U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eCONNECT
(Previously known as Betting, Inc.)
(Name of Small Business Issuer in its charter)
Nevada 454390 43-1239043
(State of jurisdiction of (Primary Standard (IRS Employer
incorporation or Industrial Identification No.)
organization) Classification
Code Number)
31310 Eaglehaven Center
Suite 10
Rancho Palos Verdes, California 90275; (310) 541-4393
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Shawn F. Hackman, Esq.
3360 West Sahara Avenue, Suite 200
Las Vegas, Nevada 89102; (702) 732-2253
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed
register additional
securities for an offering
pursuant to Rule 462(b)
under the Securities Act,
please check the following
box and list the Securities
Act registration number of
the earlier effective
registration statement for
the same offering. 1
If this Form is a post-
effective amendment filed
pursuant to Rule 462(c)
under the Securities Act,
check the following box and
list the Securities Act
registration statement
number of the earlier
effective registration
statement for the same
offering.1
If this Form is a post-
effective amendment filed
pursuant to Rule 462(d)
under the Securities Act,
check the following box and
list the Securities Act
registration statement
number of the earlier
effective registration
statement for the same
offering. 1
If the delivery of the
prospectus is expected to
be made pursuant to Rule
434, check the following
box.1
CALCULATION OF REGISTRATION FEE
Title of each
class of
securities to
be registered Common shares
Amount to be
registered (1) 20,000,000
Proposed
maximum
offering price
per unit (2) $0.43
Proposed
maximum
aggregate
offering price $8,600,000
Amount of
registration
fee $2,390.80
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(1) Pursuant to Rule 416, such additional amounts to prevent dilution
from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(g)(3): The average of
the bid and asked price as of June 25, 1999.
PART I. INFORMATION REQUIRED IN PROSPCTUS
PROSPECTUS
eCONNECT
(previously know as Betting, Inc.)
20,000,000 Shares (1)
Common Stock
Offering Price $0.43 per Share
eConnect, a Nevada corporation ("Company"), is hereby offering
up to 20,000,000 shares of its $0.001 par value common stock
("Shares") at an offering price of $0.43 per Share on a delayed
basis under Rule 415 pursuant to the terms of this Prospectus for
the purpose of providing working capital for the Company.
The Shares offered hereby are highly speculative and involve
a high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment (See
"Risk Factors" on page 4).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Price to Public Underwriting Discounts Proceeds
and Commissions (2) to Issuer (3)
Per Share $0.43 $0 $0.43
Total Minimum (1) $500,000 $0 $500,000
Total Maximum $8,600,000 $0 $8,600,000
Information contained herein is subject to completion or
amendment. The registration statement relating to the securities
has been filed with the Securities and Exchange Commission. The
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities
laws of any such State.
Subject to Completion, Dated ________________, 1999
(1) Pursuant to SEC Rule 416, there will be a change in the amount
of securities being issued to prevent dilution resulting from stock
splits, stock dividends, or similar transaction.
THE SHARES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL TO THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OPEN OFFER TO BUY INTO SECURITIES OFFERED HEREBY A
STATE IN WHICH, OR TO A PERSON TRUE, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONTAINED HEREIN SUBSEQUENT TO THE DATE THEREOF. HOWEVER, IF A
MATERIAL CHANGE OCCURS, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY FOR ALL EXISTING SHAREHOLDERS, AND FOR ALL
PROSPECTIVE INVESTORS WHO HAVE NOT YET BEEN ACCEPTED AS SHAREHOLDERS
IN THE COMPANY.
THIS PROSPECTUS DOES NOT INTENTIONALLY OMIT ANY MATERIAL FACT
OR CONTAIN ANY UNTRUE STATEMENT OF MATERIAL FACT. NO PERSON OR
ENTITY HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR
MAKE A REPRESENTATION, WARRANTY, COVENANT, OR AGREEMENT WHICH IS NOT
EXPRESSLY PROVIDED FOR OR CONTAINED IN THIS PROSPECTUS; IF GIVEN OR
MADE, SUCH INFORMATION, REPRESENTATION, WARRANTY, COVENANT, OR
AGREEMENT MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THE COMPANY IS A REPORTING COMPANY. EACH PERSON WHO RECEIVES
A PROPSECTUS WILL HAVE AN OPPORTUNITY TO MEET WITH REPRESENTATIVES
OF THE COMPANY, DURING NORMAL BUSINESS HOURS UPON WRITTEN OR ORAL
REQUEST TO THE COMPANY, IN ORDER TO VERIFY ANY OF THE INFORMATION
INCLUDED IN THIS PROSPECTUS AND TO OBTAIN ADDITIONAL INFORMATION
REGARDING THE COMPANY. IN ADDITION, EACH SUCH PERSON WILL BE
PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY
OF THE INFORMATION THAT IS INCORPORATED BY REFERENCE IN THE
PROSPECTUS AND THE ADDRESS (INCLUDING TITLE OR DEPARTMENT) AND
TELEPHONE NUMBER TO WHICH SUCH REQUEST IS TO BE DIRECTED.
