CONECTISYS CORP - Annual Report: 1999 (Form 10-K)
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the year ended September 30, 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, Suite 130
Valencia, California 91355
(Address of principal of Executive Offices) (Zip Code)
Issuer's telephone number: (661) 295-6763
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(b) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes[ ]No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B Contained herein, and disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB. [X]
State Issuer's revenues for it's most recent fiscal year: $25,655.00.
The aggregate number of shares of the voting stock held by non-affiliates on January 13, 2000 was 8,563,869. The market value of these shares, computed by reference to the market closing price on December 31, 1999 was $4,007,891. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates. The number of shares outstanding of issuer's classes of equities as of January 13, 2000 was 14,623,301.
PART I
Item 1. Description of Business
General
Conectisys Corporation (the "Company") was incorporated on February 3, 1986, in Colorado. It is a commercial telecommunications company in the development stage. Conectisys is the parent company of three subsidiaries and a division. The subsidiaries are TechniLink Technology Manufacturing, Inc., Primelink, Inc., and United Telemetry Co., Inc. The lone division is eEnergyServices.com. During the current fiscal year the Company intends to consolidate Primelink, Inc. and United Telemetry Co., Inc. with all operations being conducted under United Telemetry Co., Inc. The Company further intends incorporate eEnergyServices.com and consolidate the operations of TechniLink Technology Manufacturing, Inc. and eEnergyServices.com. The Company believes this will streamline operations and allow for further delineation of its intra-company operational tasks and better public understanding of the Company.
Business and Products of Conectisys
Conectisys and its subsidiaries have developed systems and products for the wireless telemetry markets. Conectisys is focused on several specific communication technologies.
Conectisys is developing a low-cost AMR solution for both residential and industrial markets. The product is called HNet(tm) and will be marketed by United Telemetry Company (UTC). HNet(tm) utilizes a proprietary communication protocol for bi-directional communication using a wireless radio network. This technology enables the company to deliver a low-cost wireless network, which is inexpensive to deploy and operate. This technology may also be utilized for other remote data acquisition and/or control applications, where traditional communication is not available because of cost.
The Conectisys network architecture includes a second component, the "Network Operating Center" or NOC. The HNet(tm) wireless network AMR data will be transmitted to the "Network Operating Center". The NOC is a state of the art operating center built to support, one million wireless meter reading devices four times an hour, twenty four hours a day. The HNet(tm) Network will be deployed with several up-link capabilities including ISM band or satellite.
Through the NOC, the company will offer a full array of value added services to the utility distribution industry in addition to the AMR meter data. These services will include energy management, data archiving and e-commerce systems, which allows an end-user real-time data, for evaluation and cost analysis via the Internet using standard web browsers. eEnergyServices.com will provide the accounting and financial transaction services. Energy suppliers, energy brokers and energy service providers along with energy consumers are the potential customers for these services.
There is currently no dominant AMR technology in the market, today. The company believes that UTC and eEnergyServices.com wireless network model presents an effective, low-cost, total solution for the AMR market.
The Company's much-awaited deployment of the HNet(tm) Automatic Meter Reading (AMR) technology will be introduced through the HNet(tm) pilot demonstration which is expected to be deployed, and operational by February 15, 2000. The pilot will demonstrate the acquisition of real time data from the HNet(tm) system, process this data to show power usage and cost, prepare simulated bills and real-time power usage summaries suitable for power purchasing with the facts.
Conectisys, through UTC/Primelink Inc, has also developed a wireless
network for automatic meter reading (AMR) for industrial markets utilizing
paging technology. The company has just recently begun to begin marketing
the UTC/Primelink technology at this time.
Proprietary Information
The Company relies on proprietary knowledge and employs various methods to protect its trade secrets, concepts, ideas and designs. The Company has filed for patent protection on the HNet(tm) product line. However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop such processes, concepts, ideas and designs. The Company, through its subsidiaries, manufactures and markets its technology. However, such technology is not presently patented in the United States, and although the Company has undertaken to file one or more applications for U.S. patents pertaining to the technology, there can be no assurance that patents will ultimately be issued. Further, the possibility exists that the technology may be deemed to infringe upon other technology, which is already patented, or subject to an application filed prior to the Company's application when filed. In that event, the Company could be subject to liability for damages for infringement and could be required to cease production of equipment until appropriate licensing arrangements are made. The Company could also be subject to competition from the party deemed to be the owner of the patent pertaining to the technology.
Employees
As of January 13, 2000, the Company and its subsidiaries employed six full time employees, of whom three are officers of Conectisys.
Item 2. Description of Property
The Company's principal operation center is located at 24370 Avenue Tibbitts, Suit 130, and Valencia, California 91355. This 1000 sq. ft. space is leased for $1,244.50 per month.
Additional office space is located at 7260 Spigno Place, Agua Dulce, California 91350. This space is leased from a related party. The lease is for executive office space (1090 Square feet) and office equipment. The lease payment is $2,500 per month. There are no current plans to lease any additional office space.
Item 3. Legal Proceedings
On 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.
