of the Company. Mr. Dowler's resignation
became final on February 19, 1999.
(b) On December 14, 1998, Karl Elliott resigned from any further service
with the Company as a member of the Board of Directors and President
of TechniLink.
32