ALL OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN
WRITING THAT THEY HAVE READ THIS PROSPECTUS CAREFULLY AND
THOROUGHLY, AND UNDERSTOOD THE CONTENTS THEREOF, THEY WERE GIVEN THE
OPPORTUNITY TO OBTAIN ADDITIONAL INFORMATION; AND THEY DID SO TO
THEIR SATISFACTION.
(1) A maximum of 20,000,000 shares may be sold on a delayed basis
under Rule 415 under the Securities Act of 1933, as amended,
pursuant to the conversion of certain debentures into common
stock of the Company, and the exercise of certain warrants to
purchase the common stock. The offering will remain open until
the maturity date of the debentures on May 26, 2002 and the
expiration date of the warrants, also on May 26, 2002.
(2) No commissions will be paid in connection with the sale of the
Shares on this delayed basis.
(3) The Net Proceeds to the Company is before the payment of
certain expenses in connection with this offering. See "Use
of Proceeds."
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 2
USE OF PROCEEDS 3
DETERMINATION OF OFFERING PRICE 4
DILUTION 5
PLAN OF DISTRIBUTION 6
LEGAL PROCEEDINGS 7
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 9
DESCRIPTION OF SECURITIES 10
INTEREST OF NAMED EXPERTS AND COUNSEL 11
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 12
ORGANIZATION WITHIN LAST FIVE YEARS 13
DESCRIPTION OF BUSINESS 14
PLAN OF OPERATION 15
DESCRIPTION OF PROPERTY 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 18
EXECUTIVE COMPENSATION 19
FINANCIAL STATEMENTS 20
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 21
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus ("Prospectus").
Each prospective investor is urged to read this Prospectus, and the
attached Exhibits, in their entirety.
The Company.
(a) Background.
Betting, Inc. was originally organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP, INC. On April
20, 1983, the Articles of Incorporation were amended to change the
name of the corporation to HTI Corporation. On May 28, 1993, the
Articles of Incorporation were amended to change the name of the
corporation to Leggoons, Inc. In addition to changing the company's
name, the May 28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common stock from
40,000 to 10,000,000 and decreased the par value of the common stock
from $1.00 per share to $.01 per share. Also on May 28, 1993,
Leggoons, Inc., declared a 14-for-1 stock split.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the brands
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel, and
Snooggel. On January 19, 1996, Leggoons, Inc., entered into a
Licensing Agreement with Robert Tamsky, a former director and
employee of the Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr. Tamsky
effective January 1, 1996, the right to use the LEGGOONS trademark
in connection with the design, production, marketing, sales and
sublicensing of all clothing, wearing apparel and accessories
bearing the "LEGGOONS" symbol. This right will continue until
December 31, 1998, and may be extended thereafter each year for an
additional year. In consideration for the license, Mr. Tamsky,
according to the Licensing Agreement, shall pay to the Leggoons,
Inc. a royalty of five percent of the net sales of "LEGGOONS"
products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its
assets and liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors" (the "Assignment"). An
Assignment is a business liquidation device available as an
alternative to bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the "Assignee"), will be
required to properly, timely, and orderly dispose of all remaining
assets for the benefit of creditors. Included in the Assignment were
the rights and obligations of the Licensing Agreement. Leggoons,
Inc. continued to maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an Agreement
to License Assets from Home Point of Sales, Inc.(now know as
Electronic Transactions & Technology - "ET&T")) for the purpose of
licensing certain technology for the development of Personal
Encrypted Remote Financial Electronic Card Transactions ("PERFECT").