On March 26, 1999 the District Court of Arapahoe, State of Colorado dismissed the civil case against Conectisys Corp. brought by Clamar Capital Corporation.
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.
Item 4. Submission of Matters to a Vote of Security Holders
An annual stockholders meeting was not held during the fiscal year ending September 30, 1999. The Company has planed an Annual Meeting for March 2000.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
When traded, the Company's shares are traded on the electronic over-the-counter bulletin board. Bid and asked quotations are reported on the bulletin board under the symbol CNES. The following table indicates the range of high, low & closing information for the common stock for each fiscal quarter in 1999.
Quarter ending High Low CloseAs of January 13, 2000, there were over 600 shareholders of record of the Company's common stock.
September 30, 1999 $.760 $.700 $.750
August 31, 1999 $.900 $.800 $.800
May 31, 1999 $.470 $.470 $.470
February 28, 1999 $.625 $.625 $.625
Holders of the common stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. The Company has not declared any cash dividends on its common stock since the company's inception, and its Board of Directors has no present intention of declaring any dividends.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Loss on operations for the Company for the year ended 1998 was $4,928,682 as compared to a loss of $1,323,831 in fiscal 1999. This is approximately a 73% decrease in losses from the prior year in the same period. The Company, over the next 12 months will rely primarily on funding through the sale of common stock or loans collateralized through common stock and revenues generated from the initial HNet(tm) product and services deployment. Revenue in fiscal 1999 was $25,655 as compared to $0 in year ended November 30, 1998. Development of HNet(tm) products will be ongoing throughout the year with some expected purchase of significant equipment in addition to an increase in the number of employees.
Liquidity and Capital Resources
As of September 30, 1999, the Company had a working capital deficit of $2,070,784, consisting of $34,004 in current assets and $2,104,078 in current liabilities. The Company had a working capital deficit of $1,290,005 at year ended November 30, 1998. The Company has incurred operating losses in its development stage.
Management's plans for correcting these deficiencies include the future sales of the HNet(tm) product line and services and to raise capital through the issuance of common stock to assist in providing the Company with the liquidity necessary to meet operating expenses. In the longer term, the Company plans to achieve profitability through its operations. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty.
The Company had total assets of $169,076 as of September 30, 1999, and total liabilities of $2,104,078. Shareholder deficit is $1,935,002 as compared to $762,646 shareholder deficit as of November 30, 1998.
Cash Flows
The Company had a net loss for the year ended September 30, 1999, of $1,323,831. The cash used in operations toward this loss was $84,742. The largest area of loss was the result of non-cash transactions to the Company. $315,082 was the result of services that were paid through the issuance of Common stock (approximately 30% of the total net loss). The Company also had write offs to intangible assets of 283,133 and depreciation and amortization expenses of $121,413 (approximately 31% of the total net loss).
Effect of Inflation
Inflation did not have any significant effect on the operations of the Company during the fiscal year ending September 30, 1999. Further, inflation is not expected to have any significant effect on future operations of the Company.
Y2K Compliance
The Company experienced no adverse effects and could not identify any
system failures during the "Y2K" transition. The "Y2K" problem did not
pose any operational problems for the Company's computer systems. However,
the Company will continue to monitor the situation.
The Financial Accounting Standards Board (FASB) Impact
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income," (SFAS No. 130) issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. Earlier adoption is permitted. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company does not expect adoption of SFAS No. 130 to have an effect, if any, on its financial position or its results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About Segments Of An Enterprise And Related Information," (SFAS 131) issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. Earlier application is permitted. SFAS No. 131 requires that public companies report certain information about operating segments, products, services and geographical areas in which they operate and their major customers. The Company does not expect adoption of SFAS No. 131 to have an effect on its financial position or results of operations; however, additional disclosures may be made relating to the above items.
Item 7. Financial Statements
Financial statements are audited and included herein beginning on Exhibit,
page 1 and are incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
Directors and Officers
The Directors and Officers of the corporation, all of whose terms will expire at the next annual meeting of the shareholders, or at such time as their successors shall be elected and qualified, are as follows:
Name
Capacity
Remuneration
Common Stock
Robert A. Spigno
CEO/President/COB
350,000 (1)
Lawrence P. Muirhead CTO/Director
10,000 (1998)
Melissa Weger
Corp. Administrator/Director 0
1. Mr. Spigno received 260,000 shares in 1999 and 90,000 shares in 1998.
On November 15, 1999 Richard Dowler was removed from the Board of Directors
and Melissa Weger was appointed to fill his vacancy.
Item 10. Executive Compensation
Remuneration
Cash remuneration for services in all capacities rendered to the Company
ended September 30, 1999 to all directors and officers as a group was as
follows:
Cash or cash equivalent forms
Name Capacity Of remuneration
Robert A. Spigno CEO/President $240,000.00
Patricia A. Spigno Secretary/Treasurer $120,000.00
Lawrence P. Muirhead CTO $150,000.00
Melissa Weger Corp. Administrator $ 36,400.00
The Company has plans for profit sharing, insurance, and stock option
plans for the benefit of its officers, directors or other employees for
fiscal year 1999, but has not yet adopted any such programs.
