U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
|X| Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended February 28, 1999.
|_|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)
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
Common Stock, issued and outstanding as of February 28, 1999:
13,491,892 Shares
<PAGE>
PART I
Item 1 Financial Statements
Financial statements are unaudited and included herein beginning on page Exhibit
and are incorporated herein by this reference.
Item 2 Management's Discussion and Analysis or Plan of Operation
Except for disclosures that report the company' historical results, the
statement set forth in this section are forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that may cause actual
results to differ materially from those in the forward-looking statements are in
the Company's Annual Report on form 10-KSB for the fiscal year ending November
30, 1998 and in the Company's other filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
assumes no obligation to update any forward-looking statements or comments on
the reasons why actual results may differ therefrom.
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
primarily engaged in developing, manufacturing and marketing proprietary
telemetry equipment for use in remote or automated meter reading (AMR)
applications.
Results of operations
The Company realized a net loss from operations of $ 346,295 for the quarter
ending February 28, 1999. The Company for the quarter ending February 28, 1998
had a net loss from operations of $ 436,945. The company had no revenue for the
quarters ending February 28, 1999 and ending February 28, 1998.
Plan of operation
Loss on operations for the Company for the quarter February 28, 1999 decreased
21% from the prior year for the same period. These losses are attributed to the
Company's development, marketing and general expense. The Company will, over the
next 12 months, rely on additional funding through the sale of common stock or
loans collateralized through common stock. The company had no revenues in fiscal
1998.
Development of the subsidiaries' products will continue throughout the year with
no expected purchase of significant equipment or plants in the near term.
In January 1999, Conectisys filed a United States Patent application for HNet, a
proprietary communication protocol for automated meter reading (AMR). The radio
hardware required to implement HNet for electric AMR is under development. The
Company plans to license the HNET technology, when the U.S. Patent is granted.
Additional sources of revenue are being developed to leverage the Company's
investment in the HNet technology.
<PAGE>
In February 1999, Consolidated Edison, Steam Division terminated the Manhattan
Pilot test of the Smartgate remote metering reading device. The Company does not
anticipate additional sales of Primelink Smartgate or TechniLink Cube devices at
this time.
Liquidity and Capital Resources
As of February 28, 1999, the Company had a negative working capital of
$1,436,252 consisting of $26,584 in current assets and $1,462,936 in current
liabilities. The Company had a negative working capital of $1,286,753 as of
February 28, 1998. The Company is dependent on achieving profitable operations
through its acquisitions and the collection of outstanding receivables to
continue as a going concern.
The Company had total assets of $532,070 as of February 28, 1999, and total
liabilities of $1,462,936. Shareholder equity(deficient) is ($930,866), as
compared to $421,705 as of February 28, 1998. The company issued 829,680 shares
of common stock for cash and services during the quarter ending February 28,
1998.
Cash Flows
The Company had a net loss for the quarter ending February 28, 1999, of
$238,140. The cash used in operations toward this loss was $135,127. The largest
area of loss was the result of non-cash transactions to the Company.
Depreciation and amortization expenses for the quarter ending February 28, 1999
was $ 34,131. Services to the company that were not paid with cash totaled $
19,920. The Company issued $ 69,920 of stock, restricted under rule 144 or
regulation "S", and $120,000 of new debt to finance the operating losses for the
quarter ending February 28, 1999.
The Company's management plans for correcting these deficiencies include the
future sales of the licensed products and services. Working capital to meet the
Company's operating expenses will be raised through the issuance of common
stock. In the longer term, the Company plans to achieve profitability through
the subsidiaries operations; however there are no assurances that profitability
will be achieved. The Company has experienced negative cash flow from operations
since inception and expects to continue to experience negative cash flow from
operations for the near term.
Effect of inflation
Inflation did not have any significant effect on the operations of the company
during the quarter ended February 28, 1999. Further, inflation is not expected
to have any significant effect on future operations of the Company.
The Financial Accounting Standards Board (FASB) Impact
Statement of 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.
<PAGE>
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.
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.
PART II
Other Information
Item 1. 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.
In June 1999, Southern Arizona Graphic Associates, an Arizona Corporation dba
Arizona Lithographers, filed a lawsuit in the Arizona Superior Court for Pima
County against Conectisys Corporation alleging "breech of contract" for work in
1998. The Company believes the suit is without merit and plans to defend the
Company's position. A judgement for the plaintiff, for its claim, will not
materially affect the Company `s finances.
<PAGE>
Item 5. Other Information
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.
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 and
Patricia A. Spigno was elected as Chief Financial Officer.
In December 1998, the Company issued 750,000 shares of common stock, restricted
under rule 144, to Carl Attman, Sr. The terms of the placement includes
performance provisions as measured by common stock market price after 12 months.
