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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2002 COMMISSION FILE NO. 333-70663
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CONNECTIVCORP
(FORMERLY KNOWS AS SPINROCKET.COM, INC.)
(Exact name of small business issuer as specified in its charter)
DELAWARE 06-1529524
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 LEXINGTON AVENUE, 24TH FLOOR (212) 750-5858 10022
NEW YORK, NEW YORK
(Address of Issuer's principal (Issuer's telephone (Zip Code)
executive offices) number, including
area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) 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.
Yes X No __
--
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no 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
or any amendment to this Form 10-KSB. __
The issuer's revenues for the year ended December 31, 2002 were $3,500.
The aggregate market value of the registrant's voting common equity
(i.e., the Common Stock) held by non-affiliates as of April 11, 2003 was
$4,430,824, using the closing sale price of $0.40 share on such date, as
reported by the Nasdaq OTC Bulletin Board.
The number of outstanding shares of the registrant's Common Stock as of
April 11, 2003 was 11,077,061 after the effect of a reverse one for ten stock
split effected March 12, 2002.
Transitional Small Business Disclosure Format.
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
None.
A list of Exhibits to this Annual Report on Form 10-KSB begins on Page
18.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Description of Business 1
Item 2. Description of Property 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 4
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 7. Financial Statements 8
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure 9
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons 9
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 18
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The Company's principal executive offices are located at 750 Lexington
Avenue, 24th Floor, New York, New York 10022, and the telephone number is (212)
750-5858.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB includes forward-looking statements,
including statements regarding, among other things, the Company's:
o anticipated growth strategies, and
o its intention to introduce new products.
The Company has based these forward-looking statements largely on its
expectations. Forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond its control. Actual results could
differ materially from those anticipated as a result of numerous factors,
including among other things: (1) the enactment of new laws and regulations, and
the amendment of existing laws and regulations which could affect the Company's
business; (2) changes in the Company's business strategy or development plan;
(3) the Company's ability to obtain financing on acceptable terms when needed;
and (4) the Company's ability to identify appropriate acquisition candidates,
complete such acquisitions and successfully integrate acquired businesses.
The Company does not undertake any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Because of the risks and uncertainties, the
forward-looking events and circumstances discussed in this Annual Report on Form
10-KSB might not occur.
-i-
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION AND HISTORY
ConnectivCorp (the "Company"), during late 2001 decided to restructure
its operations and as a result exited the business that it was in. The Company's
management has been pursuing appropriate merger and acquisition partners. Prior
to its restructuring, the Company was a medical communications network with
publishing, Internet and marketing services divisions that connect targeted
consumers and professionals with pharmaceutical and consumer product companies.
ConnectivCorp was organized in the State of Delaware on May 8, 1998 as
SMD Group, Inc. In January 1999, the name was changed to CDBeat.com, Inc.
Following the Company's business combination with Cakewalk LLC in November 1999,
the name was again changed to "Spinrocket.com, Inc." On September 11, 2000, in
order to better reflect and describe the Company's then strategic direction, the
name was changed to "ConnectivCorp."
ConnectivCorp is a reporting company under the Securities Exchange Act
of 1934, as amended, and its stock is traded on the OTC Bulletin Board under the
symbol "CTTV." ConnectivCorp's principal executive offices are located at 750
Lexington Avenue, 24th Floor, New York, New York 10022, and its telephone number
is (212) 750-5858.
HISTORY
The Company was incorporated in Delaware on May 8, 1998 under the name
"SMD Group, Inc." which was subsequently changed in January 1999, to
"CDbeat.com, Inc." In April 2000, the Company changed its name to
"Spinrocket.com, Inc." On September 11, 2000 Spinrocket.com, Inc. changed its
name to "ConnectivCorp" because that new name better described the Company's
then strategic direction.
In November 1999, 32 Records acquired substantially all of the assets
and liabilities relating to the business of Cakewalk LLC ("Cakewalk") in
exchange for 8,307,785 shares of the Common Stock of the Company, which number
of shares equaled approximately 46% of the then issued and outstanding Common
Stock of the Company (the "Cakewalk Transaction"). As a result of the Cakewalk
Transaction, the business formerly operated by Cakewalk was being operated by 32
Records.
Cakewalk BRE LLC ("Cakewalk") was a wholly owned subsidiary of 32
Records LLC (the entity known as 32 Records was, at one time, known as Cakewalk
LLC, d/b/a 32 Records LLC). Cakewalk defaulted under an Indenture dated June 29,
1999 (the "Indenture") and entered into negotiations with Entertainment Finance
International, Inc. ("EFI") in order to consensually turn over assets to EFI.
EFI was the secured holder of $5,500,000 principal indebtedness issued by
Cakewalk and maintained a security interest in all of Cakewalk's assets (the
"Collateral") pursuant to the Indenture. Cakewalk consented to entry of a
judgment of foreclosure ("Judgment") upon the Collateral in connection with the
action filed by EFI against Cakewalk in the Supreme Court of the State of New
York, County of New York, Index No. 604708/00 on or about October 30, 2000. On
February 2, 2001, judgment was entered by the Court approving the foreclosure,
thereby transferring all of Cakewalk's assets to EFI. On October 18, 2000, the
Company and EFI entered into a consulting agreement under which the Company
agreed to help EFI in the marketing and sale of Cakewalk and/or its assets in
return for which the Company would be entitled to a cash payment upon sale under
certain circumstances.
In addition to the Cakewalk Transaction described above, a certain
Stock Purchase Warrant held by Atlantis Equities, Inc. ("Atlantis"), dated as of
September 23, 1999 (the "Atlantis Warrant"), was amended pursuant to a certain
Warrant Amendment Agreement, dated as of November 16, 1999, among the Company,
Atlantis and Dylan LLC, an affiliate of Atlantis ("Dylan") (the "Warrant
Amendment Agreement"). The Atlantis Warrant gave Atlantis the right to purchase
eighty (80%) percent of the issued and outstanding Common Stock of the Company
and options to purchase 762,064 shares of the Company's Common Stock. Pursuant
to the Warrant Amendment Agreement, the Atlantis Warrant was split into two
warrants, one of which was assigned to Dylan (the "Dylan Warrant"), and the
other of which was retained by Atlantis (the "Revised Atlantis Warrant").
Concurrently with the closing of the Cakewalk Transaction, (i) Dylan exercised
the Dylan Warrant and paid the Company $900,000 for 7,037,183 shares of Common
Stock issuable upon exercise of such warrant (the "Dylan Stock"), and (ii)
Atlantis exercised the Revised Atlantis Warrant and paid the Company $100,000
for 781,909 shares of Company Stock issuable upon exercise of the Revised
Atlantis Warrant (the "Atlantis Stock") and received 762,064 options from the
Company which were exercisable at $2.50 each until December 31, 2000 (the
"Options")(collectively, the "Atlantis Transaction"). Together, the Dylan Stock
and the Atlantis Stock equaled approximately 43% of the then issued and
outstanding Common Stock of the Company (after giving effect to the Cakewalk
Transaction and the Atlantis Transaction). In light of the transfer of
approximately 89% of the issued and outstanding Common Stock of the Company,
collectively, to Cakewalk, Dylan and Atlantis pursuant to the Cakewalk
Transaction and the Atlantis Transaction, a change in control in the Company
occurred. On November 27, 2000, Dylan made a pro rata distribution to all of its
members of all shares of the Dylan Stock it received in connection with the
transactions described above.
OVERVIEW
2002 was a year in which the Company actively pursued merger or
acquisition partners.
The Company made a decision to restructure in late 2001. It reduced
existing trade payables by the issuance of restricted common stock.
Additionally, management is seeking appropriate merger or acquisition partners
in the medical information or other unrelated fields. Management also effected a
one for ten reverse split of the Company's common stock on March 12, 2002.
During 2002, the Company executed two agreements for the purpose of
acquiring Aqua Development Corp., a California corporation ("Aqua"). Management
expended the majority of its resources and efforts to attempt to consummate the
acquisition. Despite management's best efforts, they will not be able to
consummate the agreement with Aqua and have terminated its efforts to complete
the acquisition.