In 1994, the Company established a compensatory benefit plan, pursuant to which up to 20,000 shares of common stock may be issued to persons that the Board of Directors deems are owed some form of compensation for services to the Company. There no shares were granted under this program in 1998.
In November 1999, the Company established a Non-Qualified Stock Option and Stock Bonus Plan for independent consultants to the Company. The Plan authorized the issuance of up to one (1) million shares of common stock. In furtherance of the Plan the Company filed an S-8 Registration Statement in December 1999.Pursuant to the Plan the Company has issued 616,087 shares of common stock under the Plan; 116,087 for services and 500,000 for retainers for services.
Stock
Robert A. Spigno, Patricia A. Spigno and Melissa Weger were respectively granted 539,539, 139,700 and 44,981 shares of stock restricted under rule 144. This stock was for services in all capacities rendered to the Company during the fiscal year ending September 30, 1999. Mr. Muirhead was not granted stock during the fiscal year.
Stock Options
As of January 13, 2000:
Common Stock
No. Of Options Exercise Price Duration
Robert A. Spigno 3,500,000 $.15 - $.50 10-36 Months
Lawrence Muirhead(1) 2,000,000 $.50 36 months
Patricia Spigno 500,000 (60% of Mkt.) 52 months
Melissa Weger 100,000 (50% of Mkt.) 32 months
Class A Preferred Stock
Robert A. Spigno 29,980 $1.00 18 months
Class B Preferred Stock
Robert A. Spigno 500,000 $5.00 36 months
(1) Options do not vest until completion and deployment of a 30-unit pilot of the HNet(tm) system.
Employment Agreements
1. 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 2,000,000 shares of the Company's restricted common stock at a price equal to 50% of the average market value for the prior 30 days of trading from the date of purchase.
2. 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 60% of the average market value for the prior 180 days of trading from the date of purchase.
3. 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 for the prior 180 days of trading from 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 resigned from the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of January 13, 2000, the Company had 14,623,301 outstanding shares of common stock. Each common share entitles the holder to one vote on any matter submitted to shareholders for approval. The Company has authorized 1,000,000 shares of Class A Preferred Stock, $1.00 par value per share, of which 100,000 shares currently are issued and outstanding. Preferred Class A stock has 100 to 1 voting rights of which 120,020 are outstanding. Also authorized are 1,000,000 shares of Class B Preferred Stock, $1.00 par value per share. Class B Preferred stock has conversion rights of 10 common stock shares to 1 share Class B Preferred stock of which there no stock outstanding.
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 $100,000) to a note holder and the Company's president.
On September 30, 1999 the Company issued options for 1,000,000 shares of Class B Preferred Stock ($.10 each) in exchange for debt reduction of $50,000 each (a total of $100,000) to a note holder and the Company's president. The options carry an exercise price of $5.00 per share with an expiration date of November 1, 2002.
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.
Beneficial Owners Owning 5% or more
Number of Shares Percentage of
common Stock
Pacific Trade Services
1,650,000
11.3%
Braemar Management
1,500,000
10.3%
S.W. Carver Corp.
1,034,003
7.1%
Carl Attman
753,739
5.2%
Security ownership of Management
Robert A. Spigno (1)
740,347
5.1%
Patricia A. Spigno (2)
201,062
1.4%
Lawrence P. Muirhead
135,000
0.9%
Melissa Weger
44,981
0.3%
Total Directors and Officers as a whole 1,121,690 7.7%
Class A Preferred Stock
Number of Shares Percentage
of Class A Preferred
Robert A. Spigno
120,020
100%
1. Does not include 201,062 shares owned by Patricia A. Spigno (spouse) or 1,034,003 shares owned by S.W. Carver Corp. S.W. Carver Corp. is a privately owned corporation owned by Robert A. Spigno and Patricia A. Spigno.
2. Does not include 757,839 shares owned by Robert A. Spigno (spouse)
or 1,034,003 shares owned by S.W. Carver Corp. S.W. Carver Corp. is a privately
owned corporation owned by Robert A. Spigno and Patricia A. Spigno.
Item 12. Certain Relationships and Related Transactions
In February 1996, the Company entered into an office space and office equipment lease agreement with S. W. Carver Corp. S.W. Carver is a privately owned corporation owned by Robert A. Spigno and Patricia A. Spigno, the CEO and CFO, respectively, of Conectisys. The initial term of this lease was for 11 months at a rate of $2,000 per month. The lease is for a period of twelve months, renewable annually in April at the option of the lessee.
In April, 1998, the monthly lease payment was increased from $2,000 to $2,500. Lease expense for the year ended December 31, 1999 was $30,000.00.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
Financial Statements
(b) Since December 1, 1999 the Registrant filed the following current reports on Form 8-K:
November 24, 1999 & October 18, 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: January 13, 2000 By /S/ Robert A. Spigno
Robert A. Spigno, President
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this Report below.