ET&T is a privately held corporation 70% owned by Thomas S. Hughes,
President of the Company. This technology provides consumers with
the option to instantly pay bills or impulse purchase from home with
real time cash transactions. Management believes the proprietary
technology and the large demand for wagering opportunities in
today's marketplace will combine to generate substantial sales for
the Company over the medium term.
Thomas S. Hughes, Chairman of ET&T, became Chairman and
President of Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
On April 28, 1997, the Company entered into a Host Processing
Agreement with ET&T for the purpose of having ET&T act as the bank
host processing for all Betting, Inc.'s transactions that are sent
by terminal s that read credit cards or ATM cards. On March 27,
1998, the Company entered into a License Agreement with ET&T for the
purpose of licensing additional technology for processing electronic
banking transactions. This licensing supplements the technology
licensed under the Agreement dated February 18, 1997.
On May 17, 1999, an Agreement and Plan of Merger between
Betting, Inc., a Missouri corporation, into Betting, Inc., a Nevada
corporation ("Company") was executed by an authorized signatory of
each company. At a duly called meeting of shareholders on May 21,
1999, the merger of the two companies was approved by a majority of
the shareholders appearing in person or by proxy. Effective on June
1, 1999, Articles of Merger were filed with the Nevada Secretary of
State, which formally resulted in the redomicile to the State of
Nevada. On June 4, 1999, a Certificate of Amendment of Amendment
to Articles of Incorporation was filed with the Nevada Secretary of
State changing the name of the Company to "eConnect."
(b) Business.
The Company is positioning itself to facilitate same as cash
ATM card or smart card transactions that are originating from bank
host processing centers and are being sent to gaming operators.
These transactions are being effected with electronic equipment that
allows self service pay per play and no actual communications
between the player and the gaming operator. These types of
transactions will be originating from homes, offices, and public
walk in locations. The Company will act as the interface that will
communicate data to the gaming operators, receive back their
acknowledgment of the transaction and then pass on this gaming
acknowledgment to the bank host processing center that has been
standing by for this information and has already completed the bank
authorization of the pay per play transaction. See "Description of
Business."
The business model of the Company is to receive a fee per
transaction paid by the bank host processing center at the moment of
the transaction. In general, this fee will be from between 2% to 6%
of the wager placed on a pay per play or a $6 flat fee in the case
of an account being opened.
The internet gaming industry is an industry that has developed
significantly in recent years. The internet gaming industry as a
whole is under increasing governmental scrutiny as the industry
develops. It is possible that at some point in the future there
could be legislation against gambling on the internet or other
similar methods. See "Risk Factors."
The Offering.
Shares of the Company will be offered as a shelf registration
under Securities and Exchange Commission Rule 415 at $0.43 per
Share. See "Plan of Distribution." Purchasers of certain
debentures of the Company will be permitted to convert the
debentures into common stock covered by this Prospectus. Also,
purchasers of certain warrants of the Company will be permitted to
exercise their warrants into common stock covered by this
Prospectus. See "Plan of Distribution." In addition, the shares
will be offered and sold in connection with acquisitions which the
Company may become involved with in the future. If all the Shares
offered are transferred under the debentures and/or warrants, and in
connection with acquisitions, this will represent the net proceeds
of a maximum of $8,600,000, less certain costs associated with this
offering. See "Use of Proceeds." This balance will be used as
working capital for the Company.
Liquidity of Investment.
Although the Shares will be "free trading," and is an
established market for the Shares, there is not a large public float
in the Shares at this time (15,250,000 shares owned by approximately
400 shareholders). Therefore, an investor may not be able to sell
is Shares when he or she wishes; therefore, an investor may consider
his or her investment to be long-term. See "Risk Factors."
Risk Factors.
And investment in the company involved risks due in part to a
limited previous financial and operating history of Company, as well
as competition in the internet gaming industry. Also, certain
potential conflicts of interest arise due to the relationship of the
Company to management and others. See "Risk Factors."
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE
AND INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY
PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE,
EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE, CONSIDER VERY
CAREFULLY THE FOLLOWING RISK FACTORS AMONG OTHER THINGS, AS WELL AS
ALL OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
Limited Prior Operations and Experience.