INTELLECTUAL PROPERTY RIGHTS
The Company currently does not have any patents issued to it. In
December 1999, the Company filed a Provisional Patent Application with the
United States Patent office, seeking protection for certain software developed
by the Company. In December 2000, the Company filed a formal patent application
with the patent office to the same effect. The Company cannot be certain that
the current or any future patent applications will be granted, that any future
patent will not be challenged, invalidated or circumvented, or that the rights
granted under any patent that may be issued will provide competitive advantages
to it.
REGULATION
The Company is currently not subject to direct regulation by any
governmental agency, other than laws and regulations generally applicable to
businesses.
2
EMPLOYEES
As of April 11, 2003, the Company has two employees, both of whom are
engaged in executive management.
ITEM 2. DESCRIPTION OF PROPERTY
On January 1, 2002, the Company entered into a sublease for office
space located at 750 Lexington Avenue, New York, New York. The lease term is for
the period from January 1, 2002 through December 31, 2002, with a monthly rent
of $2,500. The office space is being leased from an entity in which the father
of Robert Ellin, Chairman of the Company, is a partner. The Company is in the
process of negotiating an extension to the sublease. It is anticipated that
there will be no changes in the lease agreement.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the year ended December 31, 2002, no matters were submitted by
the Company to a vote of its stockholders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's common stock is currently listed on
the OTC Bulletin Board under the trading symbol "CTTV." The Company first listed
its common stock on the OTC Bulletin Board in August 1999. The following table
sets forth the high and low bid prices of the Company's Common Stock as reported
on the OTC Bulletin Board for each calendar quarter commencing in January 2001
through December 31, 2002.
COMMON STOCK
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2002 2001
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HIGH BID LOW BID HIGH BID LOW BID
-------- ------- -------- -------
First Quarter $ 0.90 $ 0.11 $ 11.25 $ 3.75
Second Quarter 0.85 0.25 3.50 0.80
Third Quarter 0.30 0.15 4.20 2.00
Fourth Quarter 0.60 0.15 1.80 0.70
3
As of April 11, 2003, the closing sale price of the Company's common
stock on the OTC Bulletin Board was $0.40 per share.
HOLDERS
As of April 11, 2003 there were approximately 351 holders of record of
the Company's common stock as determined by the Company's transfer agent. Such
list does not include beneficial owners of securities whose shares are held in
the names of various dealers and clearing agencies.
DIVIDENDS
The Company has never declared nor paid any cash dividends on its
common stock and does not anticipate paying dividends in respect of its common
stock in the foreseeable future. Any payment of cash dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, its earnings (if any), financial condition, cash
flows, capital requirements and other relevant considerations, including
applicable contractual restrictions and governmental regulations with respect to
the payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS REPORT AS ITEM 7. THIS REPORT CONTAINS STATEMENTS WHICH
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY CAUTIONS THAT
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
The Company was incorporated in Delaware on May 8, 1998 under the name
"SMD Group, Inc." In January 1999, the Company changed its name to "CDbeat.com,
Inc." On April 19, 2000, the Company's name was changed to "Spinrocket.com,
Inc." On September 11, 2000, the Company changed its name from Spinrocket.com,
Inc. to "ConnectivCorp" because this new name better described the Company's
then strategic direction. The Company's business model was to facilitate the
online connection between targeted, profiled consumers and marketers desiring to
reach those consumers. As its initial focus, the Company formed a new
wholly-owned subsidiary, ConnectivHealth, in order to facilitate its
connectivity model in the healthcare field.
UNCERTAINTY
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has a limited
operating history, and since its inception in 1998 has incurred substantial
losses. The Company's accumulated deficit as of December 31, 2002 is
approximately $20 million. To date, the Company has not generated any revenue
from previously proposed business model, which contemplated selling
pharmaceutical and other healthcare companies access to the Company's aggregated
users. The Company incurred a net loss of approximately $873 thousand and $5.8
million for the years ended December 31, 2002 and 2001, respectively, while cash
and cash equivalents at December 31, 2002 totaled approximately $18,000. These
matters raise substantial doubt about the Company's ability to continue as a
4
going concern. The Company's continued existence is dependent upon several
factors including the Company's ability to raise additional equity or locate a
merger or business partner.
The Company made a decision to restructure its operations. Management
issued restricted common stock to satisfy existing trade payables. Management
has effected a one for ten reverse stock split of the Company's common stock as
of March 12, 2002.
During December 2002 and in March 2003, the Company obtained loans of
$25,000 and $150,000, respectively. The loans are convertible under certain
conditions into common stock of the Company at $0.10 per share. The Company is
in the process of continuing to raise capital either through the private
placement of equity or debt.
While the Company has reduced its operating expenses, no assurance can
be given that the Company can sustain these operating levels. Moreover, the
Company has not yet generated any meaningful revenues, and no assurance can be
given that it will do so in the future.
AQUA AGREEMENTS
During 2002, the Company executed two agreements for the purpose of
acquiring Aqua Development Corp., a California corporation ("Aqua"). Management
expended the majority of its resources and efforts to attempt to consummate the
acquisition. Despite management's best efforts, they will not be able to
consummate the agreement with Aqua and have terminated its efforts to complete
the acquisition.
RESULTS OF OPERATIONS
2002 compared to 2001
The Company reported the following results of operations for the years
ended December 31, 2002 and 2001:
Net loss $ (872,567) $ (5,756,777)
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Net loss per common share- basic and diluted $ (0.10) $ (2.66)
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Weighted average shares outstanding:
Basic and diluted 9,117,802 2,163,537
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The Company reported a loss of approximately $873,000 from operations
in 2002 versus a loss from operations of approximately $5.8 million in 2001. The
Company's other income for the year ended December 31, 2002 consisted of
interest income that was earned on invested funds was approximately $6,000 and
other income of $3,500 in 2002 versus approximately $41,000 of interest income
in 2001. The decrease of approximately $35,000 in interest income resulted from
the decrease in cash and cash equivalents available to be invested. General and
administrative expenses totaled approximately $882,000 in 2002 versus $5.8
million in 2001. Included in general and administrative in 2002 was
approximately $88,000 of stock based compensation expense related to options
granted to consultants and employees salaries of approximately $308,000;
approximately $184,000 for professional and consulting
5
fees; rent expense of $30,000, insurance expense of approximately $34,000; and
general operating expenses of approximately $141,000.
Deferred compensation expense related to options granted to consultants
and employees was approximately $64,000 in 2002 versus approximately $202,000 in
2001. The decrease is a result of the lower number of options granted in 2002
and the elimination of most outstanding options. Salaries totaled $240,000 in
2002 verses $337,000 in 2001. The decrease was a result in lower salaries taken
by management and a reduction of employees in 2002. Approximately $257,000 of
expense was recognized for professional and consulting fees and software
development in 2002 verses $917,000 in 2001. The decrease of $660,000 resulted
from management's program to reduce costs and the restructuring of the Company's
operations. There was no amortization expense of acquired software and goodwill
was in 2002 versus $999,000 in 2001. The decrease was a result of the fact that
during the fourth quarter of 2001 approximately $2.9 million of expense was
recognized for the impairment of acquired software, goodwill, equipment and
costs of publications acquired.
2001 compared to 2000
The Company reported the following results of operations for the years ended
December 31, 2001 and 2000:
2001 2000
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Loss from continuing operations $ (5,756,777) $ (4,967,021)
Loss from discontinued operations -- (1,412,700)
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Net loss $ (5,756,777) $ (6,379,721)
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Basic and diluted loss per common share:
Loss from continuing operations $ (2.66) $ (2.40)
Loss from discontinued operations -- (0.70)
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Net loss per common share $ (2.66) $ (3.10)
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The Company reported a loss of approximately $5.8 million from
continuing operations in 2001 versus a loss from continuing operations of
approximately $5 million in 2000. The Company's other income for the year ended
December 31, 2001 consisted of interest income that was earned on invested funds
was approximately $41,000 in 2001 versus approximately $103,000 of interest
income and $80,000 of consulting revenue in 2000. The decrease of approximately
$62,000 in interest income resulted from the decrease in cash and cash
equivalents available to be invested, while the Company did not obtain any
consulting engagements in 2001. General and administrative expenses totaled
approximately $5.8 million in 2001 versus $5.3 million in 2000. Included in
general and administrative was approximately $202,000 of deferred compensation
expense related to options granted to consultants and employees salaries of
approximately $337,000; approximately $917,000 for professional and consulting
fees and software development; amortization expense of approximately $999,000 of
acquired software and goodwill and
6
approximately $2.9 million of expenses recognized in the fourth quarter of 2001
for the impairment of acquired software, goodwill, equipment and costs of
publications acquired.