Signature
Title
Date
/S/ Robert A. Spigno
(Robert A. Spigno)
Chairman of the Board, Chief Executive Officer, President and Director
January 13, 2000
1
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage
Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INDEPENDENT AUDITORS' REPORT 1-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 3-4
Consolidated Statements of Operations 5
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) 6-9
Consolidated Statements of Cash Flows 10-12
Notes to Consolidated Financial Statements 13-33
INDEPENDENT AUDITORS' REPORT
Board of Directors
Conectisys Corporation and Subsidiaries
Agua Dulce, California
We have audited the accompanying consolidated balance sheet of Conectisys
Corporation and Subsidiaries
(a development stage company) (the "Company") as of September 30, 1999,
and the related consolidated
statements of operations, changes in shareholders' equity (deficit),
and cash flows for the ten month
period then ended, the year ended November 30, 1998, and the cumulative
period from December 1, 1990
(inception of development stage) through September 30, 1999. These
consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated
financial statements are free of material misstatements. An audit includes
examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well
as evaluating the overall consolidated financial statement presentation.
We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material
respects, the consolidated financial position of Conectisys Corporation
and Subsidiaries as of September
30, 1999, and the results of their operations and their cash flows
for the ten month period then ended,
the year ended November 30, 1998, and the cumulative period from December
1, 1990 (inception of
development stage) through September 30, 1999, in conformity with generally
accepted accounting
principles.
1
The accompanying consolidated financial statements have been prepared
assuming that the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has
suffered recurring losses from operations and has a deficiency in working
capital at September 30, 1999
that raise substantial doubt about its ability to continue as a going
concern. Management's plans
concerning these matters are also described in Note 1. The consolidated
financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Hurley & Company
Granada Hills, California
December 30, 1999
2
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 1999
ASSETS
Current assets:
Cash and cash equivalents
$ 27,004
Deposits
7,000
-----------
Total current assets
34,004
Property and equipment, net 95,072
Other assets
Licenses and technology, net of
accumulated amortization of
$381,478
40,000
-----------
Total assets
$ 169,076
===========
The accompanying notes are an integral part of these consolidated financial statements.
3
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and
current portion of long-term debt
$ 626,934
Accounts payable
262,341
Accrued compensation
887,383
Due to officer
133,195
Other current liabilities
194,225
------------
Total current liabilities
2,104,078
Long-term debt, net of current portion -
Commitments and contingencies -
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock Class A, $1.00 par value;
1,000,000 shares authorized, 120,020
shares issued and outstanding
120,020
Convertible preferred stock Class B,
$1.00 par value; 1,000,000 shares
authorized, -0- shares issued and
outstanding -
Common stock, no par value; 250,000,000
shares authorized, 13,988,362
shares issued and outstanding
12,299,702
Stock options exercisable, convertible preferred
stock Class B, 1,000,000 stock options
issued and outstanding, common stock
600,000 stock options issued and outstanding
250,000
Deficit accumulated during the development stage
(14,604,724)
------------
Total shareholders' deficit
(1,935,002)
1
------------
Total liabilities and
shareholders' deficit
$ 169,076
============
The accompanying notes are an integral part of these consolidated financial
statements.
4
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Ten Months Ended September 30, 1999,
the Year Ended November 30, 1998, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 1999
Ten Months
Dec. 1, 1990
Ended
Year Ended
(Inception)
September 30,
November 30,
Through
1999
1998
Sept. 30, 1999
-----------
-----------
--------------
Net revenues
$ 25,655
$ -
$ 517,460
Cost of sales
94,434
400,671
819,996
-----------
-----------
--------------
Gross profit (loss)
(68,779)
(400,671)
(302,536)
Operating expenses:
General and administrative
928,186
3,797,483
9,557,821
Bad debt write-offs
-
-
1,680,522
-----------
-----------
--------------
Loss from operations
(996,965)
(4,198,154)
(11,540,879)
Settled damages 25,000 - 25,000
Interest income 227 1,640 102,915
Interest expense (68,960) (40,664) (876,657)
Write-off of
intangible assets
(283,133)
(632,257)
(1,299,861)
Minority interest
-
(59,247)
62,500
-----------
-----------
--------------
Net loss
$(1,323,831)
$(4,928,682)
$ (13,526,982)
===========
=========== ==============
Weighted average shares
outstanding
basic and diluted
12,244,646
8,891,629
Net loss per share
basic and diluted
$ (.11)
$ (.55)
===========
===========
The accompanying notes are an integral part of these consolidated financial statements.
5
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 September
30, 1999
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B During the Shareholders'
Class A No Par Value Stock Development Equity
Shares Value Shares Value Options Stage (Deficit)
--------- ---------- ---------- ----------- -------- ------------ ------------
Balance,
December 1, 1990
(re-entry
development stage) - $ - 10,609 $ 1,042,140 $ - $ (1,042,140) $ -
Shares issued in exchange for:
Cash, May 31, 1993 - - 1,000 1,000 - - 1,000
Capital contribution,
May 31, 1993 - - 2,000 515 - - 515
Services, March 26, 1993 - - 2,000 500 - - 500
Services, March 26, 1993 - - 1,200 600 - - 600
Net loss for the year - - - - - (5,459) (5,459)
--------- ---------- ---------- ----------- -------- ------------ -----------
Balance,
November 30, 1993 - - 16,809 1,044,755 - (1,047,599) (2,844)
Shares issued in exchange for:
Services, May 1, 1994 - - 2,400 3,000 - - 3,000
Cash, September 1, 1994 - - 17,771 23,655 - - 23,655
Services, September 15, 1994 - - 8,700 11,614 - - 11,614
Cash, September 26, 1994 - - 3,000 15,000 - - 15,000
Cash, October 6, 1994 16,345 16,345 - - - - 16,345
Cash, September and October,
1994 - - 1,320 33,000 - - 33,000
loss for the year - - - - - (32,544) (32,544)
--------- ---------- ----------- ----------- -------- ------------ ------------
Balance,
November 30, 1994 16,345 16,345 50,000 1,131,024 - (1,080,143) 67,226
The accompanying notes are an integral part of these consolidated financial statements.