The Company is newly reorganized, has only limited revenues
from its new internet operations, and has only limited assets. There
can be no assurance that the Company will generate significant
revenues in the future; and there can be no assurance that the
Company will operate at a profitable level. See "Description of
Business." If the Company is unable to obtain customers and
generate sufficient revenues so that it can profitably operate, the
Company's business will not succeed. In such event, investors in
the Shares may lose their entire cash investment.
Also the Company and its management do not have significant
experience in the internet business, and in particular the on-line
gaming business. See "Directors, Officers, Promoters, and Control
Persons."
Dependence on the Internet Industry
The Company's business is influenced by the rate of use and
expansion in the internet industry. Although this industry, and in
particular on-line gaming, have been expanding at a rapid rate in
recent years, there is no guarantee that it will continue to do so
in the future. Declines in these industries may influence the
Company's revenues adversely.
Influence of Other External Factors.
The internet industry, and internet gaming in particular, is a
speculative venture necessarily involving some substantial risk.
There is no certainty that the expenditures to be made by the Company
will result in commercially profitable business. The marketability
of internet gaming will be affected by numerous factors beyond the
control of the Company. These factors include market fluctuations,
and the general state of the economy (including the rate of
inflation, and local economic conditions), which can affect peoples'
discretionary spending. Factors which leave less money in the hands
of potential clients of the Company will likely have an adverse
effect on the Company. The exact effect of these factors cannot be
accurately predicted, but the combination of these factors may
result in the Company not receiving an adequate return on invested
capital.
Regulatory Factors.
Existing and possible future consumer legislation, regulations
and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities undertaken in connection
with the party planning business, the extent of which cannot be
predicted. The U.S. Senate is presenting discussing a proposed bill
by Senator Jon Kyl of Arizona which would ban internet gaming in the
United States. The passage of such a bill may adversely affect the
operation of the Company, including increased costs if certain of the
Company operations are then moved to a foreign jurisdiction. The
exact affect of such legislation cannot be predicted until it is in
final form. If, however, a federal statute was passed into
legislation making Internet gambling illegal, eSportsbet.com is
prepared to make the necessary adjustments to continue to operate
legally.
Competition.
The Company may experience substantial competition in its
efforts to locate and attract clients. Many competitors in the
internet industry, and in particular internet gaming, have greater
experience, resources, and managerial capabilities than the Company
and may be in a better position than the Company to obtain access to
attractive clientele. There are a number of larger companies which
will directly compete with the Company. Such competition could have
a material adverse effect on the Company's profitability.
Success of Management.
Any potential investor is strongly cautioned that the purchase
of these securities should be evaluated on the basis of: (i) the
limited diversification of the venture capital opportunities
afforded to the Company, (ii) the high-risk nature and limited
liquidity of the Company, and (iii) the Company's ability to utilize
funds for the successful development and distribution of revenues as
derived by the revenues received by the Company's yet undeveloped
portfolio of clients, and any new potentially profitable ventures,
among other things. The Company can offer no assurance that any
particular client and/or property under its management contract will
become successful.
Reliance on Management.
The Company's success is dependent upon the hiring of key
administrative personnel. None of the officers or directors, or any
of the other key personnel, has any employment or non-competition
agreement with the Company. Therefore, there can be no assurance
that these personnel will remain employed by the Company. Should
any of these individuals cease to be affiliated with the Company for
any reason before qualified replacements could be found, there could
be material adverse effects on the Company's business and prospects.
In addition, management has no experience is managing companies in
the same business as the Company.
In addition, all decisions with respect to the management of
the Company will be made exclusively by the officers and directors
of the Company. Investors will only have rights associated with
minority ownership interest rights to make decision which effect the
Company. The success of the Company, to a large extent, will depend
on the quality of the directors and officers of the Company.
Accordingly, no person should invest in the Shares unless he is
willing to entrust all aspects of the management of the Company to
the officers and directors.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only
generally. Proceeds from the offering have been allocated generally
to legal and accounting, and working capital. Accordingly, investors
will entrust their funds with management in whose judgment investors
may depend, with only limited information about management's
specific intentions with respect to a significant amount of the
proceeds of this offering. See "Use of Proceeds."
Lack of Diversification.
The size of the Company makes it unlikely that the Company
will be able to commit its funds to diversify the business until it
has a proven track record, and the Company may not be able to
achieve the same level of diversification as larger entities engaged
in this type of business.