Deferred compensation expense related to options granted to consultants
and employees was approximately $202,000 in 2001 versus approximately $1.8
million in 2000. The decrease is a result of the lower number of options granted
in 2001. Salaries totaled $337,000 in 2001 verses $727,000 in 2000. The decrease
was a result in lower salaries taken by management and a reduction of employees
in 2001. Approximately $917,000 of expense was recognized for professional and
consulting fees and software development in 2001 verses $1.3 million in 2000.
The decrease of $383,000 resulted from management's program to reduce costs.
Amortization expense of acquired software and goodwill was approximately
$999,000 in 2001 versus $992,000 in 2000. During the fourth quarter of 2001
approximately $2.9 million of expense was recognized for the impairment of
acquired software, goodwill, equipment and costs of publications acquired.
ACCOUNTING POLICIES
The following accounting policies are important to an understanding of
the operating results and financial condition of the Company and should be
considered as an integral part of the financial review. For additional
accounting policies, see note 1 to the consolidated financial statements,
"Significant Accounting Policies."
Estimates and Assumptions
In preparing the financial information, the Company used some estimates
and assumptions that may affect reported amounts and disclosures. Estimates are
used when accounting for depreciation, amortization, impairment of assets and
asset valuation allowances. We are also subject to risks and uncertainties that
may cause actual results to differ from estimated results, such as legislation,
regulation and the ability to obtain financing. Certain of these risks and
uncertainties are discussed under the heading entitled "Forward-Looking
Statements."
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements for the years ended
December 31, 2002 and 2001, respectively, are set forth at the end of this
Annual Report on Form 10-KSB and begin on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 15, 2002, the Company engaged Patrusky Mintz & Semel as its
independent accountants for the year ending December 31, 2001 and dismissed the
former independent accountants, Arthur Andersen LLP. The reports of the former
accountants for the past two years did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles.
During the two most recent fiscal years and to the date hereof, there
have been no disagreements between the Registrant and the former accountants on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which if not resolved to the
satisfaction of the former accountant would have caused it to make reference to
the subject matter of the disagreement in connection with its report.
7
On April 4, 2003, Patrusky Mintz & Semel resigned as independent
certified public accountants of the Company due to its merger with another firm.
On April 4, 2003, the Company appointed Israeloff, Trattner & Co. P.C. as its
independent certified public accountants.
During the most recent fiscal year and to the date hereof, there have
been no disagreements between the Registrant and the former accountants on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which if not resolved to the satisfaction of the
former accountant would have caused it to make reference to the subject matter
of the disagreement in connection with its report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of March 28,
2002, concerning the Company's directors and executive officers:
The following table and subsequent discussion sets forth information
concerning the Company's directors and executive officers:
Name Age Position
-----------------------------------------------------------------------------
Elliot Goldman 67 President, Chief Executive Officer, Director
Robert Ellin 38 Chairman
Ivan Berkowitz 57 Director
David Goddard 47 Director
Jeffrey Kuhr 44 Director
Thomas Cyrana 54 Observer
The business experience of each of the persons listed above for at
least the last five years is as follows:
Elliot Goldman (President, Chief Executive Officer and Director). Mr.
Goldman's executive and operational career spans three decades in the
entertainment industry including his role as President and Chief Executive
Officer of BMG Music and senior executive posts at Warner Communications Inc.
(now AOL Time Warner), CBS Records (now Sony Music) and Arista Records. In all
of these instances he had primary responsibility for managing content companies
and maximizing the net income generated. Most recently he has been President of
his own consulting firm specializing in operational and deal assistance to major
and independent music companies. At BMG Music, Mr. Goldman was President and CEO
of worldwide music operations encompassing RCA Records, Arista Record, RCA Red
Seal and the RCA Record Club. Before that, he was a Senior Vice President of
Warner Communications (now AOL Time Warner), with responsibility for the Warner
Music Group's worldwide recorded music and music publishing activities. Before
joining AOL Time Warner, Mr. Goldman was Executive Vice President and General
Manager of Arista Records, from its founding, with direct responsibility for all
areas of its business operations. Mr. Goldman began his career at CBS Records
(now Sony Music) as Director of Business Affairs and rose to Administrative Vice
President of that company.
8
Robert Ellin (Chairman). Mr. Ellin is a principal of Atlantis Equities,
Inc. ("Atlantis"), Dylan LLC and Trinad Partners ("Trinad"). Atlantis is a
private merchant banking and advisory firm specializing in equity and debt
finance, primarily assisting emerging growth companies under $100 million in
sales. Through Atlantis, Mr. Ellin has spearheaded merger and acquisition and
business development projects for private and public companies such as THQ, Inc.
(OTC:THQI), Grand Toys (OTC: GRIN), and Forward Industries, Inc. (OTC: FORD).
Trinad is a leveraged buyout firm that bought, and recently sold, S&S
Industries, Inc., the largest manufacturer of apparel-related underwire. Dylan
LLC was originally a stockholder of the Company.
Ivan Berkowitz (Director). Since 1989, Mr. Berkowitz has been the
President of Great Court Holdings Corporation and, since 1993, he has served as
the Managing General Partner of Steib & Company. From 1995 to 1997, Mr.
Berkowitz served as the Chief Executive Officer of PolyVision Corporation, where
he continues to serve as a board member. Mr. Berkowitz is also a member of the
Board of Directors of the following public companies: Migdalei Shekel (Tel
Aviv), Propierre (Paris), HMG WorldWide and IAT Resources. Mr. Berkowitz is also
the Chairman of the Advisory Board of THCG Inc.
David Goddard (Director). Mr. Goddard is a Senior Managing Director in
the Equity Capital Markets Department of Bear Stearns & Co., Inc., an
international investment banking firm. Mr. Goddard has been with Bear Stearns
since November 1998. From 1996 to 1998, Mr. Goddard served as a Managing
Director - Associate Director Private Capital Group at BancBoston Robertson
Stephens, Inc. Prior to that, Mr. Goddard was Managing Director - Private
Placement Group at Chase Securities, Inc. from 1994-1996. Mr. Goddard has
extensive corporate finance and capital markets experience specializing in the
placement of debt and equity securities in the private capital markets.
Jeffrey Kuhr (Director). Mr. Kuhr is the managing partner of West End
Capital Partners LLC ("WECP"), a merchant banking firm based in New York City.
Prior to forming WECP, he was a founder and managing director of Peter J.
Solomon Company ("PJSC"), a leading independent investment banking firm. During
his tenure at PJSC from 1989 to 1999, Mr. Kuhr advised public and private
companies on mergers and acquisitions, financing and restructuring transactions.
While a managing director at PJSC, Mr. Kuhr founded RS1W, Inc. with Russell
Simmons (Def Jam Records, Phat Farm apparel) and a group of investors to be a
leading online entertainment destination. RS1W was sold to BET.com in October
2000. From 1987 to 1989, Mr. Kuhr financed leveraged buyouts at GE Capital Inc.,
providing economic and strategic consulting services to Fortune 100 companies.
Mr. Kuhr received his Masters in Business Administration from Wharton School and
his Bachelor of Arts from Oberlin College.
Thomas Cyrana (Observer). Mr. Cyrana is a Managing Director of
Rascoff/Zysblat Organization ("RZO"), a division of American Express Tax and
Business Services. Mr. Cyrana has been with RZO since 1995. Mr. Cyrana also
serves as a principal of the managing member of EFI, a venture with The
Structured Finance High Yield Fund, LLC, which is managed by Prudential
Investments.
All directors of the Company serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. All
officers of the Company serve at the discretion of the Board of Directors,
subject to rights, if any, under contracts of employment with the Company. See
"Executive Compensation - Employment Agreements." There are no family
relationships among the directors and executive officers.