6
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 September 30, 1999
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B During the Shareholders'
Class A No Par Value Stock Development Equity
Shares Value Shares Value Options Stage (Deficit)
--------- ---------- ---------- ----------- -------- ------------ ------------
Shares issued in exchange for:
Cash, February 13, 1995 - $ - 1,160 $ 232,000 $ - $ - $ 232,000
Debt repayment, February 13,
1995 - - 2,040 408,000 - - 408,000
Debt repayment, February 20,
1995 - - 4,778 477,810 - - 477,810
Acquisition of assets, CIPI
February, 1995 - - 28,750 1,950,000 - - 1,950,000
Acquisition of assets, April 5,
1995 - - 15,000 - - - -
Cash and services, April and
May 1995 - - 16,000 800,000 - - 800,000
Cash, June 1, 1995 - - 500 30,000 - - 30,000
Acquisition of assets and
services, September 26, 1995 - - 4,000 200,000 - - 200,000
Cash, September 28, 1995 - - 41 3,000 - - 3,000
Acquisition of assets,
September 1995 - - 35,000 1,750,000 - - 1750,000
Return of assets, CIPI
September, 1995 - - (27,700) (1,950,000) - - (1,950,000)
Net loss for the year - - - - - (2,293,867) (2,293,867)
--------- ----------- ----------- ----------- -------- ------------ ------------
Balance,
November 30, 1995 16,345 16,345 129,569 5,031,834 - (3,374,010) 1,674,169
Shares issued in exchange for:
Cash, February, 1996 - - 1,389 152,779 - - 152,779
Debt repayment, February 1996 - - 10,000 612,000 - - 612,000
Services, February, 1996 - - 3,160 205,892 - - 205,892
Cash, March, 1996 - - 179 25,000 - - 25,000The accompanying notes are an integral part of these consolidated financial statements.
7
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 September
30, 1999
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B During the Shareholders'
Class A No Par Value Stock Development Equity
Shares Value Shares Value Options Stage (Deficit)
--------- ---------- ---------- ----------- -------- ------------ ------------
Shares returned and canceled,
March, 1996 - $ - (15,000)$ - $ - $ - $ -
Services, April, 1996 - - 13 2,069 - - 2,069
Services, September, 1996 4,155 4,155 586 6,317 - - 40,472
Services, October, 1996 - - 6,540 327,000 - - 327,000
Debt repayment, November, 1996 - - 2,350 64,330 - - 64,330
Net loss for the year - - - - - (2,238,933) (2,238,933)
--------- ----------- ----------- ----------- -------- ------------ ------------
Balance,
November 30, 1996 20,500 20,500 138,786 6,457,221 - (5,612,943) 864,778
Shares issued in exchange for:
Services, March, 1997 - - 228 6,879 - - 6,879
Services, April, 1997 - - 800 13,120 - - 13,120
Services, July, 1997 - - 1,500 16,200 - - 16,200
Cash, July, 1997 - - 15,000 300,000 - - 300,000
Services, August, 1997 - - 5,958 56,000 - - 56,000
Adjustment for partial shares due
to reverse stock split (1:20) - - 113 - - - -
Services, October, 1997 - - 1,469,666 587,865 - - 587,865
Debt repayment, October, 1997 - - 1,540,267 620,507 - - 620,507
Cash, October, 1997 - - 1,500,000 281,250 - - 281,250
Services, November, 1997 - - 4,950 10,538 - - 10,538
Net loss for the year - - - - - (2,739,268) (2,739,268)
--------- ----------- ----------- ----------- -------- ------------ ------------
Balance,
November 30, 1997 20,500 20,500 4,677,268 8,349,580 - (8,352,211) 17,869
The accompanying notes are an integral part of these consolidated financial statements.
