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 December 31, 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.)
24370 Avenue Tibbitts
Suit 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 December 31, 1999: 15,609,958
PART I
Item 1. Financial Statement
A financial statement, unaudited and included herein beginning on page
F-1 (Exhibit 99.0), is 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 September 30, 1999 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 including United Telemetry
Co., Inc. and eEnergyServices.com, Inc. 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 $772,349 for the quarter ending
December 31, 1999. The Company for the quarter ending February 28, 1999 had a net
loss from operations of $238,140. The Company had no revenue for the quarter ending
December 31, 1999 and ending February 28, 1999.
Plan of operation
Loss on operations for the Company for the quarter December 31, 1999 increased 324%
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 Promissory Notes
convertible to common stock and the sale of common stock. The Company had 26,655.00
revenues in fiscal 1999.
Development of the subsidiaries' products will continue throughout the year with no
expected purchase of significant equipment or plants in the near term.
Liquidity and Capital Resources
As of December 31, 1999, the Company had a negative working capital of $2,111,873
consisting of $(15,401) in current assets and $2,096,472 in current liabilities.
The Company had a negative working capital of $1,462,936 at quarter ended February
28, 1999. The Company is dependent on achieving profitable operations through the
success of its subsidiaries to continue as a going concern.
The Company had total assets of $104,220 as of December 31, 1999, and total
liabilities of $2,096,472. Shareholder deficit is $1,992,252, as compared to a
deficit of $930,866 fiscal quarter ended February 28, 1999. The Company issued
1,621,596 shares of common stock for cash and services during the quarter ending
December 31, 1999.
Cash Flows
The Company had a net loss for the quarter ending December 31, 1999, of $772,348.
The cash used in operations toward this loss was $85,825. The largest area of
loss was the result of non-cash transactions to the Company. Services to the Company
that were not paid with cash totaled $672,178. The Company issued shares for
$42,920 of stock, restricted under rule 144 to finance the operating losses for
the quarter ending December31, 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 Promissory Notes
convertible to common stock under Regulation D of Rule 506. (See Part II, Item 2
below for full description). The Company is also planning on filing a secondary
offering of its common stock for the long term funding requirements of a large-scale
deployment of the HNet System. 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 December 31, 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. 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.
PART II
Other Information
Item 1. Legal Proceedings
On December 13, 1999 the Company and Southern Arizona Graphic Associates, Inc.
("Arizona Lithographers") settled a civil lawsuit filed on June 28, 1999 in the
Pima County, Arizona. The Company issued Arizona Lithographers 26,087 shares in
exchange for certain photographic rights and reprints. The case was dismissed
with prejudice on December 15, 1999.
In February 2000 Corporate Financial Enterprises, Inc. and Braemar Management
contacted the Company's legal counsel regarding Braemar's request to remove the
restricted legend on 1.5 million shares of the Company's common stock currently
held by Braemar Management, an affiliate (greater than 5% shareholder) of the
Company. The Company has not authorized the removal of the restriction. Braemar
Management has threatened to sue theCompany. The Company has not lifted the
restriction on the common stock because it is unclear of the extent of any
relationships and/or associations that may exist between certain affiliates and
Braemar Management. This disagreement may escalate into litigation in order for
the Company to be able to fully ascertain the facts, determine relationships and
associations, and assure that the provisions of Rule 144 have not compromised by
any of the affiliates and/or parties involved. The extent of any potential monetary
liability to the Company is unknown and cannot be accurately estimated at this
time. Presently, a settlement, short of litigation, is unlikely.
Item 2. Changes in Securities and Use of Proceeds
Options & Warrants Issued
On November 1, 1999 the Company issued warrants to purchase 506,500 shares of common
stock at an exercise price of $2.00 per share with an expiration date of November 1,
2001.
In November 1999, the Company issued options to purchase 2,000,000 shares of the
Company's common stock to its Chief Technical Officer, pursuant to his employment
agreement. The options are exercisable through December 31, 2002 at an exercise
price of $.50 per share; however, they will not vest until completion of a working
HNet pilot of 30 units or more.
In November 1999, the Company's Board of Directors awarded the Company's President
and Chief Executive Officer options to acquire 500,000 shares of the Company's common
stock at an exercise price of $.15 per share through December 31, 2002. These options
were awarded for past service to the Company and were valued at $125,000, which was
accrued as additional compensation at the September 30, 1999 balance sheet date.