A parcel of real property owned by Robert A. Spigno and Patricia A. Spigno was
included in this transaction as collateral.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Financial statements
(b) During the Registrant's fiscal quarter ending February 28, 1999, the
registrant filed the following current reports on Form 8-K:
None
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 12, 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, October 12, 1999
(Robert A. Spigno) Chief Executive Officer,
and Director
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
February 28, 1999
Feb. 28, Nov. 30,
1999 1998 1998
Unaudited Unaudited Audited
ASSETS
Current assets:
Cash and cash equivalents 26,584 8,441 5,734
Accounts receivable, net of
allowance for doubtful accounts
of $0 for 1999 and $379 for 1998 0 1,611 0
Total current assets 26,584 10,052 5,734
Notes receivable 0 627,500 0
Property and equipment, net 133,181 118,596 133,984
Licenses and technology, net of
accumulated amortization of
of $49,173 and $28,099 for 1998 372,305 962,362 393,379
Total assets 532,070 1,718,510 533,097
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
February 28, 1999
<TABLE>
<CAPTION>
Feb. 28, Nov. 30,
1999 1998 1998
Unaudited Unaudited Audited
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and
current portion of
long-term debt 558,221 444,048 439,990
Accounts payable 333,574 438,501 275,437
Accrued compensation 466,901 293,280 471,465
Other current liabilities 104,240 120,796 108,851
Total current liabilities 1,462,936 1,296,805 1,295,743
Total liabilities 1,462,936 1,296,805 1,295,743
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized, 80,500
shares issued and outstanding 80,500 20,500 80,500
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000
shares authorized, -0- shares
issued and outstanding 0 0 0
Common stock, no par value;
250,000,000 shares authorized,
13,491,892 for 1999 and
12,662,212 for 1998 shares
issued and outstanding 12,507,667 9,108,045 12,437,747
Accumulated deficit (13,519,033) (8,706,840) (13,280,893)
Total shareholders' deficit (930,866) 421,705 (762,646)
Total liabilities and
shareholders' deficit 532,070 1,718,510 533,097
</TABLE>
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three
Months Ended February 28, 1999 and 1998
and the Cumulative Period
From December 1, 1990 (Inception) Through February 28, 1999
Dec. 1, 1990
Three Months (Inception)
Feb. 28, Through Feb. 28,
1999 1998 1998
Unaudited Unaudited Unaudited
Net revenues 0 0 491,805
Cost of sales 51,357 60,180 776,919
Gross profit (loss) (51,357) (60,180) (285,114)
Operating expenses:
General and administrative 186,783 365,440 8,816,418
Bad debt write-offs 0 0 1,680,522
Loss from operations (238,140) (425,620) (10,782,054)
Non-operating income (expenses) 0 30 (1,596,737)
Minority interest 0 0 (62,500)
Net loss (238,140) (425,590) (12,441,291)
Weighted average shares
outstanding -
basic and diluted 12,707,969 1,985,025
Net loss per share -
basic and diluted (.02) (0.21)
<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 February 28, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
Class A No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 1, 1990
(re-entry
development stage) 0 0 10,609 1,042,140 (1,042,140) 0
Shares issued in exchange for:
Cash, May 31, 1993 0 0 1,000 1,000 0 1,000
Capital contribution,
May 31, 1993 0 0 2,000 515 0 515
Services, March 26, 1993 0 0 2,000 500 0 500
Services, March 26, 1993 0 0 1,200 600 0 600
Net loss for the year 0 0 0 0 (5,459) (5,459)
Balance,
November 30, 1993 0 0 16,809 1,044,755 (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1, 1994 0 0 2,400 3,000 0 3,000
Cash, September 1, 1994 0 0 17,771 23,655 0 23,655
Services, September 15, 1994 0 0 8,700 11,614 0 11,614
Cash, September 26, 1994 0 0 3,000 15,000 0 15,000
Cash, October 6, 1994 16,345 16,345 0 0 0 16,345
Cash, September and October,
1994 0 0 1,320 33,000 0 33,000
Net loss for the year 0 0 0 0 (32,544) (32,544)
Balance,
November 30, 1994 16,345 16,345 50,000 1,131,024 (1,080,143) 67,226
</TABLE>
<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 February 28, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
Class A No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Cash, February 13, 1995 0 0 1,160 232,000 0 232,000
Debt repayment, February 13,
1995 0 0 2,040 408,000 0 408,000
Debt repayment, February 20,
1995 0 0 4,778 477,810 0 477,810
Acquisition of assets, CIPI
February, 1995 0 0 28,750 1,950,000 0 1,950,000
Acquisition of assets, April 5,
1995 0 0 15,000 0 0 0
Cash and services, April and
May 1995 0 0 16,000 800,000 0 800,000
Cash, June 1, 1995 0 0 500 30,000 0 30,000
Acquisition of assets and
services, September 26, 1995 0 0 4,000 200,000 0 200,000
Cash, September 28, 1995 0 0 41 3,000 0 3,000
Acquisition of assets,
September 1995 0 0 35,000 1,750,000 0 1,750,000
Return of assets, CIPI
September, 1995 0 0 (27,700) (1,950,000) 0 (1,950,000)
Net loss for the year 0 0 0 0 (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 0 0 1,389 152,779 0 152,779