MANAGEMENT CHANGES
As of January 24, 2002, Robert Miller resigned as Co-Chairman and
Director of the Company to pursue other business interests, and Robert Ellin
became sole chairman.
9
CERTAIN CORPORATE ACTIONS
Stockholders representing approximately 53.2% of the total issued
and outstanding shares of the Company's common stock as of March 12, 2001 took
action by written consent to (i) authorize the Company to effect a reverse split
of the Company's issued and outstanding common stock on not more than a
one-for-ten basis, and (ii) approve the adoption of a stock option plan for up
to 5 million shares of common stock (reduced pro rata upon the reverse split).
REVERSE SPLIT
General
On March 12, 2001, stockholders representing 53.2% of the issued and
outstanding shares of the Common Stock of the Company approved an amendment to
the Company's Amended and Restated Certificate of Incorporation to authorize the
Company, for a period of up to one year, to effect a reverse split (the "Reverse
Split") that will cause all issued and outstanding Common Stock to be split, on
a reverse basis, up to one-for-ten. On March 12, 2002, the one-for-ten Reverse
Split was effected. The Reverse Split does not affect the number of authorized
shares of the Company's Common Stock. The Reverse Split effectively increases
the number of available authorized shares of Common Stock. As described below,
the primary objective of the Board of Directors is to increase the per share
market price of the Common Stock.
Effects of Reverse Split
Effect on Market for Common Stock. The Board of Directors believes that
the Reverse Split should, although there can be no assurance, enhance the
acceptability of the Company's Common Stock by the financial community and
investing public. The reduction in the number of issued and outstanding shares
of Common Stock caused by the Reverse Split is anticipated initially to increase
proportionately the per share market value of the Company's Common Stock. The
Board of Directors also believes that the Reverse Split may result in a broader
market for the Company's Common Stock than that which currently exists. The
expected increase price level may encourage interest and trading in the Common
Stock and possibly promote greater liquidity for the Company's stockholders,
although such liquidity could be adversely affected by the reduced number of
shares of Common Stock outstanding after the effectiveness of the Reverse Split.
Effects on Number of Shares Available for Issuance. The Reverse Split
decreased the number of outstanding shares of Common Stock. Therefore, the
21,588,870 shares of Common Stock issued and outstanding as of the effective
date of the Reverse Split, together with 10,289,552 shares of Common Stock,
assuming the exercise of, all outstanding warrants and options, were converted
into approximately 3,187,842 shares of Common Stock. Because the number of
shares of Common Stock authorized for issuance by the Certificate of
Incorporation, as amended, following the Reverse Split remains at 40,000,000
shares, the Reverse Split results in approximately 36,812,158 additional (or
post-split) shares of Common Stock available for issuance by the Company. In
lieu of issuing any fractional shares as a result of the Reverse Split, the
Company rounded the number of shares each stockholder is entitled to receive as
a result of the Reverse Split to the nearest whole number of shares.
The Board of Directors believes that the Reverse Split may provide
flexibility for the Company in meeting its possible needs by enabling the Board
to raise additional capital through the issuance of Common Stock or securities
convertible into or exercisable for Common Stock, to make additional stock
10
awards under the Company's employee benefit plans and/or to employ Common Stock
as a form of consideration for acquisitions.
Effect on the Company's Derivative and Convertible Securities. The
total number of shares of Common Stock issuable upon the exercise of options and
warrants to acquire such shares, and the exercise price thereof shall be
proportionally adjusted to reflect any Reverse Split.
Changes in Stockholders' Equity. As an additional result of a Reverse
Split, the Company's stated capital, which consists of the par value per share
of the Common Stock and Preferred Stock multiplied, respectively, by the number
of shares outstanding, was reduced. Although the par value of the Common Stock
remains at $.001 per share following a Reverse Split, stated capital decreased
because the number of shares outstanding was reduced. Correspondingly, the
Company's additional paid-in capital, which consists of the difference between
the Company's stated capital and the aggregate amount paid to the Company upon
the issuance by the Company of all then outstanding shares of Common Stock and
Preferred Stock, was increased.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than ten percent of a registered class of the Company's equity securities to
file certain reports regarding ownership of, and transactions in, the Company's
securities with the Securities and Exchange Commission (SEC). These officers,
directors and stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) reports that are filed with the SEC. Based
solely on a review of copies of such forms received by the Company, and written
representations received by the Company from certain reporting persons, the
Company believes that for the year ended December 31, 2001 all Section 16(a)
reports required to be filed by the Company's executive officers, directors and
10% stockholders were filed on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid to, or earned by, the Chief Executive Officer and the other
most highly compensated executive officer for the years ended December 31, 2002,
2001 and 2000 whose total annual salary and bonus exceeded $100,000 for 2002,
2001 and 2000 (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- -----------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SARS(#)
--------------------------- ---- ---------- --------- ---------------- ---------------
Robert Miller (1) 2002 -- -- -- --
Co-Chairman 2001 $61,058 -- -- --
2000 $200,000 -- -- --
Robert Ellin (2) 2002 $118,750 -- $10,000 --
Co-Chairman 2001 $5,200 -- -- --
2000 -- -- -- --
Elliot Goldman (3) 2002 $118,750 -- $9,654 --
President and 2001 $86,059 -- -- --
Chief Executive Officer 2000 $146,154 -- -- --
Alan Schaffer
Chief Financial 2002 -- -- -- --
Officer 2001 -- -- -- --
2000 $134,154 -- -- --
11
----------------------------------
(1) Mr. Miller, who was President and Chief Executive Officer, was
appointed Co-Chairman in January 2001 and resigned that position in
January 2002. He was being paid an annual salary of $200,000, subject
to such increases or bonuses, as the Board of Directors shall
authorize. Mr. Miller voluntarily reduced his annual cash compensation
to $100,000 as of March 1, 2001 and to $75,000 as of May 1, 2001. As of
July 1, 2001, Mr. Miller voluntarily waived receipt of any further cash
compensation. See "Executive Compensation - Employment Agreements."
(2) Mr. Ellin, who was Chairman in 2000, was appointed Co-Chairman in
January 2001 and on January 24, 2002, Mr. Ellin again became sole
Chairman. In 2001, he was being paid an annual salary of $10,400,
subject to such increases or bonuses, as the Board of Directors shall
authorize. As of July 1, 2001, Mr. Ellin voluntarily waived receipt of
any further cash compensation. Commencing in March 2002, Mr Ellin was
paid an annual salary of $150,000. However, the compensation shall
accrue and no more than $200 per week will be paid. In addition Mr.
Ellin received 500,000 shares of common stock valued at $10,000. See
"Executive Compensation - Employment Agreements."
(3) In January 2001 Mr. Goldman was promoted and appointed President and
Chief Executive Officer. From January through February 2001, Mr.
Goldman's salary was increased to $250,000. As of March 1, 2001, Mr.
Goldman agreed to reduce his salary to $150,000, and to $125,000 as of
May 1, 2001. As of July 1, 2001, Mr. Goldman voluntarily waived receipt
of any further cash compensation. During 2000 Mr. Goldman served as
Chief Operating Officer, for which he was paid an annual salary of
$200,000, subject to such increases or bonuses, as the Board of
Director shall authorize. Commencing in March 2002, Mr Goldman was
paid an annual salary of $150,000. However, the compensation shall
accrue and no more than $200 per week will be paid. In addition Mr.
Goldman received 500,000 shares of common stock in exchange for his
existing options valued at $9,654 . See "Executive Compensation -
Employment Agreements."
(4) Mr. Schaffer was appointed Chief Financial Officer of the Company in
November 1999 and resigned in November 2000. He was being paid an
annual salary of $135,000 plus a minimum annual bonus of $10,000.
OPTION GRANTS IN 2002
There were no options granted during 2002 to any Executive Officer of
the Company.
2002 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
There are no options outstanding to any Executive Officers as of
December 31, 2002. No options were exercised by Executive Officers in 2002 or
2001.
DIRECTOR COMPENSATION
The Company's directors do not receive cash compensation for their
services as directors, but are reimbursed for all reasonable out-of-pocket
expenses incurred in connection with each Board of Directors meeting attended.