8
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 September
30, 1999
Common Deficit
and Accumulated Total
Preferred Stock Common Stock Pref. B During the Shareholders'
Class A No Par Value Stock Development Equity
Shares Value Shares Value Options Stage (Deficit)
--------- ---------- ---------- ----------- -------- ------------ ------------ Shares issued in exchange for:
Services, December, 1997
through November, 1998 - $ - 2,551,610 $ 2,338,264 $ - $ - $ 2,338,264
Debt repayment, April, 1998
through September, 1998 - - 250,000 129,960 - - 129,960
Cash, January, 1998 through
July, 1998 - - 4,833,334 1,139,218 - - 1,139,218
Acquisition of assets,
July, 1998 - - 300,000 421,478 - - 421,478
Acquisition of remaining 20%
minority interest in
subsidiary, July, 1998 - - 50,000 59,247 - - 59,247
Services, November, 1998 60,000 60,000 - - - - 60,000
Net loss for the year - - - - - (4,928,682) (4,928,682)
--------- ----------- ---------- ----------- -------- ------------ ------------
Balance,
November 30, 1998 80,500 80,500 12,662,212 12,437,747 - (13,280,893) (762,646)
Shares issued in exchange for:
Shares returned and canceled,
December, 1998 - - (1,350,000) (814,536) - - (814,536)
Services, December, 1998
through September, 1999 - - 560,029 349,454 150,000 - 499,454
Cash, December, 1998
through September, 1999 - - 1,155,800 129,537 - - 129,537
Debt repayment, Sept., 1999 39,520 39,520 960,321 197,500 100,000 - 337,020
Net loss for the period - - - - - (1,323,831) (1,323,831)
--------- ----------- ----------- ----------- -------- ------------ ------------
Balance,
September 30, 1999 120,020 $ 120,020 13,988,362 $12,299,702 $250,000 $(14,604,724) $(1,935,002)
========= =========== ========== =========== ======== ============ ===========The accompanying notes are an integral part of these consolidated financial statements.
9
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Ten Months Ended September 30, 1999,
the Year Ended November 30, 1998, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 1999
Ten Months Dec. 1, 1990
Ended Year Ended (Inception)
September 30, November 30, Through
1999 1998 Sept. 30, 1999
----------- ------------ -------------
Cash flows from operating
activities:
Net loss $(1,323,831) $ (4,928,682) $(13,526,982)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Stock issued for services (315,082) 2,398,264 4,147,378
Stock issued for interest - - 535,591
Provision for bad debt
write-offs - - 1,422,401
Minority interest - 59,247 (62,500)
Settled damages (25,000) - (25,000)
Write-off of intangible
assets 283,133 632,257 1,299,861
Depreciation and
amortization 121,413 394,020 1,523,887
Changes in:
Accounts receivable - 3,411 (4,201)
Accrued interest
receivable - - (95,700)
Deposits (7,000) - (7,000)
Accounts payable (13,096) (135,018) 262,341
Accrued compensation 478,440 248,017 949,905
Due to officer 555,193 - 555,193
Other current liabilities 161,088 (68,951) 358,890
----------- ------------ -------------
Total adjustments 1,239,089 3,531,247 10,861,046
----------- ------------ -------------
Net cash used in
operating activities (84,742) (1,397,435) (2,665,936)
----------- ------------ -------------
The accompanying notes are an integral part of these consolidated
financial statements.
10
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Ten Months Ended September 30, 1999,
the Year Ended November 30, 1998, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 1999
Ten Months Dec. 1, 1990
Ended Year Ended (Inception)
September 30, November 30, Through
1999 1998 Sept. 30, 1999
----------- ------------ -------------
Cash flows from investing
activities:
Issuance of
notes receivable $ - $ - $ (1,322,500)
Costs of licenses
and technology - - (94,057)
Purchase of equipment (12,255) (58,855) (136,176)
----------- ----------- -------------
Net cash used in
investing activities (12,255) (58,855) (1,552,733)
----------- ----------- -------------
Cash flows from financing
activities:
Common stock issuance 129,537 1,139,218 2,129,410
Preferred stock issuance - - 16,345
Proceeds from debt, other - 129,960 1,670,691
Proceeds from debt, related - - 206,544
Proceeds from stock purchase - 181,270 281,250
Payments on debt, other (11,270) (5,689) (25,910)
Payments on debt, related - - (53,172)
Decrease in stock
subscription receivable - - 20,000
Contributed capital - - 515
----------- ----------- -------------
Net cash provided by
financing activities 118,267 1,444,759 4,245,673
----------- ----------- -------------
Net increase (decrease) in
cash and cash equivalents 21,270 (11,531) 27,004
Cash and cash equivalents
at beginning of period 5,734 17,265 -
------------ ----------- -------------
Cash and cash equivalents
at end of period $ 27,004 $ 5,734 $ 27,004============ =========== =============
The accompanying notes are an integral part of these consolidated financial statements.
