10QSB 1 a2063831z10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [x] Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended September 30, 2001 -OR- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from ___________ to _________ Commission File Number 333-70663 CONNECTIVCORP (formerly known as Spinrocket.com, Inc.) (Exact name of registrant as specified in its charter) Delaware 06-1529524 ------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 750 Lexington Avenue, 24th Floor, New York, New York 10022 --------------------------------------------------------------------- (Address of principal executive offices, Zip Code) (212) 750-5858 --------------------------------------------------------------------- (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] The number of outstanding shares of the registrant's common stock, par value $.01 as of November 14, 2001 is 21,807,155. CONNECTIVCORP AND SUBSIDIARIES FORM 10-QSB NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (unaudited) Consolidated Balance Sheet ...................................................................3 Consolidated Statements of Operations.........................................................4 Consolidated Statements of Cash Flows.........................................................6 Notes To Consolidated Financial Statements ........................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................9 PART II - OTHER INFORMATION Item 1. Legal Proceedings.....................................................................................................13 Item 2. Changes in Securities and Use of Proceeds..............................................................13 Item 3. Defaults Upon Senior Securities........................................................................13 Item 4. Submission of Matters to a Vote of Security Holders....................................................13 Item 5. Other Information......................................................................................13 Item 6. Exhibits and Reports on Form 8-K.......................................................................14
2 PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS CONNECTIVCORP CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2001 ------------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 281,597 Prepaid expense 20,508 ------------------ Total Current Assets 302,105 ------------------ EQUIPMENT: Equipment, net of accumulated depreciation of $5,846 5,860 ------------------ OTHER ASSETS: Cost of acquired software, net of accumulated amortization of $1,610,000 2,590,000 Goodwill, net of accumulated amortization of $244,650 454,350 Cost of publications acquired, net of accumulated amortization of $16,625 78,375 Other assets 18,850 ------------------ Total Other Assets 3,141,575 ------------------ Total Assets $ 3,449,540 ================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 166,410 ------------------ Total Current Liabilities 166,410 ------------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY (Note 4): Preferred Stock, $.001 par value 10,000,000 shares authorized, Series D - Common Stock, $.001 per value 40,000,000 shares authorized, 21,807,155 issued and outstanding 21,807 Paid in capital 19,112,051 Deferred compensation (122,346) Accumulated deficit (15,728,382) ----------------- Total Shareholders' Equity 3,283,130 ------------------ Total Liabilities and Shareholders' Equity $ 3,449,540 ==================
The accompanying notes are an integral part of these consolidated statements. 3 CONNECTIVCORP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
2001 2000 ---------------- ------------- Revenues $ - $ 80,000 General and administrative expenses (2,453,225) (3,683,212) ---------------- ------------- Operating loss (2,453,225) (3,603,212) Interest income 40,031 72,199 ---------------- ------------- Loss from continuing operations before income tax benefit (2,413,194) (3,531,013) Income tax benefit - 116,000 ---------------- ------------- Loss from continuing operations (2,413,194) (3,415,013) Loss from discontinued operations, after income taxes ($0) - (1,412,700) ---------------- ------------- Net loss $ (2,413,194) $ (4,827,713) ================ ============= Net loss per common share- basic and diluted: Loss from continuing operations $ (0.11) $ (0.17) Loss from discontinued operations - (0.07) ---------------- ------------- Net loss per common share- basic and diluted $ (0.11) $ (0.24) ================ ============= Weighted average shares outstanding: basic and diluted 21,578,319 20,274,098 ================ =============
The accompanying notes are an integral part of these consolidated statements. 4 CONNECTIVCORP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
2001 2000 ---------------- ------------- Revenues $ - $ 20,000 General and administrative expenses (701,588) (1,427,090) ---------------- ------------- Operating loss (701,588) (1,407,090) Interest income 7,240 39,776 ---------------- ------------- Net loss $ (694,348) $(1,367,314) ================ ============= Net loss per common share- basic and diluted: Net loss per common share- basic and diluted $ (0.03) $ (0.06) ================ ============= Weighted average shares outstanding: basic and diluted 21,669,655 21,512,624 ================ =============