On February 2, 2000 the Company's Board of Directors issued 412,000 shares of
restricted common stock for $103,000.00 in services rendered by Laurence Muirhead
pursuant to his Employment Agreement and previously accrued consulting fees prior to
the execution of his Employment Agreement; specifically $13,000.00 in consulting fees
and $90,000 in accrued compensation through February 1, 2000. All stock restricted
and issued at $.25 per share.
Stock Subscriptions
In January 2000 the Company received $75,000.00 in three Stock Subscription Agreements
for restricted common stock. The stock was sold for $.25 per share, approximately 50%
of the market price at the time of the purchase, which management believes are exempt
from registration under Section 4(2) of the 1933 Securities Act.
506 Private Placement Offering For $10,000,000
On February 1, 2000 the Company began a Private Placement Offering under Regulation
D, Rule 506 for a maximum of $10,000,000 in two (2) year, 10% interest bearing
Convertible Notes. The Notes are convertible to restricted common stock at a rate
of 50% of the market price at the date of conversion. THESE NOTES WILL ONLY BE SOLD
TO ACCREDITED INVESTORS AS THE TERM IS DEFINED IN THE PRIVATE PLACE MEMORANDUM AND
RULE 501(A) OF REGULATION D PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE 1933 ACT WITH A MINIMUM INVESTMENT OF $25,000.00. The Private Placement
Memorandum is available from the Company upon request or it can be viewed in its
entirety on the Company's web site www.conectisys.net.
The Company estimates the net proceeds if the Company were to sell all of 400 Notes
offered by the Company to be approximately $8,700,000 after deducting commissions
and other Offering expenses payable. The Company believes that if all the Notes were
sold that the net proceeds of this Offering would be sufficient to fund its plan of
operation for at least the next twelve months and that, during the 12 month period
following the Offering, it will not be necessary for the Company to raise additional
funds to meet the expenditures required for operating its business.
Amount Item Percentage
$3,200,000 Working Capital and Operating Expenses 32.0%
$2,000,000 Equipment HNet System 20.0%
$2,000,000 Deployment HNet System 20.0%
$1,500,000 Sales, Marketing, Advertising 15.0%
$1,300,000 Commissions and Fees 13.0%
$10,000,000 TOTAL 100%
Item 4. Submission of Matters to a Vote of Security Holders
Shareholders Meeting
The annual meeting of the shareholders of Conectisys Corporation will be held at One
World Trade Center, Long Beach, California in the 2nd Floor Auditorium on March 15,
2000, at 10:00 a.m. Details of the business to be conducted at the annual meeting are
given in the Notice of Annual Meeting and Proxy Statement. The Notice and Proxy
Statement were mailed out to each shareholder of record as of February 14, 2000 and
available on the Company's web site www.conectisys.net.
Item 5. Other Information
New Board Member Appointed
On November 15, 1999 Melissa Weger was appointed to the Company's Board of Directors
filling the vacancy left by the resignation of Richard Dowler as a member of the Board
of Directors in February 1999.
eEnergy Services Division Incorporated
The Company incorporated its division eEnergy Services on January 11, 2000. The new
wholly owned subsidiary is a Nevada corporation called eEnergyServices.com, Inc. The
current Board of Directors and Officers of Conectisys Corporation are also acting as
eEnergyServices.com, Inc.'s Officers and Directors.
Form S-8 Registration Filed
In December, 1999, the Company filed a Form S-8 registration statement for the
Conectisys Corporation Non-Qualified Stock and Stock Bonus Plan (the "Plan"). The
purpose of the Plan is to compensate independent consultants of the Company through
the granting of non-qualified stock options (as described in Sections 83 and 421 of
the Internal Revenue Code). Shares of stock covered by stock options and stock
bonuses shall consist of 1,000,000 shares of the common stock of the Company. Unless
amended by the Board in writing, the Plan shall terminate at midnight, January 31,
2003. To date, 716,087 common shares have been issued to consultants under the Plan.
366,087 of these shares were for past services rendered and 350,000 represented
retainers on new consulting contracts.
HNet Pilot Begins
On February 15, 2000 the Company successfully launched its HNet Pilot in Los Angeles,
California. Although the pilot is a small, it is a working model of the capabilities
of the HNet System. The Company's much-awaited deployment of the HNet Automatic Meter
Reading (AMR) pilot demonstrates HNet's technology which acquires real time data from
an electric meter, processes this data to show power usage and cost, and can display
this information via the Internet. Ultimately, the HNet System will be capable of
preparing bills and real-time power usage summaries suitable for power purchasing.