11
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Ten Months Ended September 30, 1999,
the Year Ended November 30, 1998, and the Cumulative Period
From December 1, 1990 (Inception) Through September 30, 1999
Ten Months Dec. 1, 1990
Ended Year Ended (Inception)
September 30, November 30, Through
1999 1998 Sept. 30, 1999
----------- ----------- -------------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 92 $ 2,767 $ 130,917
=========== =========== =============
Cash paid for income taxes$ - $ - $ 1,650
=========== =========== =============
Non-cash financing activities:
Common stock issued
in exchange for:
Note receivable $ - $ - $ 281,250
Property and equipment $ - $ - $ 130,931
Licenses and technology $ - $ 421,478 $ 2,191,478
Acquisition of remaining
minority interest in
subsidiary $ - $ 59,247 $ 59,247
Repayment of debt and
interest $ 197,500 $ 129,960 $ 1,804,795
Services and interest $ - $ 2,338,264 $ 4,969,192
Preferred stock issued
in exchange for:
Services $ - $ 60,000 $ 60,000
Repayment of debt $ 39,520 $ - $ 39,520
Preferred stock options
issued in exchange for:
Repayment of debt $ 100,000 $ - $ 100,000
The accompanying notes are an integral part of these consolidated financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
12
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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,
13
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Organization (continued)
Inc., the sign manufacturing business. During 1995, the Company's
only operations consisted of CIPI's manufacturing of organic insecticides
prior to its disposal. On
September 28, 1995, the Company entered into an agreement to unwind
the acquisition of CIPI. CIPI
issued a promissory note to the Company in the amount of $1,302,500
to reimburse the Company for
cash advances. In accordance with the agreement, the shares issued
to CIPI were exchanged for all
shares issued to the Company. The shares outstanding carry no value
on the financial statements.
In 1997, the Company wrote-off this note receivable as it was deemed
uncollectible.
On February 15, 1996, PrimeLink entered into a Joint Marketing and Development
Agreement (the
"Agreement") with SkyTel Corp. pursuant to which PrimeLink agreed to
customize and develop a paging
technology based receiver for use in connection with SkyTel's two-way
wireless messaging services
and system (the "SkyTel Network") and both parties agreed to assist
each other in the marketing of
the Primelink product and the SkyTel Network. The Company believes
that the joint marketing of its
product with the SkyTel System could have significant potential for
the Company. However, the
Agreement does not require any purchases of the PrimeLink product by
SkyTel, and may not necessarily
result in any significant revenues for the Company. The Agreement is
for a two-year term, and will
automatically renew for additional one-year terms until terminated
by either party.
In September 1995, the Company acquired 80% of the outstanding stock
of TechniLink, Inc., a
California corporation, and 80% of the outstanding stock of PrimeLink,
Inc., a Kansas corporation,
in exchange for an aggregate of 200,000 shares of the Company's common
stock. The acquisitions were
accounted for as purchases. Both PrimeLink and TechniLink are start-up
companies with no material
operating activity and therefore no pro forma statements of operations
were provided for 1995.
The acquisitions of these companies occurred in connection with the
signing of the license
agreements discussed in Note 8. The Company issued a total of 700,000
shares of common stock and
assumed a loan of $400,000 to acquire the licenses and the Corporations.
The only major asset
acquired from PrimeLink and
TechniLink was the license and technology. The stock issued was
14
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Organization (continued)
valued at $1,750,000, the fair market value of common stock issued,
and is included in licenses and
technology on the balance sheet.
On July 22, 1998, the Company acquired the remaining 20% interest in
TechniLink, Inc. for 50,000
shares of the Company's common stock valued at $59,247.
Basis of presentation and going concern uncertainty
The accompanying consolidated financial statements include the transactions
of Conectisys
Corporation, its wholly-owned subsidiary TechniLink, Inc., and its
80% owned subsidiary PrimeLink,
Inc. All material intercompany transactions and balances have been
eliminated in the accompanying
consolidated financial statements. Certain prior year amounts in the
accompanying consolidated
financial statements have been reclassified to conform to the current
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.
As of September 30, 1999, the Company had a deficiency in working capital
of approximately
$2,070,000, 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,
and $1.0 million in 1999 (ten
months)), 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.
15
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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 September 30, 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.
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.
16
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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,
17
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Impairment of long-lived assets (continued)
certain identifiable intangible assets and goodwill, should be recognized
and how impairment losses
should be measured.
Accounting for stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-based Compensation" (SFAS No. 123) establishes a fair value
method of accounting for
stock-based compensation plans and for transactions in which an entity
acquires goods or services
from non-employees in exchange for equity instruments. The Company
adopted this accounting standard
on January 1, 1996. SFAS No. 123 also encourages, but does not require,
companies to record
compensation cost for stock-based employee compensation. The Company
has chosen to account for
stock-based compensation utilizing the intrinsic value method prescribed
in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost
for stock options is measured as the excess, if any, of the fair market
price of the Company's stock
at the date of grant over the amount an employee must pay to acquire
the stock. Also, in accordance
with SFAS No. 123, the Company has provided footnote disclosures with
respect to stock-based
employee compensation. The cost of stock-based compensation is measured
at the grant date on the
value of the award, and this cost is then recognized as compensation
expense over the service
period. The value of the stock-based award is determined using a pricing
model whereby compensation
cost is the excess of the fair market value of the stock as determined
by the model at the grant
date or other measurement date over the amount an employee must pay
to acquire the stock.
Stock issued for non-cash consideration
Shares of the Company's no par value common stock issued in
exchange for goods or services are valued at the cost of the goods
or services received or at the
market value of the shares issued, depending on the ability to estimate
the value of the goods or
services received.
18
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Income taxes
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, which requires
the Company to recognize deferred tax assets and liabilities for the
expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements
or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the
difference between the financial statement carrying amounts and tax
basis of assets using the
enacted rates in effect in the years in which the differences are expected
to reverse.