EMPLOYMENT AGREEMENTS
On March 18, 2002, the Company entered into employment contracts with
Elliot Goldman and Robert Ellin for an initial term of one year. Mr. Goldman
serves as President, Chief Executive Officer and as a Director of the Company
and Mr. Ellin serves as Chairman of the Company. Mr. Goldman and Mr. Ellin's
each receive an annual salary of $150,000. However, the compensation shall
accrue and no more than $200 per week shall be paid to each Mr. Goldman and Mr.
Ellin until such time as the Company has received at least $1 million in
proceeds from new debt and/or equity investment subsequent the date of the
agreement. Management is in the process of extending these agreements.
12
1998 EMPLOYEE STOCK OPTION PLAN
The Company's 1998 stock incentive plan (the "Stock Incentive Plan")
was originally adopted by the Board of Directors and approved by the
stockholders on October 15, 1998. The Stock Incentive Plan provides for the
grant of stock options for up to a total of 1,000,000 shares of the Company's
Common Stock to the Company's employees, officers, directors, consultants and
advisors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31,
2003, regarding the beneficial ownership of the Company's common stock (assuming
the sale of the maximum number of Shares that are being offered hereby) by: (i)
each person known by the Company to own beneficially more than 5% of the
Company's common stock; (ii) each of the Company's directors; (iii) the
Company's Chief Executive Officer and the other executive officers of the
Company whose salary and bonus for the fiscal year ended December 31, 2002
exceeded $100,000, and (iv) all officers and directors of the Company as a
group.
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER OF SHARES (2) PERCENTAGE OF CLASS
-------------------------------------- -------------------- -------------------
Robert Ellin(3) 3,476,787 31.39%
750 Lexington Avenue
New York, NY 10022
Elliot Goldman(4) 1,000,000 9.03%
c/o ConnectivCorp.
750 Lexington Avenue
New York, NY 10022
David Goddard(5) 40,000 *
c/o ConnectivCorp.
750 Lexington Avenue
New York, NY 10022
Ivan Berkowitz(6) 350,000 3.16%
c/o ConnectivCorp.
750 Lexington Avenue
New York, NY 10022
Jeffrey Kuhr(7) 800,000 7.22%
c/o ConnectivCorp.
750 Lexington Avenue
New York, NY 10022
13
All directors and executive officers as a
group (5 persons)(3) 5,666,787 51.16%
*less than 2%
-----------------------
(1) Except as indicated in these notes and subject to community property laws
where applicable, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them.
(2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. As used in this
table, a beneficial owner of a security includes any person who, directly or
indirectly, through contract, arrangement, understanding, relationship or
otherwise has or shares (i) the power to vote, or direct the voting of, such
security or (ii) investing power which includes the power to dispose, or to
direct the disposition of, such security. In addition, a person is deemed to be
the beneficial owner of a security if that person has the right to acquire
beneficial ownership of such security within 60 days of the date shown above.
(3) Includes 2.5 million common shares issued in cancellation of any and all
existing unexercised options and cancellation of any and all indebtedness and/or
obligations between Mr. Ellin and ConnectivCorp; and 500,000 common shares
purchased in March 2002.
(4) Includes 500,000 common shares issued in cancellation of any and all
existing unexercised options and cancellation of any and all indebtedness and/or
obligations between Mr. Goldman and ConnectivCorp; and 500,000 common shares
purchased in March 2002.
(5) Includes 100,000 common shares issued in cancellation of any and all
existing unexercised options and cancellation of any and all indebtedness and/or
obligations between Mr. Goddard and ConnectivCorp.
(6) Includes 40,000 common shares issued in cancellation of any and all existing
unexercised options and cancellation of any and all indebtedness and/or
obligations between Mr. Berkowitz and ConnectivCorp; and 250,000 common shares
purchased in March 2002.
(7) Includes 760,000 common shares issued to West End Capital Partners, LLC of
which Mr. Kuhr is the managing partner.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company retained the services of Atlantis Equities, Inc.
("Atlantis"), a private merchant banking and advisory firm that primarily
assists emerging growth companies, to act as its financial advisor pursuant to
an Engagement Letter dated October 29, 1999, as amended on January 1, 2001, (the
"Engagement Letter"). Robert Ellin, the Chairman of the Company, is a principal
of Atlantis. In consideration for the services to be provided by Atlantis under
the Engagement Letter, Atlantis was paid a monthly fee of $12,500 (plus
reimbursement of reasonable and actual out-of-pocket expenses). The term of the
Engagement Letter is three years, and shall automatically renew for successive
one year terms (subject to the right of any party to terminate the engagement
upon 90 days' written notice before the end of any such term). The Company has
also granted Atlantis an option to acquire up to 762,064 shares of the Company's
Common Stock at an exercise price of $2.50 per share which expires on December
31, 2002, which was cancelled in March 2002. This agreement was also amended by
the Board of Directors in January 2001 and Atlantis' monthly fee was increased
to $16,666.
14
Atlantis has voluntarily agreed to reduce its monthly cash compensation
to $8,333 as of March 1, 2001 and to $6,250 as of May 1, 2001 and as of July 1,
2001, Atlantis has voluntarily waived receipt of any further cash compensation.
On March 18, 2002, the Company executed a new Engagement letter with
Atlantis for a term of one year from March 18, 2002 and ending on March 18,
2003. Consideration for the services to be provided by Atlantis, if the Aqua
transactions had been consummated, would have been the issuance shares of its
common stock so that Atlantis will own that number of shares which constitutes
up to 4.0% of the common stock then outstanding. Additionally, Atlantis was to
receive cash compensation of $250,000. Management is in the process of extending
this agreement.
In addition, Atlantis subscribed to purchase 500,000 shares of which a
subscription receivable for 400,000 shares remains outstanding
The Company is also a party to certain employment arrangements with its
executive officers. See "Executive Compensation."
15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Unless otherwise indicated, the following is a list of Exhibits
filed as a part of this Annual Report on Form 10-KSB:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
2.1 Contribution Agreement, dated as of October 29, 1999 between (C)
CDbeat.com, Inc. and Cakewalk LLC
2.2 Amendment Agreement, dated as of November 16, 1999 by and (C)
among Atlantis Equities, Inc., Dylan LLC, CDbeat.com, Inc.,
Cakewalk LLC and 32 Records LLC
3.1 Articles of Incorporation and By-laws (A)
10.1 Warrant Agreement, dated September 23, 1999 between the (B)
Company and Atlantis Equities, Inc.
10.2 Employment Agreement, dated as of November 16, 1999 between (C)
CDBeat.com, Inc. and Robert Miller
10.3 Stock Option Plan (A)
10.4 Engagement Letter, dated October 29, 1999 between Atlantis (F)
Equities, Inc. and the Company
10.5 Warrant Amendment Agreement, dated as of November 16, 1999 by (F)
and among Atlantis Equities, Inc. Dylan LLC and the Company
10.6 Employment Agreement, dated as of April 11, 2000 between (F)
CDbeat.com, Inc. and Elliot Goldman
10.7 Stock Option Agreement, dated as of April 11, 2000 between
CDbeat.com, Inc. and Elliot Goldman
10.8 Indenture, dated as of June 29, 1999 by and among Cakewalk BRE (F)
LLC, Entertainment Finance International, LLC and RZ0
Corporate Administration, Inc.
10.9 Servicing Agreement, dated as of June 29, 1999 by and among (F)
Cakewalk BRE, Entertainment Finance International, LLC and RZ0
Corporate Administration, Inc.
10.1 Management Agreement, dated as of June 29, 1999 by and among (F)
Cakewalk LLC, Cakewalk BRE LLC and Entertainment Finance
International, LLC
10.11 Capital Contribution Agreement, dated as of June 29, 1999 (F)
between Cakewalk LLC and Cakewalk BRE LLC
10.12 Consulting Agreement, dated as of October 18, 2000 by and (G)
between ConnectivCorp and Entertainment Finance International
LLC
10.13 Asset Purchase Agreement, dated as of October 19, 2000, by and (G)
among ConnectivCorp, Neil p. Phillips, Esq., as Conservator of
the Person and Estate of Michael Reitano re: Herpes Advice
Center
10.14 Asset Purchase Agreement, dated as of October 19, 2000, by and (G)
among ConnectivCorp, Neil p. Phillips, Esq., as Conservator of
the Person and Estate of Michael Reitano re: Sexual Health
Magazine, Inc.