Debt repayment, February 1996 0 0 10,000 612,000 0 612,000
Services, February, 1996 0 0 3,160 205,892 0 205,892
Cash, March, 1996 0 0 179 25,000 0 25,000
</TABLE>
<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 February 28, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
Class A No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Shares returned and canceled,
March, 1996 0 0 (15,000) 0 0 $ 0
Services, April, 1996 0 0 13 2,069 0 2,069
Services, September, 1996 4,155 4,155 586 36,317 0 40,472
Services, October, 1996 0 0 6,540 327,000 0 327,000
Debt repayment, November, 1996 0 0 2,350 64,330 0 64,330
Net loss for the year 0 0 0 0 (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 0 0 228 6,879 0 6,879
Services, April, 1997 0 0 800 13,120 0 13,120
Services, July, 1997 0 0 1,500 16,200 0 16,200
Cash, July, 1997 0 0 15,000 300,000 0 300,000
Services, August, 1997 0 0 5,958 56,000 0 56,000
Adjustment for partial shares due
to reverse stock split (1:20) 0 0 113 0 0 0
Services, October, 1997 0 0 1,469,666 587,865 0 587,865
Debt repayment, October, 1997 0 0 1,540,267 620,507 0 620,507
Cash, October, 1997 0 0 1,500,000 281,250 0 281,250
Services, November, 1997 0 0 4,950 10,538 0 10,538
Net loss for the year 0 0 0 0 (2,739,268) (2,739,268)
Balance,
November 30, 1997 0 20,500 4,677,268 8,349,580 (8,352,211) 17,869
</TABLE>
<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 February 28, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
Class A No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Shares issued in exchange for:
Services, December, 1997
through November, 1998 0 0 2,551,610 2,338,264 0 2,338,264
Debt repayment, April, 1998
through September, 1998 0 0 250,000 129,960 0 129,960
Cash, January, 1998 through
July, 1998 0 0 4,833,334 1,139,218 0 1,139,218
Acquisition of assets,
July, 1998 0 0 300,000 421,478 0 421,478
Acquisition of 20% minority
interest in subsidiary,
July, 1998 0 0 50,000 59,247 0 59,247
Services, November, 1998 60,000 60,000 0 0 0 60,000
Net loss for the year 0 0 0 0 (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)
Shares issued in exchange for:
Services, December, 1998
through February, 1998 0 0 79,680 19,920 0 19,920
Cash, December, 1998 through
February, 1999 0 0 750,000 50,000 0 50,000
Net three months ended
February 28, 1999 0 0 0 0 (238,140) (238,140)
Balance,
February 28, 1999 80,500 80,500 13,491,892 12,507,667 (13,519,033) (930,866)
</TABLE>
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended February 28, 1999 and 1998
and the Cumulative Period
From December 1, 1990 (Inception) Through February 28, 1999
Dec. 1, 1990
Three Months (Inception)
Feb. 28, Through Feb. 28,
1999 1998 1998
Unaudited Unaudited Unaudited
Cash flows from operating activities:
Net loss (238,140) (436,944) (12,441,291)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services 19,920 6,234 4,482,380
Stock issued for interest 0 0 535,591
Provision for bad debt
write-offs 0 0 1,422,401
Minority interest 0 0 (62,500)
Write-off of intangible
assets 0 0 1,016,728
Depreciation and
amortization 34,131 91,515 1,436,605
Changes in:
Accounts receivable 0 1,797 (4,201)
Accrued interest
receivable 0 0 (95,700)
Accounts payable 58,137 28,046 333,574
Accrued compensation (4,564) 69,832 466,901
Other current liabilities (4,611) (6,827) 193,191
Total adjustments 103,013 190,597 9,724,970
Net cash used in
operating activities (135,127) (246,347) (2,716,321)
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended February 28, 1999 and 1998
and the Cumulative Period
From December 1, 1990 (Inception) Through February 28, 1999
Dec. 1, 1990
Three Months (Inception)
Feb. 28, Through Feb 28,
1999 1998 1998
Unaudited Unaudited Unaudited
Cash flows from investing activities:
Issuance of
notes receivable 0 279,374 (1,322,500)
Costs of licenses
and technology 0 (58,400) (94,057)
Purchase of equipment (12,254) (8,452) (136,175)
Net cash used in
investing activities (12,254) 212,522 (1,552,732)
Cash flows from financing
activities:
Common stock issuance 50,000 25,000 2,049,873
Preferred stock issuance 0 0 16,345
Proceeds from debt, other 0 0 1,670,691
Proceeds from debt, related 120,000 0 326,544
Proceeds from stock purchase 0 0 281,250
Payments on debt, other (1,769) 0 (16,409)
Payments on debt, related 0 0 (53,172)
Decrease in stock
subscription receivable 0 0 20,000
Contributed capital 0 0 515
Net cash provided by
financing activities 168,231 25,000 4,295,637
Net increase (decrease) in
cash and cash equivalents 20,850 (8,825) 26,584
Cash and cash equivalents
at beginning of period 5,734 17,266 0
Cash and cash equivalents
at end of period 26,584 8,441 26,584
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended February 28, 1999 and 1998
and the Cumulative Period
From December 1, 1990 (Inception) Through February 28, 1999
<TABLE>
<CAPTION>
Dec. 1, 1990
Three Months (Inception)
Feb. 28, Through Feb 28,
1999 1998 1998
Unaudited Unaudited Unaudited
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest 92 0 130,917
Cash paid for income taxes 0 0 1,650