The Company plans a demonstration of the HNet System at work at its eEnergyServices.com
web site starting on March 6, 2000. www.eEnergyServices.com Additionally, the Company
has engineered a portable HNet System in a case that is capable of demonstrating the
HNet System anywhere in the country from the street to a utility company's boardroom
or corporate facility.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit
99.0 Financial Statement (Unaudited)
(b) During the Registrant's fiscal quarter ending December 31, 1999, the
registrant filed the following current reports on Form 8-K:
November 15 & November 24, 1999
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: February 23, 2000 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, February 23, 2000
(Robert A. Spigno) Chief Executive Officer
Exhibit 99.0
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 1999
Dec. 31, Feb. 28, Sep. 30,
1999 1998 1999
Unaudited Unaudited Audited
ASSETS
Current assets:
Cash and cash equivalents (15,401) 26,584 27,004
Accounts receivable, net of
allowance for doubtful accounts
of $0 for 1999 and $0 for 1998 0 0 0
Total current assets (15,401) 26,584 27,004
Property and equipment, net 82,621 133,181 95,072
Licenses and technology, net of
accumulated amortization of
of $391,478 for Dec. 31, 1999
and $49,173 for Feb 28, 1999 30,000 372,305 40,000
Deposits 7,000 0 7,000
Total assets 104,220 532,070 169,076
LIABILITIES
Current liabilities:
Notes payable and
current portion of
long-term debt
Related 197,500 120,000 397,500
Other 416,434 438,221 429,434
Accounts payable 423,060 333,574 262,341
Accrued compensation 731,336 466,901 887,383
Due to officer 146,695 0 133,195
Other current liabilities 181,447 104,240 194,225
Total current liabilities 2,096,472 1,462,936 2,104,078
Total liabilities 2,096,472 1,462,936 2,104,078
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - Class A, $1.00 par value;
1,000,000 shares authorized,
80,500 shares issued and
outstanding 120,020 80,500 120,020
Convertible preferred stock - Class B,
$1.00 par value; 1,000,000
shares authorized, -0- shares
issued and outstanding 250,000 0 250,000
Common stock, no par value;
250,000,000 shares authorized,
15,609,958 for Dec. 31, 1999 and
13,491,892 for Feb 28, 1998 shares
issued and outstanding 13,014,799 12,507,668 12,299,702
Accumulated deficit (15,377,071)(13,519,034)(14,604,724)
Total shareholders' deficit (1,992,252) (930,866) (1,935,002)
Total liabilities and
shareholders' deficit 104,220 532,070 169,076
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1999, February 28, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through December 31, 1999
Dec. 1, 1990
Three Months (Inception)
Dec. 31, Feb 28, Dec. 31,
1999 1999 1999
Unaudited Unaudited Unaudited
Net revenues 0 0 517,460
Cost of sales 17,536 51,357 436,861
Gross profit (loss) (17,536) (51,357) 80,599
Operating expenses:
General and administrative 754,813 186,783 10,713,305
Bad debt write-offs 0 0 1,680,522
Loss from operations (772,349) (238,140)(12,313,228)
Non-operating income (expenses) 1 0 (1,986,102)
Minority interest 0 0 (62,500)
Net loss (772,348) (238,140)(14,361,830)
Weighted average shares
outstanding -
basic and diluted 16,091,274 13,474,712
Net loss per share -
basic and diluted (.05) (0.02)
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 December 31, 1999
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
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(A) 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
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 December 31, 1999
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
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
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 December 31, 1999
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares returned and canceled,
March, 1996 0 0 0 (15,000) 0 0 $ 0
Services, April, 1996 0 0 13 2,069 0 2,069
Services, September, 1996 4,155(A) 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
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 December 31, 1999
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
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(A) 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:
Shares returned and canceled,
December, 1998 0 0 (1,350,000) (814,536) (814,536)
Services, December, 1998
through September, 1999 0 0 560,029 349,454 349,454
Cash, December, 1998
through September, 1999 0 0 1,155,800 129,537 129,537
Debt repayment, Sept., 1999 39,520(A) 39,520 960,321 197,500 237,020
Services, December, 1998
through September, 1999 150,000(B) 150,000(B) 0 0 150,000
Debt repayment, Sept., 1999 100,000(A) 100,000 0 0 100,000
Net loss for the period 0 0 0 0 (1,323,831) (1,323,831)
Balance,
September 30, 1999 370,020 $ 370,020 13,988,362 $12,299,702 $(14,604,724) $(1,935,002)
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 December 31, 1999
Preferred Stock Common Stock Total
Class A and B No Par Value Accumulated Shareholders'
Shares Value Shares Value Deficit Equity (Deficit)
Shares issued in exchange for:
Services, October, 1999
through December, 1999 0 0 1,400,396 672,178 672,178