10.15 Consulting Agreement, dated as of October 1, 2000, by and (G)
between ConnectivHealth Corp. and Sexual Health Solutions,
Inc.
16
10.16 Stock Option Agreement, dated as of October 1, 2000, by and (G)
between ConnectivCorp and Sexual Health Solutions, Inc.
10.17 [Agreement with American Media Inc.] (G)
10.18 [Agreement with iWon] (G)
21.1 Subsidiaries of the Company (G)
(A) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 333-70663)
(B) Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on October 8, 1999
(C) Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on December 1, 1999
(D) Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on January 31, 2000
(E) Incorporated by reference to the Company's Report on Form 8-K/A
filed with the Commission on January 31, 2000
(F) Incorporated by reference to the Company's Annual Report on Form
10-K/SB filed with the Commission on April 14, 2000.
(G) Incorporated by reference to the Company's Annual Report on Form
10-K/SB filed with the Commission on April 16, 2001.
(b) Reports on Form 8-K
1. On March 18, 2002, the Company filed a report on Form 8-K regarding a
shareholder-approved charter amendment which authorized a one-for-ten
reverse stock split of the Company's common stock.
2. On April 15, 2002, the Company filed a report on Form 8-K regarding the
appointment of Patrusky Mintz & Semel as its independent certified
public accountants and the dismissal of Arthur Andersen LLP.
3. On October 16, 2002, the Company filed a report on Form 8-K regarding
the announcement of the execution a contribution agreement with certain
shareholders of Aqua.
4. On April 11, 2003, the Company filed a report on Form 8-K regarding the
appointment of Israeloff, Trattner & Co. P.C. as its independent
certified public accountants for the resignation of Patrusky, Mintz &
Semel.
17
SIGNATURES
In accordance with 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, thereunto duly authorized, on April 15, 2003.
CONNECTIVCORP.
By: /s/ Elliot Goldman
-------------------------------------
Elliot Goldman
President and Chief Executive Officer
In accordance with 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 indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Elliot Goldman President, Director and Chief April 15, 2003
------------------ Executive Officer
Elliot Goldman (Principal Executive Officer)
/s/ Robert Ellin Chairman April 15, 2003
----------------
Robert Ellin
I, Elliot Goldman, certify that:
1. I have reviewed this annual report on Form 10-K of ConnectivCorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
18
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusion about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/ Elliot Goldman
------------------
Elliot Goldman
President and Chief Operating Officer
I, Robert Ellin, certify that:
1. I have reviewed this annual report on Form 10-K of ConnectivCorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
19
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusion about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/ Robert Ellin
----------------
Robert Ellin
Chairman
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
21.1 Subsidiaries of the Company
Name State of Organization
ConnectivHealth Corp. Delaware
32 Records LLC Delaware
21
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants/Successor F-2
Report of Independent Certified Public Accountants/Predecessor F-3
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
CONNECTIVCORP
We have audited the accompanying consolidated balance sheet of
ConnectivCorp and subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the year ended December 31, 2002. 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. The consolidated financial statements of the
Company for the year ended December 31, 2001 were audited by other auditors
whose report dated May 17, 2002, on those consolidated financial statements
included an explanatory paragraph describing conditions that raised substantial
doubt about the Company's ability to continue as a going concern.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2002 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of ConnectivCorp and subsidiaries as of December 31, 2002, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States.
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 not generated revenues from its proposed business model that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Israeloff, Trattner & Co. P.C.
April 11, 2003
New York, New York
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
CONNECTIVCORP
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the year ended
December 31, 2001. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall 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 results of its
operations and its cash flows for the year ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States.
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 not generated revenues from its proposed business model that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PATRUSKY, MINTZ & SEMEL
New York, New York
May 17, 2002
F-3
CONNECTIVCORP
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,243
------------
Total Assets $ 18,243
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 368,070
Loan payable 25,000
------------
Total Current Liabilities 393,070
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.001 par value
10,000,000 shares authorized, Series D, none issued --
Common Stock, $.001 per value
40,000,000 shares authorized, 11,077,061 issued and outstanding 11,077
Additional paid in capital 19,598,628
Accumulated deficit (19,944,532)
------------
(334,827)
Less: stock subscription receivable (40,000)
------------
Total Stockholders' Deficit (374,827)
------------
Total Liabilities and Stockholders' Deficit $ 18,243
============
The accompanying notes are an integral part of these consolidated statements.
All share and per share amounts have been adjusted to reflect the 1 for 10
reverse stock split in March 2002.
F-4
CONNECTIVCORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001
----------- -----------
Revenues $ 3,500 $ --
General and administrative expenses (882,490) (5,797,920)
----------- -----------
Operating loss (878,990) (5,797,920)
Interest income 6,423 41,143
----------- -----------
Net loss $ (872,567) $(5,756,777)
=========== ===========
Net loss per common share- basic and diluted $ (0.10) $ (2.66)
=========== ===========
Weighted average shares outstanding:
Basic and diluted 9,117,802 2,163,537
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
All share and per share amounts have been adjusted to reflect the 1 for 10
reverse stock split in March 2002.
F-5
CONNECTIVCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Preferred Common Paid in Deferred Accumulated Subscription Equity
Stock Stock Capital Compensation Deficit Receivable (Deficiency)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, January 1, 2001 -- $ 2,153 $ 19,615,105 $ (855,609) $(13,315,188) -- 5,446,461
Issuance of stock for
legal services -- 28 96,222 -- -- -- 96,250
Issuance of options for
consulting services -- -- 26,382 (26,382) -- -- --
Revaluation of unvested
options -- -- (615,147) 268,743 -- -- (346,404)
Amortization of deferred
compensation -- -- -- 548,744 -- -- 548,744
Net loss -- -- -- -- (5,756,777) -- (5,756,777)
-------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2001 -- 2,181 19,122,562 (64,504) (19,071,965) -- (11,726)
Common stock issued -- 3,475 344,025 -- -- (40,000) 307,500
Issuance of common stock
in exchange for options
and warrants and amounts
payable -- 1,196 53,669 -- -- -- 54,865
Issuance of common stock
to officers and directors -- 1,265 22,410 -- -- -- 23,675
Issuance of common stock
to consultants -- 2,960 55,962 -- -- -- 58,922
Amortization of deferred
compensation -- -- -- 64,504 -- -- 64,504
Net loss -- -- -- -- (872,567) -- (872,567)
-------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2002 $ -- $ 11,077 19,598,628 -- $(19,944,532) $ (40,000) $ (374,827)
=======================================================================================================
The accompanying notes are an integral part of these consolidated statements.
All share and per share amounts have been adjusted to reflect the 1 for 10
reverse stock split in March 2002.
F-6
CONNECTIVCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (872,567) $(5,756,777)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization -- 1,002,700
Stock-based compensation 159,674 202,340
Shares issued for legal services -- 96,250
Loss on writedown of impaired assets -- 2,896,759
Changes in assets and liabilities:
Prepaid expenses -- 42,781
Accounts payable and accrued expenses 308,775 (212,823)
----------- -----------
Net cash used in operating activities (404,118) (1,728,770)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 25,000 --
Proceeds from issuance of common stock 307,500 --
----------- -----------
Net cash provided by financing activities 332,500 --
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (71,618) (1,728,770)
CASH AND CASH EQUIVALENTS, beginning of period 89,861 1,818,631
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 18,243 $ 89,861
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock issued in satisfaction of accounts payable $ 42,292 $ 96,250
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
All share and per share amounts have been adjusted to reflect the 1 for 10
reverse stock split in March 2002.
F-7
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ConnectivCorp (the "Company") was incorporated on May 8, 1998 under the
name SMD Group, Inc., which was subsequently changed to CDBeat.com, Inc.
Following the Company's business combination with Cakewalk LLC, the name was
changed to Spinrocket.com, Inc. On September 11, 2000, in order to better
reflect and describe the Company's current strategic direction, the name was
changed to ConnectivCorp. On November 16, 1999, the Company, through its
wholly-owned subsidiary, 32 Records LLC ("32 LLC") merged with Cakewalk LLC
("Cakewalk") in a transaction accounted for by the purchase method wherein
Cakewalk LLC was deemed to be the acquiror and ConnectivCorp the acquiree (the
"Merger").