Non-cash financing activities:
Common stock issued in exchange for:
Note receivable 0 0 281,250
Property and equipment 0 0 130,931
Licenses and technology 0 0 2,191,478
Repayment of debt and
interest 0 0 1,804,795
Services and interest 19,920 6,234 4,989,112
</TABLE>
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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, 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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization (continued)
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 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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and going concern uncertainty (continued)
As of February 28, 1999, the Company had a deficiency in working capital
of approximately $1,440,000 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.
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 February 28, 1999, 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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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, 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,certain identifiable intangible assets and goodwill, should be
recognized and how impairment losses should be measured.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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
<PAGE>
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 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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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 each April at the option of the lessee.
Effective April, 1998, the monthly rent was increased from $2,000 to
$2,500. Rent expense for the years ended February 28, 1999 and 1997 was
$28,000 and $20,000, respectively.
The Company also pays S.W. Carver Corporation for bookkeeping on 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
February 28, 1999.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1999 and 1998 consisted of the
following:
1999 1998
Office furniture
and equipment 255,070 171,340
Vehicles 35,362 35,362
Total cost 290,432 206,702
Accumulated depreciation (157,251) (89,106)
Net book value 133,181 117,596
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 5. NOTES PAYABLE
Notes payable at February 28, 1999 and 1998 consisted of the following:
1999 1998
Note payable to Ford Motor Credit,
secured by vehicle, due February, 1999,
interest at 12.9% 0 5,827
Note payable to Devon
Investment Advisors,
unsecured, due on demand,
interest payable at an
annual rate of 10% 241,824 241,824
Note payable to Black Dog
Ranch LLC, unsecured,
due on demand, interest
payable at an annual rate
of 8% 171,397 171,397
Note payable - other 25,000 25,000
Note payable to Robert Spigno
(related party) unsecured,
due on demand at 10% interest 120,000 0
Total notes payable 558,221 444,048
Current portion (558,221) (444,048)
Long-term portion 0 0
The maturity of long-term debt at February 28, 1999 and 1998 was as
follows:
1999 1998
Twelve months ended February 28,: 558,221 444,048
Thereafter 0 0
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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 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 in exchange for the acquisition of licensed
technology valued at $421,478, and issued another 50,000 shares in
exchange for the 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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.
In December, 1998, the Company issued 79,680 shares of its common stock in
exchange for consulting services of $19,920.
In January, 1999, 750,000 shares of the Company's common stock were issued
to one investor for cash in the amount of $50,000.
NOTE 7. INCOME TAXES
Deferred income taxes consisted of the following at February 28, 1999:
1999 1998
Deferred tax asset, benefit
of net operating loss
carryforward 5,000,000 3,454,392
Deferred tax liability 0 0
Valuation allowance (5,000,000) (3,454,392)
Net deferred taxes 0 0
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:
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.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.
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 Aaman, and
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.
NOTE 9. MAJOR CUSTOMERS
The Company, as a development stage enterprise, did not have any revenues
during the three months ended February 28, 1999 and 1998.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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 three months ended February
28, 1999 and 1998, 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 are 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,
February 28, 1999 3,000,000 $ 1.10
The following table summarizes information about stock options at February
28, 1999:
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
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.
<PAGE>
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
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.