Net loss per common share diluted
Net loss per common share diluted is based on the weighted
average number of common and common equivalent shares outstanding for
the periods presented. Common
equivalent shares representing the common shares that would be issued
on exercise of convertible
securities and outstanding stock options and warrants reduced by the
number of shares which could be
purchased from the related exercise proceeds are not included since
their effect would be anti-
dilutive.
New accounting pronouncements
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) issued by the FASB is effective
for financial statements with
fiscal years beginning after December 15, 1997. Earlier adoption is
permitted. SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components in a full
set of general purpose financial statements. The Company does not expect
adoption of SFAS No. 130
to have a material effect on its financial position or its results
of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments of an Enterprise and
Related Information," (SFAS No. 131) issued by the FASB is effective
for financial statements with
fiscal years beginning after December 15, 1997. Earlier application
is permitted. SFAS No. 131
requires that public companies report certain information about operating
segments, products,
services and geographical areas in which they operate
19
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
New accounting pronouncements (continued)
and their major customers. The Company does not expect adoption of SFAS
No. 131 to have an effect
on its financial position or results of operations; however, additional
disclosures may be made
relating to the above items.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company leases office space from S.W. Carver Corporation, a company
owned by a major shareholder
of the Company. The lease is for a period of twelve months, renewable
annually in April at the
option of the lessee. Effective April, 1998, the monthly rent was increased
from $2,000 to $2,500.
Lease expense for the ten month period ended September 30, 1999 and
the year ended November 30, 1998
was $25,000 and $28,000, 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.
20
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 consisted of the following:
Office equipment $ 217,388
Furniture and fixtures 16,609
Vehicles 35,362
-----------
Total cost 269,359
Accumulated depreciation (174,287)
-----------
Net book value $ 95,072===========
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
September 30, 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 September 30, 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%.
21
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 6. NOTES PAYABLE
Notes payable at September 30, 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 S.W. Carver, unsecured, due on demand,interest payable at anannual rate of 10% 197,500
Note payable to Black Dog Ranch LLC, unsecured, due on demand, interest payable at an annual rate of 18% 187,610
---------
Total notes payable 626,934
Current portion (626,934)
---------
Long-term portion $ -
=========
The maturity of long-term debt at September 30, 1999 was as follows:
Year ended September 30, 2000 $ 626,934
Thereafter -
---------
Total notes payable $ 626,934=========
22
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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.
23
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 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.
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.
24
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 7. SHAREHOLDERS' EQUITY (DEFICIT) (continued)
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.
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.
NOTE 8. INCOME TAXES
Deferred income taxes consisted of the following at September 30, 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.
25
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September 30,
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 shall
further receive a bonus, paid at year-end, equal to 50% of
26
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Employment agreements (continued)
4) Chief Financial Officer (continued)
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.
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.
27
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
28
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Litigation (continued)
Commission ("SEC"). The Company and the SEC agreed on a settlement in
which the Company would
dismiss its then pending appeal and take a permanent injunction that
it would not in the future
violate sections 5(a), 5(c), 17(a), 10(b), 10(b-5), or 15(c); in return
the SEC would not demand the
previously ordered disgorgement of $175,000.
The second case was brought by Clamar Capital Corp. (the "Plaintiff")
against Smith Benton & Hughes;
Michael Zaman; Claudia Zaman; Andrew Pitt and Conectisys Corp. (collectively
the "Defendants"). The
case was brought before the District Court of Arapahoe, State of Colorado,
Case # 97-CV-1442,
Division 3. The Plaintiff did not specify an amount of damages that
it sought from the Defendants.
On March 26, 1999, the District Court of Arapahoe, State of Colorado,
dismissed the civil case
against Conectisys Corp. brought by Clamar Capital Corp.
The 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 limited revenue
during the ten months ended
September 30, 1999; the Company had sales to one customer comprising
100% of total sales. The
Company did not have any revenues during the year ended November 30,
1998.
29
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 11. STOCK OPTIONS
During the fiscal year 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 fiscal year
ended November 30, 1998, 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).
30
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 activity during the fiscal years
ended September 30, 1999 and
November 30, 1998 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,
September 30, 1999 3,600,000 $ 0.40
========= ==========(1) Floating strike price
The following table summarizes information about common stock options at September 30, 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
========= == ======= ========= =======31
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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.
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 as
non-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.
32
CONECTISYS CORPORATION AND SUBSIDIARIES (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 13. SUBSEQUENT EVENTS
(a) 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, 616,087 common shares
have been issued to
consultants under the Plan. 116,087 of these shares were for past services
rendered and
500,000 represented retainers on new consulting contracts.
(b) Subsequent to September 30, 1999, the Company has raised additional
capital through the
private placement of another 221,200 common shares of the Company for
approximately $43,000
(through November 23, 1999). In conjunction with these and previous
issuances,
approximately 506,500 stock warrants to purchase shares of the Company's
common stock at an
exercise price of $2.00 per share will be issued to certain shareholders,
exercisable
between November 1, 1999 and November 1, 2002.
(c) 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.
(d) 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.
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