The accompanying notes are an integral part of these consolidated statements. 5 CONNECTIVCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,413,194) $ (4,827,713) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 752,025 747,159 Non-cash compensation expense 153,613 1,187,237 Shares issued for legal services 96,250 - Loss on disposal of equipment - 10,740 Income tax benefit - (116,000) Loss from discontinued operations - 1,412,700 Changes in assets and liabilities: Prepaid expenses 22,273 (20,092) Other assets - (3,611) Accounts payable and accrued expenses (148,001) (85,775) ------------ ------------ Net cash used in operations (1,537,034) (1,695,355) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of equipment - (5,054) ------------ ------------ Net cash used in investing activities - (5,054) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash received from Private Placement (net of issuance costs) - 3,637,785 ------------ ------------ Net cash provided by financing activities - 3,637,785 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (1,537,034) 1,937,376 CASH AND CASH EQUIVALENTS, beginning of period 1,818,631 556,799 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 281,597 $ 2,494,175 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES Conversion of Preferred to Common Stock $ - $ 2,997,737 ============ ============ Satisfaction of accounts payable through issuance of common stock $ 96,250 $ - ============ ============ Fair value of warrants to purchase Common Stock issued in conjunction with Private Placement $ - $ 9,764,458 ============ ============ Fair value of warrants issued to Placement Agency $ - $ 1,146,880 ============ ============ Increase in cost of acquired software $ - 290,454 ============ ============
The accompanying notes are an integral part of these consolidated statements. 6 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2001 1. BASIS OF PRESENTATION As used in these financial statements, the term the "Company" refers to ConnectivCorp (formerly known as Spinrocket.com, Inc.) and its consolidated subsidiaries. The accompanying unaudited consolidated financial statements of the Company have been prepared pursuant to the rules of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-KSB. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the periods presented. The results of operations presented for the three months and nine months ended September 30, 2001 and 2000, are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year. 2. DISPOSITION OF SUBSIDIARY In March 2000, the Label Manager and Creative Director of 32 Records LLC ("32 LLC") resigned their positions. The resignation of the Creative Director constituted a default under the Management Agreement among 32 LLC, Cakewalk BRE LLC ("BRE") and Entertainment Finance International, Inc. ("EFI"). As a result of these defaults EFI, as holder of $5,500,000 principal amount of indebtedness issued by BRE, accelerated the maturity date of such indebtedness and commenced foreclosure proceedings. At the time the loan was granted in September 1999, EFI required the establishment of a new subsidiary, BRE, into which all assets of 32 LLC were transferred as security for EFI. Accordingly, EFI did not have recourse to the Company's assets that were not included in the BRE. On March 30, 2000, the Company decided to exit the business conducted by 32 LLC by March 31, 2001 and recharacterized 32 LLC as a discontinued operation for financial reporting purposes. Since March 30, 2000, 32 LLC has been operating the business and has sought to sell the business or assets. During the second quarter of 2000, the Company wrote off the business of 32 LLC in its consolidated financial statements. There was no other business conducted related to the discontinued operations after the surrender. On February 2, 2001, the net assets of 32 LLC were surrendered to Entertainment Finance International, Inc. ("EFI") under a default of the loan agreement. 3. NET LOSS PER COMMON SHARE The Company computes net loss per common share in accordance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share". Under the provisions of SFAS No. 128, basic net loss per common share ("Basic EPS") is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net income per common share ("Diluted EPS") is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the consolidated statements of operations. 7 Basic and Diluted EPS are the same for the three months and nine months ended September 30, 2001 and 2000, as Diluted EPS does not include the impact of stock options and warrants then outstanding, as the effect of their inclusion would be antidilutive. The following table summarizes the equivalent number of common shares assuming the related securities that were outstanding as of September 30, 2001 and 2000 had been converted, but not included in the calculation of diluted loss per share, as such shares are antidilutive: 2001 2000 ------------- ------------- Stock options 0 4,361,544 Warrants 1,466,080 2,035,709 -------------- -------------- Total dilutive securities 1,466,080 6,397,253 ============== ============== Options to purchase 4,859,354 and 250,000 shares of common stock and warrants to purchase 3,879,110 and 3,309,481shares of common stock for the nine months ended September 30, 2001 and 2000, respectively, were not included in the above table because the exercise price of those options and warrants were greater than the average market price of the common shares. The options and warrants were still outstanding at the end of the period. 