Cash, October, 1999
through December, 1999 0 0 221,200 42,920 42,920
Net loss for the period 0 0 0 0 (772,348) (772,348)
Balance,
December 31, 1999 370,020 $ 370,020 15,609,958 $13,014,799 $(772,348) $(1,992,252)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999, February 28, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through December 31, 1999
Dec. 1, 1990
Three Months (Inception)
Dec. 31, Feb 28, Dec. 31,
1999 1999 1999
Unaudited Unaudited Unaudited
Cash flows from operating activities:
Net loss (772,348) (238,140)(14,299,330)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services 672,178 19,920 4,819,556
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 1,299,861
Depreciation and
amortization 22,451 34,131 1,546,338
Settlements 0 0 (25,000)
Accounts receivable 0 0 (4,201)
Accrued interest
receivable 0 0 (95,700)
Deposits 0 0 (7,000)
Accounts payable 160,719 58,137 423,060
( Accrued compensation (156,047) (4,564) 793,858
Due to officer 0 0 555,193
Other current liabilities (12,778) (4,611) 346,112
Net cash used in
operating activities (85,825) (135,127) (2,751,761)
Cash flows from investing
activities:
Issuance of
notes receivable 0 0 (1,322,500)
Costs of licenses
and technology 0 0 (94,058)
Purchase of equipment 0 (12,254) (136,175)
Net cash used in
investing activities 0 (12,254) (1,552,733)
Cash flows from financing
activities:
Common stock issuance 42,920 50,000 2,172,330
Preferred stock issuance 0 0 16,345
Proceeds from debt, other 0 0 1,670,691
Proceeds from debt, related 500 120,000 207,044
Proceeds from stock purchase 0 0 281,250
Payments on debt, other 0 (1,769) (25,910)
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 43,420 168,231 4,289,093
Net increase (decrease) in
cash and cash equivalents (42,405) 20,850 (15,401)
Cash and cash equivalents
at beginning of period 27,004 5,734 0
Cash and cash equivalents
at end of period (15,401) 26,584 (15,401)
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999, February 28, 1999
and the Cumulative Period
From December 1, 1990 (Inception) Through December 31, 1999
Dec. 1, 1990
Three Months (Inception)
Dec. 31, Feb 28, Dec. 31,
1999 1999 1999
Unaudited Unaudited Unaudited
Supplemental disclosures of
cash flow information:
Cash paid for interest 0 92 130,917
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 672,178 19,920 5,641,370
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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'sonly 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 wasvalued 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 period amounts in the
accompanying consolidated financial statements have been reclassified to
conform to the current period'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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Basis of presentation and going concern uncertainty
(continued)
As of December 31, 1999, the Company had a deficiency in working capital of
approximately $2,000,000, and had incurred continual operating losses since
its return to the development stage ($1.8 million in 1996, $2.3 million in
1997, $4.2 million in 1998, $1.0 million in 1999 (ten months) and 0.8 million
for the three months ended December 31, 1999), 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 (See Note 13(b)).
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 December 31, 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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. All
funds on deposit are with one financial institution.
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 from TechniLink.
Although the license remains viable, the Company currently lacks the
resources to develop and market it. Accordingly, during the ten month period
ended September 30, 1999, the Company accelerated amortization on this asset
by writing it down to its net realizable value of $40,000, incurring a charge
of $283,133. The balance of the carrying value of 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 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 three month period ended December 31, 1999 and the ten months
ended September 30, 1999 was $7,500 and $25,000, respectively.
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the following:
Office equipment $ 217,388
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 269,359
Accumulated depreciation (186,738)
-----------
Net book value $ 82,621
===========
NOTE 5. DUE TO OFFICER
During the ten month period ended September 30, 1999, the Company received
cash advances from its president totaling $555,193. At December 31, 1999,
$197,500 of these advances was exchanged for the assumption of a promissory
note to S.W. Carver, due on demand (and in no event later than October 1,
2000) at an annual interest rate of 10%, and another $287,020 of these
advances was exchanged for equity. Also at December 31, 1999, $62,522 in
accrued compensation was transferred to the advance account, resulting in a
balance of $133,195. This balance was converted into a promissory note due
on demand (and in no event later than October 1, 2000) at an annual interest
rate of 10%.