ConnectivCorp, during late 2001 decided to restructure its operations
and as a result exited the business that it was in. The Company's management has
been pursuing appropriate merger and acquisition partners. Prior to its
restructuring, the Company was a medical communications network with publishing,
Internet and marketing services divisions that connect targeted consumers and
professionals with pharmaceutical and consumer product companies.
The Company has devoted its efforts in 2002 to seek merger partners. As
of December 31, 2002, the Company is without an operating business and will
continue to seek merger with other companies and raise capital through the
issuance of stock and convertible debt.
On March 30, 2000, the Board of Directors voted to exit the business
conducted by 32 LLC within one year, and recharacterized 32 LLC as a
discontinued operation for financial reporting purposes. 32 LLC continued to
operate the business while seeking a buyer. During the second quarter of 2000,
the Company wrote off the net assets of 32 LLC and recorded a loss in its
consolidated financial statements. On February 2, 2001, the assets of 32 LLC
were surrendered to Entertainment Finance International, Inc. ("EFI") under a
default of the loan agreement.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated balance sheet includes the accounts of ConnectivCorp
and its wholly-owned subsidiaries ConnectivHealth and 32 Records LLC.
Significant intercompany transactions have been eliminated in consolidation.
F-8
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNCERTAINTY
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has a limited
operating history, and since its inception in 1998 has incurred substantial
losses. The Company's accumulated deficit as of December 31, 2002 is
approximately $20 million. To date, the Company has not generated any revenue
from previously proposed business model, which contemplated selling
pharmaceutical and other healthcare companies access to the Company's aggregated
users. The Company incurred a net loss of approximately $873 thousand and $5.8
million for the years ended December 31, 2002 and 2001, respectively, while cash
and cash equivalents at December 31, 2002 totaled approximately $18,000. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The Company's continued existence is dependent upon several
factors including the Company's ability to raise additional equity or locate a
merger or business partner.
The Company made a decision to restructure its operations. Management
issued restricted common stock to satisfy existing trade payables and the
Company is seeking appropriate merger or acquisition partners in the medical
information or other unrelated fields. Management has effected a one for ten
reverse stock split of the Company's common stock as of March 12, 2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months
or less are considered to be cash equivalents.
LONG-LIVED ASSETS
The Company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful lives of the related assets. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," these assets are reviewed on a periodic
basis for impairment whenever events or changes in circumstances indicate the
carrying amounts of the assets may not be realizable. Furthermore, the assets
are evaluated for continuing value and proper useful lives by comparison to
expected future cash flows. Accordingly, certain long-lived assets were
considered impaired during 2001, as further discussed in Note 2.
F-9
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's current financial instruments, including cash and cash
equivalents and accounts payable are carried at cost, which approximates their
fair value due to the short-term maturity of these instruments.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No.123, "Accounting for
Stock-Based Compensation." This statement establishes a fair market value based
method of accounting for an employee stock option but allows companies to
continue to measure compensation cost for those plans using the intrinsic value
based method prescribed by APB Opinion No. 25 "Accounting for Stock Issued to
Employees." Companies electing to continue using the accounting under APB
Opinion No. 25 must, however, make pro forma disclosure of net income and
earnings per share as if the fair value based method of accounting in SFAS No.
123 had been applied. The Company has elected to continue to account for its
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25, and to provide the necessary pro forma
disclosures as if the fair value method had been applied.
REVENUE RECOGNITION
It is anticipated that future revenues will be recognized as services
are delivered under terms of future contracts.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." For most companies, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations, rather than as an extraordinary item as previously required.
Extraordinary treatment will be required for certain extinguishments as provided
in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to require that
certain modifications to capital leases be treated as a sale-leaseback, and to
modify the accounting for sub-leases when the original lessee remains a
secondary obligor. The Company is required to adopt the provisions of SFAS No.
145 in the first quarter of 2003. Any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented that
does not meet the criteria in APB Opinion No. 30 for classification as an
extraordinary item shall be reclassified. Early application of the provisions of
this Statement related to the rescission of SFAS No. 4 is encouraged.
Accordingly, the satisfaction of liabilities in 2002 of approximately $26,000
has been accounted for in accordance with SFAS No. 145.
F-10
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities,
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The requirements of SFAS No. 146
apply prospectively to activities that are initiated after December 31, 2002
and, as a result, the Company cannot reasonably estimate the impact of adopting
these new rules until and unless it undertakes relevant activities in future
periods.
In November 2002, the FASB issued Interpretation ("FIN") No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which clarifies the required
disclosures to be made by a guarantor in their interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN No. 45 also requires a guarantor to recognize, at the inception of the
guarantee, a liability for the fair value of the obligation undertaken. The
Company is required to adopt the disclosure requirements of FIN No. 45 for
financial statements ending December 31, 2002. The Company is required to adopt
and accordingly has adopted prospectively the initial recognition and
measurement provisions of FIN No.45 for guarantees issued or modified after
December 31, 2002 and, as a result, the Company cannot reasonable estimate the
impact of adopting these new rules until and unless it undertakes relevant
activities in future periods.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No.
123." This Statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The adoption
of SFAS No. 148 is not expected to have a material impact on the Company's
financial position or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities," which clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," relating to consolidation
of certain entities. First, FIN No. 46 will require identification of the
Company's participation in variable interests entities ("VIEs"), which are
defined as entities with a level of invested equity that is not sufficient to
fund future activities to permit them to operate on a stand alone basis, or
whose equity holders lack certain characteristics of a controlling financial
interest. For entities identified as VIEs, FIN No. 46 sets forth a model to
evaluate potential consolidation based on an assessment of which party to the
VIE, if any, bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN No. 46 also sets forth
certain disclosures regarding interests in VIEs that are deemed significant,
even if consolidation is not required. As the Company does not participate in
VIEs, it does not anticipate that the provisions of FIN No. 46 will have a
material impact on its financial position or results of operations.
F-11
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - IMPAIRMENT OF ASSETS
During the fourth quarter of the year ended December 31, 2001, the
Company performed a review to ascertain the realizability of long-lived tangible
and intangible assets. Based upon the uncertainty related to the Company's
current business model, it was determined that the current carrying value of the
assets may not be able to be realized. As a result of the review, equipment with
a net book value of $4,885, software development costs with a net book value of
$2,380,000, the net unamortized carrying value of goodwill of $419,400 and costs
of publications acquired with a net book value of $73,625 were determined to be
impaired. A total of $2,877,910 was charged to general and administrative
expense.
During 2002 and 2001, the Company recorded depreciation expense of $0
and $3,900 on equipment, respectively, amortization expense of $0 and $840,000
on software development costs, respectively, $0 and $19,000 on costs of
publications acquired, respectively, and $0 and $139,800 on goodwill,
respectively.
NOTE 3 - LOAN PAYABLE
In December 2002 the Company entered into a loan agreement for $25,000.
The loan bears interest at 6% and is convertible into common stock of the
Company under certain conditions at $0.10 per share.
NOTE 4 - INCOME TAXES
The significant components of the deferred tax asset as of December 31,
2002, assuming an effective income tax rate of 40%, are as follows:
Net operating loss $ 4,502,873
Other 30,000
--------------
Total deferred tax asset 4,532,873
Liabilities --
--------------
Net 4,532,873
Less valuation allowance (4,532,873)
--------------
Total deferred income tax asset - net $ --
==============
The Company established a valuation allowance to fully offset the
deferred income tax asset as of December 31, 2001 as the realization of the
asset did not meet the required asset recognition standard of SFAS No. 109
"Accounting for Income Taxes." The decrease in the Company's deferred tax
valuation allowance was approximately $1,145,000 during 2002.
At December 31, 2002, the Company had net operating loss carryforwards
of approximately $11.6million for federal income tax purposes. The carryforwards
expire through the year 2020 and may be subject to limitations due to the
ownership change, as further discussed in Note 10.