4. COMMITMENTS On October 31, 2001, the Company terminated the lease for its office space at 29 West 57Th Street, New York, New York. Operations were relocated to the offices of one of the Company's Co - Chairmen. Messrs. Goldman and Miller have both voluntarily reduced their annual cash compensation to $150,000 and $100,000, respectively, as of March 1, 2001 and to $125,000 and $75,000 as of May 1, 2001 and as of July 1, 2001, Messrs. Goldman and Miller have voluntarily waived receipt of any further cash compensation. 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. 5. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt FAS 142 effective January 1, 2002. The Company is currently evaluating the effect that adoption of the provisions of FAS 142 that are effective January 1, 2002 will have on its results of operations and financial position. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 will be effective for financial statements of fiscal years beginning after December 15, 2001. We do not anticipate that it will have a material impact on the Company's financial results. 8 ITEM 2 - 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. This report contains statements that 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 the statements that constitute forward-looking statements as a result of various factors. OVERVIEW Headquartered in New York, ConnectivCorp (the "Company") through its wholly owned subsidiary, ConnectivHealth ("CH") operates a medical communications network with publishing, Internet, and marketing services divisions. ConnectivHealth, operates as a medical communications network that connects targeted consumers and professionals with pharmaceutical and consumer product companies. Particular focus is on enabling pharmaceutical companies to market their products directly to consumers - a fairly recent activity with which many pharmaceutical companies are still struggling, particularly in identifying how to best reach the appropriate demographics. ConnectivHealth fulfills this role by offering content and expertise in a particular field of study - presently sexual health - acquiring and/or building relevant proprietary media assets and identifying key distribution or strategic partners. Working through these varied but interrelated assets it provides a targeted marketing connection between consumers and marketers and offers a rounded program of marketing opportunities to pharmaceuticals. RECENT DEVELOPMENTS During the first nine months of 2001 the Company's efforts have been focused on the following key items: o Planning for the publication of a proprietary women's and men's health magazine with emphasis on sexual well-being and health related matters. The strategic plan is to launch the magazine in partnership with a publisher or fund it internally and utilize outside services for production and distribution. The development of the magazine provides not only an excellent source for new revenues and income but is a significant marketing tool for the Company's online activity. o Establishing working relationships with key personnel experienced in pharmaceutical and Internet marketing both inside and outside the Company. o Finalizing the content and format of the Company's website and, more importantly, solidifying the working relationship with the Company's network of Internet partners. On the strategic front the Company has fully developed its relationships and technological capabilities relative to placing its content on and exploiting the consumer base of its Internet distribution partners (iWon, drkoop.com, kiss.com and the America Media magazines) - a network that reaches over 36 million consumers a month. o Substantially reducing the burn rate of the Company from in excess of $200,000 per month to approximately $35,000 per month to husband the remaining cash resources. Current cash expenditures are being limited strictly to those events that have the likelihood of generating significant cash revenues in the near term. 9 o Establishing meetings with large and medium size pharmaceuticals for presentation of comprehensive marketing proposals utilizing the assets established by the Company. Proposals and presentations have been made to Merck, Lilly and GlaxoSmithKline. o CH will receive an unrestricted educational grant from Bayer Pharmaceuticals totaling $39,500 for an online program related to sexual health. The program will launch this fall and run through the end of the year and will be housed on the sexualhealth.com website. Bayer selected CH to receive the grant for the partnership because of the caliber of experts associated with CH, the responsible and professional manner that sensitive information is handled on the website and the reach that CH has with its partners. 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 it's inception in 1998 has incurred substantial losses. The Company's accumulated deficit as of September 30, 2001 is approximately $15.7 million. To date, the Company has not generated any revenue from its business model. The Company incurred a net loss of approximately $2.4 million for the nine months ended September 30, 2001. Additionally, cash used in operations totaled approximately $1.5 million for the nine months ended September 30, 2001, while cash and cash equivalents at September 30, 2001 totaled approximately $282,000. 