NOTE 6. NOTES PAYABLE
Notes payable at December 31, 1999 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 18% $ 174,610
---------
Total notes payable 416,434
Current portion (416,434)
---------
Long-term portion $ -
=========
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 6. NOTES PAYABLE (continued)
The maturity of long-term debt at December 31, 1999 was as follows:
Year ended September 30,: 2000 $ 416,434
Thereafter -
---------
Total notes payable $ 416,434
=========
NOTE 7. 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 its 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
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
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.
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 canceled 1,350,000 shares of its common stock
previously issued to a consultant and valued at $814,536, which were
contingent on the establishment of a $5,000,000 line of credit (never
achieved).
In December, 1998, the Company issued 750,000 shares of its common stock
valued at $50,000 to a consultant for services rendered.
In January and September, 1999, the Company issued a total of 152,548 shares
of its common stock for consultant services rendered of $45,360.
During the months March, 1999 through September, 1999, the Company issued a
total of 405,800 shares of its common stock valued at $79,537 in a private
placement.
In September, 1999, the Company issued 100,000 shares of its common stock for
consultant fees rendered of $84,644.
In September, 1999, the Company issued 960,321 shares of its common stock to
repay related party debt of $197,500.
In September, 1999, the Company issued a total of 47,481 shares of its common
stock valued at $15,957 as hiring bonuses for two employees.
In September, 1999, the Company issued 260,000 shares of its common stock to
its president as compensation for director fees of $203,493 and also issued
him 39,520 of its Class A $1.00 par value preferred stock to partially repay
debt.
In September, 1999, the Company issued options to purchase 500,000 shares
each (a total of 1,000,000) of its Class B convertible preferred stock at a
price of $5.00 per share in exchange for debt reduction of $50,000 each (a
total of $100,000) to a note holder and the Company's president.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
In September, 1999, the Company issued options to purchase 600,000 shares of
the Company's common stock (500,000 options to its president and 100,000
options to an employee) valued at $150,000.
In October, 1999, the Company placed 221,200 shares of the Company stock for
sale for $49,920.
In November, 1999, the Company issued 100,000 shares of the Company's stock
valued at $50,000 for accounting services rendered.
In December, 1999, the Company issued 40,000 shares of the Company's stock
valued at $30,000 for accounting services rendered.
In December, 1999, the Company issued 815,000 shares of the Company's stock
valued at $334,177 for consulting services rendered.
In December, 1999, the Company issued 139,770 shares of the Company's stock
valued at $80,000 for bonuses owed to the Secretary of the Company
In December, 1999, the Company issued 279,539 shares of the Company's stock
valued at $160,000 for bonuses owed to the President of the Company.
In December, 1999, the Company issued 26,087 shares of the Company's stock
valued at $18,000 for advertising and promotional brochures.
NOTE 8. INCOME TAXES
Deferred income taxes consisted of the following at December 31, 1999:
Deferred tax asset, benefit
of net operating loss
carryforward $ 5,500,000
Deferred tax liability -
Valuation allowance (5,500,000)
-----------
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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 9. COMMITMENTS AND CONTINGENCIES
Employment agreements
The Company has entered into six employment agreements with key
Individuals, the terms of the agreements are as follows:
1) The President and CEO of PrimeLink entered into an agreement dated
September 15, 1995 for a period of three years. This agreement, along
with his royalty agreement, were mutually terminated. The separation
agreement, as of October 31, 1997, called for a settlement of $12,000
to be paid $1,000 monthly for the following twelve months. As of
December 31, 1999, $4,000 remained unpaid.
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.
3) The President and CEO of the Company entered into an agreement dated
October 2, 1995 (which was amended September 1, 1997 and September 1,
1999) for a period of five years, and he is entitled to receive a base
salary of $160,000 per year. 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 shallfurther 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 resigned
from the Company.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 9. COMMITMENTS AND CONTINGENCIES
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
and September 1, 1999) for a period of three years, and she is entitled
to receive a base salary of $80,000 per year. 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.