F-12
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOSS PER COMMON SHARE
Loss per common share was calculated as follows:
Net loss $ (872,567) $(5,756,777)
============ ===========
Net loss per common share- basic and diluted $ (0.10) $ (2.66)
============ ===========
Weighted average shares outstanding:
Basic and diluted 9,117,802 2,163,537
============ ===========
Stock options and warrants issuable representing equivalents of
6,999 shares of common stock during 2002 and 10,597,874 shares of common stock
during 2001 had exercise prices greater than the average market price of
ConnectivCorp common stock. These common stock equivalents were outstanding
during 2002 and 2001, but were not included in the computation of diluted
earnings per share for those years because their inclusion would have had an
antidilutive effect.
NOTE 5 - COMMITMENTS
LEASE COMMITMENTS
On January 1, 2002, the Company entered into a sublease for office
space located at 750 Lexington Avenue, New York, New York. The lease term is for
the period from January 1, 2002 through December 31, 2002, with a monthly rent
of $2,500. The office space is being leased from an entity in which the father
of Robert Ellin, Chairman of the Company, is a partner. The Company is in the
process of negotiating an extension to the sublease. It is anticipated that
there will be no changes in the lease agreement.
Rent expense totaled $30,000 and $69,959 for the years ended
December 31, 2002 and 2001, respectively.
EMPLOYMENT AGREEMENTS
On March 18, 2002, the Company entered into employment contracts
with Elliot Goldman and Robert Ellin for an initial term of one year. Mr.
Goldman serves as President, Chief Executive Officer and as a Director of the
Company and Mr. Ellin serves as Chairman of the Company. Mr. Goldman and Mr.
Ellin each receive an annual salary of $150,000. However, the compensation shall
accrue and no more than $200 per week shall be paid to each Mr. Goldman and Mr.
Ellin until such time as the Company has received at least $1 million in
proceeds from new debt and/or equity investment subsequent the date of the
agreement. As of December 31, 2002, accrued salaries under these agreements
amounted to $209,050. Management is in the progress of extending these
agreements.
F-13
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
CONSULTING AGREEMENT
On March 18, 2002, the Company executed a new Engagement letter with
Atlantis for a term of one year from March 18, 2002 and ending on March 18,
2003. Consideration for the services to be provided by Atlantis, if the Aqua
transactions had been consummated, would have been the issuance shares of its
common stock so that Atlantis will own that number of shares which constitutes
up to 4.0% of the common stock then outstanding. Additionally, Atlantis was to
receive cash compensation of $250,000. During the year ended December 31, 2002,
Atlantis received 2,000,000 shares of common stock valued at $40,000. Management
is in the process of extending this agreement.
NOTE 6 - STOCK OPTIONS
During 2002 and 2001 the Company granted options and warrants to
purchase 0 and 65,000 shares of common stock, respectively, which were
outstanding as of December 31, 2002 and 2001, respectively. These options and
warrants were granted to employees, consultants and others at exercise prices
ranging from $0.10 to $31.25, per share; and are exercisable through 2010. As of
December 31, 2002 and 2001 155,606 and 979,787 options and warrants were
exercisable at a weighted average exercise price of $1.07 and $25.50 per share,
respectively.
In 2002 and 2001, the Company recorded compensation expense in the
amount of $64,504 and $258,559 under the requirement of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Had
compensation cost been determined in accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation" the Company would have reported additional losses
as follows:
2002 2001
---------------------------
Net loss As reported (872,567) (5,756,777)
Proforma (877,666) (6,721,681)
Basic and diluted loss per common share:
Net loss per common share As reported (0.10) (2.66)
Proforma (0.10) (3.11)
Weighted Average Outstanding Shares 9,117,802 2,163,537
Under SFAS No. 123, the fair value of each option is estimated on the date of
grant using Black-Scholes option-pricing model with the following
weighted-average share assumptions used for grants in 2000; (1) expected life of
options 4 years; (2) no dividend yield; (3) expected volatility 148%; (4)
risk-free interest rate 5%, and in 1999: (1) expected life of the option 5
years; (2) no dividend yield; (3) expected volatility 209%; (4) risk free
interest rate 5%.
F-14
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS (CONTINUED)
The following summarizes stock option activity:
YEAR ENDED DECEMBER 31, 2002 YEAR ENDED DECEMBER 31, 2001
---------------------------------- ----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- -------------- -------------- ---------------
Outstanding - beginning of year 449,062 $ 16.60 417,729 $ 26.00
Granted -- -- 65,000 15.60
Exercised -- -- -- --
Forfeited (447,063) (12.92) (33,667) (19.00)
------------ ------------- --------------
Outstanding - end of year 1,999 $ 18.44 449,062 $ 16.60
============ ============= ==============
Number of shares exercisable at
December 31, 1,999 18.44 394,062 15.10
============ ============= ==============
Weighted average fair value of
options granted during period $ -- $ 15.60
============= ==============
================
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2002:
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
----------------------- ------------------ ---------------- --------------- ---------------- ---------------
$16.875 - $17.50 999 8 $ 17.13 999 $ 17.13
$18.75 - $21.25 1,000 8 $ 20.00 1,000 $ 20.00
F-15
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS (CONTINUED)
As discussed in Note 1, in December 2002, the FASB issued SFAS No. 148, which
provides alternative methods of transition for voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company is adopting the
provisions of SFAS No. 148 prospectively from January 1, 2003.
NOTE 7 - STOCKHOLDERS' DEFICIT
On March 12, 2002, the Company effected a one-for -ten reverse split of
its common stock.
The Company issued approximately 889,095 shares of common stock to
creditors, 307,250 to employees and consultants and 1,265,000 shares of common
stock to officers and directors in settlement of unpaid liabilities and in
exchange for options issued or authorized.
In March 2002, Atlantis Equities and Messers. Ellin and Goldman
received respectively 2 million and 500,000 and 500,000 shares of the Company's
common stock in exchange for cancellation of unexercised options and obligations
and to retain their services.
In March 2002, 40,000 common shares were issued to Jeffrey Kuhr upon
his joining the Board of Directors. Additionally, 760,000 common shares were
issued to West End Capital Partners, LLC in settlement of investment banking
services of approximately $16,000. Mr. Kuhr is the managing partner of West End
Capital Partners, LLC.
Further, the Company raised approximately $307,500 through the sale of
3,075,000 shares of common stock at $0.10 per share.
NOTE 8 - RELATED PARTY TRANSACTIONS
During 1999, the Company retained Atlantis Equities, Inc. ("Atlantis"), a
private merchant banking and advisory firm that primarily assists emerging
growth companies, to act as its financial advisor. Robert Ellin, the Chairman of
the Company, is a principal of Atlantis. In consideration for services rendered
during 2002 and 2001, Atlantis was paid $0 and $52,566, respectively. The
Company also granted Atlantis options to acquire up to 76,206 shares of the
Company's common stock at an exercise price of $25.00 per share which were
cancelled in March 2002 in return for the issuance of 2,000,000 share of common
stock valued at $40,000 of which $39,722 were charged to expense for consulting
work.
In addition, Atlantis subscribed to purchase 500,000 shares of which a
subscription receivable for 400,000 shares remains outstanding.
The Company has retained an accounting firm in which the father of Robert
Ellin, the Chairman of the Company, is a partner to perform internal accounting
work. For the years ended December 31, 2002 and 2001 accounting fees of $22,728
and $21,430 were charged. The fees for
F-16
CONNECTIVCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
2001 were paid in 2002 in cash of $12,500 and through the issuance of 200,000
shares of common stock. The fees for 2002 of $22,728 remain outstanding at
December 31, 2002.
NOTE 9 - AQUA AGREEMENTS
During 2002, the Company executed two agreements for the purpose of
acquiring Aqua Development Corp., a California corporation ("Aqua"). Management
expended the majority of its resources and efforts to attempt to consummate the
acquisition. Despite management's best efforts, they will not be able to
consummate the agreement with Aqua and have terminated its efforts to complete
the acquisition.
NOTE 9 - SUBSEQUENT EVENT
During March 2003, the Company entered into a loan agreement of $150,000. The
loan is convertible under certain conditions into common stock of the Company at
$0.10 per share. The Company is in the process of continuing to raise capital
either through the private placement of equity or debt.
F-17