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 execute its business strategy and/or its ability to raise additionally equity. The Company's near term operating strategy focuses on the continued execution of its business plan. To date, the Company has successfully launched SexHealth.com, and entered into Content Agreements with several major hosts, thereby exposing the Company's content to millions of potential users. Additionally, the Company has not yet signed any agreements with any pharmaceutical or other healthcare companies to use the Company's services. The Company has evaluated its current operating costs and has undertaken measures to reduce these costs, which include the reduction of salaries and payments to consultants. It is projected that these cuts will reduce the monthly cash expenditures to approximately $35,000 per month. The Company is also exploring its ability to raise additional equity through a private placement. There can be no assurance that the Company will be able to achieve or sustain any level of profitability in the future. Future operating results will depend on a number of factors, including demand for, and market acceptance of, the Company's services and prevailing economic conditions. While the Company has reduced its operating expenses, no assurance can be given that the Company can sustain these operating levels or that such reductions will be sufficient. Moreover, the Company has not yet generated any meaningful revenues, and no assurance can be given that it will do so in the future. There can be no assurance that the Company will generate sufficient revenues to ever achieve profitability or otherwise sustain its profitability in the future. While the Company is exploring raising additional equity capital, there can be no assurance that the additional equity infusion will be consummated. 10 The following discussion and analysis compares the results of the Company's continuing operations for the Nine Months and Three Months ended September 30, 2001, and the Nine Months and Three Months ended September 30, 2000. NINE MONTHS ENDED SEPTEMBER 30, 2001 The Company generated no revenues from continuing operations during the nine months ended September 30, 2001. In the first nine months ended September 30, 2001 and 2000, the Company reported the following: 2001 2000 ----------------- ------------- Loss from continuing operations $ (2,413,194) $ (3,415,013) Loss from discontinued operations - 1,412,700) ----------------- ------------- Net loss $ (2,413,194) $ (4,827,713) ================= ============= Basic and diluted loss per share: Loss from continuing operations $ (0.11) $ (0.17) Loss from discontinued operations - (0.07) ----------------- ------------- Net loss $ (0.11) $ (0.24) ================= ============= For the nine months ended September 30, 2001, the Company reported a loss from continuing operations of $2,413,194. General and administrative expenses include expenses of approximately $257,000 for professional fees; $323,000 for salary and related expenses, $449,000 for consultants, $749,000 for amortization of acquired software, magazines and goodwill, $169,000 for the maintenance and content for the web site and $154,000 for compensation costs recognized in connection with stock options. For the nine months ended September 30, 2000, the Company reported a loss from continuing operations of $3,415,013. The Company's income of $152,000 consisted of $80,000 of consulting fee revenue and $72,000 of interest earned on its funds. General and administrative expenses of approximately $3.7 million include expenses of $513,000 for salary and related expense; $473,000 consulting fees; $401,000 for professional fees; $745,000 for amortization of acquired software and goodwill, and $1,187,000 for expenses associated with issuance of stock options. 11 THREE MONTHS ENDED SEPTEMBER 30, 2001 (THE "2001 QUARTER") The Company generated no revenues from continuing operation in the 2001 Quarter. In the third quarter of 2001 and 2000, the Company reported the following: 2001 2000 ----------------- --------------- Net loss $ (694,348) $ (1,367,314) ================= =============== Basic and diluted loss per share: Net loss $ (0.03) $ (0.06) ================= =============== The Company reported a loss from continuing operations of $694,348 for the three months ended September 30, 2001. General and administrative expenses include expenses of approximately $113,000 for professional fees; $83,000 for salary and related expenses, $64,000 for compensation costs recognized in connection with stock options, $248,000 for amortization of acquired software, magazines and goodwill. The Company reported a loss from continuing operations of $1,367,314 for the three months ended September 30, 2000. The Company's income of $60,000 consisted of $20,000 of consulting fee revenue and $40,000 of interest earned on its funds. Reported general and administrative expenses of approximately $1.4 million include expenses of $197,000 for salary and related expenses; $156,000 for professional fees; $188,000 for consulting fees; $245,000 for amortization of acquired