6) The Chief Technical Officer of the Company entered into an
Agreement dated August 1, 1998 for an initial term of three years, and
he is entitled to receive a base salary of $150,000 per year, with a
minimum of $90,000 to be paid annually in cash and the balance paid (at
the option of the Company) in cash or restricted common stock under rule
144. The employee shall receive a hire-on bonus of $75,000 worth of
the Company's restricted common stock under rule 144, at one-half
market price. The employee shall further receive performance bonuses
(paid in restricted common stock, as above) upon successful completion
of specific milestones pertaining to the implementation and deployment
of certain software (up to $862,500). If substantially all performance
milestones are met, 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 60% of the average market value at the date of purchase.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 three 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 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Litigation (continued)
The third case was brought by Southern Arizona Graphic Associates, Inc. (the
"Plaintiff") against Conectisys Corporation (the "Defendant"). The case was
brought before the Superior Court of the State of Arizona, County of Pima,
Case # 333852. The claim was for goods, printing services, and funds
advanced by the Plaintiff. On December 8, 1999, the Company's Board of
Directors approved the issuance of 26,087 shares of the Company's common
stock valued at $18,000 in full settlement of the defendant's claim. The
matter was subsequently dismissed with prejudice.
NOTE 10. MAJOR CUSTOMERS
The Company, as a development stage enterprise, had no revenue during the
three months ended December 31, 1999. The Company had limited revenues
during the ten months ended September 30, 1999.
NOTE 11. STOCK OPTIONS
During the ten months ended September 30, 1999, the Company issued to a note
holder options to purchase 500,000 shares of the Company's Class B preferred
stock at an exercise price of $5.00 per share. As consideration, the Company
reduced the debt by $50,000 and received an extension of time to pay-off its
promissory note. The Company also issued to its president options to
purchase another 500,000 shares of the Company's Class B preferred stock at
an exercise price of $5.00 per share in exchange for a reduction in debt of
$50,000. Total consideration received on the above issued options, as
evidenced by debt reduction, was $100,000. These options can be exercised
between November 1, 1999 and November 1, 2002.
The Company's president currently owns 120,020 of the Company's Class A
Preferred Stock, and has options to purchase another 29,980 shares for $1.00
per share through June 16, 2001.
The pro forma information required by SFAS No. 123 is not included as there
were no common stock options granted during the three months ended December
31, 1999, and the disclosure for the 600,000 common stock options issued
during the ten month period ended September 30, 1999 would not be materially
different from the amounts and disclosures already presented. During this
period, 500,000 common stock options were issued to the Company's president
and another 100,000 common stock options were issued to an employee. These
options are all exercisable at a cost of 50% of the average market value of
the Company's stock during the prior 30 days of trading before exercise, with
the president's options remaining open for a period of six years (including a
three year option to renew) and the employee's options remaining open for a
period of four years (including a two year option to renew).
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 11. STOCK OPTIONS (continued)
The Company has granted various common stock options and warrants to
employees; the options and warrants were granted at approximately the fair
market value at the date of grant and vested immediately. The common stock
option was as follows:
Common Stock
Options Weighted
and Average
Warrants Price
--------- --------
Balance outstanding,
December 1, 1997 3,869,200 $ 1.42
Canceled and expired (869,200) $ (2.50)
--------- --------
Balance outstanding,
November 30, 1998 3,000,000 $ .37
Granted 600,000 $ 0.54 (1)
Canceled and expired - -
--------- --------
Balance outstanding,
December 31, 1999 3,600,000 $ 0.40
========= ========
(1) Floating strike price
The following table summarizes information about common stock options at
December 31, 1999:
Outstanding Exercisable
Weighted Weighted Weighted
Range of Common Average Average Common Average
Exercise Stock Life Exercise Stock Exercise
Prices Options (Months) Price Options Price
- ------------- --------- ------- ------- --------- -------
$ .20 - $.20 1,000,000 13 $ .20 1,000,000 $ .20
$ .46 - $.46 100,000 47 $ .46 100,000 $ .46
$ .46 - $.46 2,000,000 71 $ .46 2,000,000 $ .46
$ .55 - $.55 500,000 59 $ .55 500,000 $ .55
$ .20 - $.55 3,600,000 53 $ .40 3,600,000 $ .40
========= == ======= ========= =======
NOTE 12. 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.
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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.
Management believes that the Company's IT systems are Year 2000 ready.
The Company has replaced or upgraded those systems that have been identified
asnon-Year 2000 compliant. Non-IT system issues are more difficult to
identify and resolve. The Company has actively identified non-IT Year 2000
issues concerning its products and services, as well as its physical
facility locations. Management has formulated the necessary actions to
ensure minimal disruption to its business processes. The costs were
immaterial (i.e., less than $5,000) to its financial position and results
of operations.
The Company has completed 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 completed
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.
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.