software and goodwill, and $465,000 for expenses associated with issuance of stock options. LIQUIDITY AND CAPITAL RESOURCES In the nine months ended September 30, 2001, $1,537,034 of cash was used in operating activities. Funds were used to pay the Company's operating expenses as well as to reduce of accounts payable and accrued expenses by $148,001. DISPOSITION OF SUBSIDIARY As a result of certain defaults under various operating agreements among 32 Records LLC ("32 LLC"), Cakewalk BRE LLC ("BRE") and Entertainment Finance International, Inc. ("EFI") that occurred in March 2000, EFI, as holder of $5,500,000 principal amount of indebtedness issued by BRE, accelerated the maturity date of such indebtedness and commenced foreclosure proceedings. At the time the loan was granted in September 1999, EFI required the establishment of a new subsidiary, BRE, into which all the assets of 32 LLC were transferred as security for EFI. Accordingly, EFI did not have recourse to the Company's assets that were not included in the BRE. On March 30, 2000, the Company decided that it will exit the business conducted by 32 LLC by March 31, 2001 and recharacterized 32 LLC as a discontinued operation for financial reporting purposes. Since March 30, 2000, 32 LLC operated its business while the Company sought to sell the business or assets of 32 LLC. During the second quarter of 2000, the Company wrote off the business of 32 LLC in its consolidated financial statements. On February 2, 2001, the net assets of 32 LLC were surrendered to EFI pursuant to a court order approving the foreclosure. There was no other business conducted related to the discontinued operations after the surrender. 12 PART II -- OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Cakewalk BRE LLC ("Cakewalk") is wholly owned by 32 Records LLC ("32 LLC"), and owns all the assets formerly owned by 32 LLC. In 2000, Cakewalk defaulted under an Indenture Agreement (the "Indenture") dated September 29, 1999 with Entertainment Finance International, Inc. ("EFI"), and entered into negotiations with EFI regarding the same. 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. After the transfer, EFI does not have any recourse to the Company's assets that were not included in Cakewalk. 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. ITEM 2 - CHANGES IN SECURITIES Not applicable ITEM 3 - DEFAULTS UPON SENIOR SECURITIES Cakewalk BRE LLC ("Cakewalk") is wholly owned by 32 Records LLC ("32 LLC"), and owns all the assets formerly owned by 32 LLC. In 2000, Cakewalk defaulted under an Indenture Agreement (the "Indenture") dated September 29, 1999 with Entertainment Finance International, Inc. ("EFI"), and entered into negotiations with EFI regarding the same. 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. After the transfer, EFI does not have any recourse to the Company's assets that were not included in Cakewalk. 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. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5 - OTHER INFORMATION EMPLOYMENT AGREEMENTS The employment contract, dated April 11, 2000, with Elliot Goldman was amended by Board vote in January 2001. Pursuant to the Employment Agreement, as amended, Mr. Goldman serves as President, Chief Executive Officer and as a Director of the Company at an initial annual salary of $250,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. Upon his appointment 13 as President and Chief Executive Officer in January 2001, the Company granted Mr. Goldman an additional option to purchase all or any part of an aggregate of 500,000 shares of the Company's Common Stock at an exercise price of $1.50, of which 250,000 shares are immediately exercisable and 250,000 shares will be exercisable when and if the Company achieves certain revenue levels. The employment contract, dated November 16, 1999 with Robert Miller was also amended by Board vote in January 2001. Pursuant to the employment agreement, as amended, Mr. Miller serves as a Director and co-chairman of the Company at an initial annual salary of $200,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. Both Messrs. Goldman and Miller have voluntarily reduced their annual cash compensation to $150,000 and $100,000, respectively, as of March 1, 2001, and to $125,000 and $75,000 as of May 1, 2001. Effective July 1, 2001, Messrs. Goldman and Miller voluntarily waived receipt of any further cash compensation. CONSULTING AGREEMENT. The Company has retained the services of Atlantis Equities, Inc. ("Atlantis") 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, a Director of the Company and its co-chairman, is a principal of Atlantis. In consideration for the services to be provided by Atlantis under the Engagement Letter, Atlantis is entitled to be paid a monthly fee of $12,500 (plus reimbursement of reasonable and actual out-of-pocket expenses), which was increased to $16,667 per month in January 2001. 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. Effective July 1, 2001, Atlantis voluntarily agreed to waive receipt of any further cash compensation. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) Reports on Form 8-K None. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONNECTIVCORP Dated: November 15, 2001 By: /s/ ELLIOT GOLDMAN ----------------------------- Elliot Goldman President and Chief Executive Officer 14