No Cumulative Voting
Holders of the Shares are not entitled to accumulate their
votes for the election of directors or otherwise. Accordingly, the
holders of a majority of the Shares present at a meeting of
shareholders will be able to elect all of the directors of the
Company, and the minority shareholders will not be able to elect a
representative to the Company's board of directors.
Absence of Cash Dividends
The Board of Directors does not anticipate paying cash
dividends on the Shares for the foreseeable future and intends to
retain any future earnings to finance the growth of the Company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the Company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Conflicts of Interest.
The officers and directors have other interests to which they
devote substantial time, either individually or through partnerships
and corporations in which they have an interest, hold an office, or
serve on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary to
the business of the Company. As a result, certain conflicts of
interest may exist between the Company and its officers and/or
directors which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Company. It is the intention of management, so as to minimize any
potential conflicts of interest, to present first to the Board of
Directors to the Company, any proposed investments for its
evaluation.
Investment Valuation Determined by the Board of Directors.
The Company's Board of Directors is responsible for valuation
of the Company's investments. There are a wide range of values which
are reasonable for an investment for the Company's services.
Although the Board of Directors can adopt several methods for an
accurate evaluation, ultimately the determination of fair value
involves subjective judgment not capable of substantiation by
auditing standards. Accordingly, in some instances it may not be
possible to substantiate by auditing standards the value of the
Company's investments. The Company's Board of Directors will serve
as the valuation committee, responsible for valuing each of the
Company's investments. In connection with any future distributions
which the Company may make, the value of the securities received by
investors as determined by the Board may not be the actual value
that the investors would be able to obtain even if they sought to
sell such securities immediately after a distribution. In addition,
the value of the distribution may decrease or increase significantly
subsequent to the distributee shareholders' receipt thereof,
notwithstanding the accuracy of the Board's evaluation.
Additional Financing May Be Required.
Even if all of the 20,000,000 Shares offered hereby are sold,
the funds available to the Company may not be adequate for it to be
competitive in the areas in which it intends to operate. There is no
assurance that additional funds will be available from any source
when needed by the Company for expansion; and, if not available, the
Company may not be able to expand its operation as rapidly as it
could if such financing were available. The proceeds from this
offering are expected to be sufficient for the Company to become
develop and market it line of services. Additional financing could
possibly come in the form of debt/preferred stock. If additional
shares were issued to obtain financing, investors in this offering
would suffer a dilutive effect on their percentage of stock
ownership in the Company. However, the book value of their shares
would not be diluted, provided additional shares are sold at a price
greater than that paid by investors in this offering. The Company
does not anticipate having within the next 12 months any cash flow
or liquidity problems
Purchases by Affiliates.
Certain officers, directors, principal shareholders and
affiliates may purchase, for investment purposes, a portion of the
Shares offered hereby, which could, upon conversion, increase the
percentage of the Shares owned by such persons. The purchases by
these control persons may make it possible for the Offering to meet
the escrow amount.
No Assurance Shares Will Be Sold.
The 20,000,00 Shares are to be offered directly by the
Company, and no individual, firm, or corporation has agreed to
purchase or take down any of the shares. No assurance can be given
that any or all of the Shares will be sold.
Offering Price.
The offering price of the Shares bears no relation to book
value, assets, earnings, and was calculated in accordance with SEC
Rule 457(g)(3): The average of the bid and asked price as of a date
within five business days from the filing date of the Registration
Statement covering this offering June 25, 1999 ($0.43). There can
be no assurance that the Shares will maintain market values
commensurate with the offering price. See "Determination of
Offering Price."
"Shelf" Offering
The Shares are offered directly by the Company on a delayed
basis pursuant to certain exercise rights of warrants and conversion
rights of debentures. No individual, firm or corporation has agreed
to elect such exercise or conversion of any of the offered Shares.
No assurance can be given that any or all of the Shares will be
issued. No broker-dealer has been retained as an underwriter and no
broker-dealer is under any obligation to purchase any of the Shares.
In addition, the officers and directors of the Company,
collectively, have limited experience in the offer and sale of
securities on behalf of the Company. See "Plan of Distribution."
Limited Public Market for Company's Securities.
Prior to the Offering, there has been only a limited public
market for the Shares being offered (a total of 15,250,000 as of
June 28, 1999). There can be no assurance that an active trading
market will develop or that purchasers of the Shares will be able to
resell their securities at prices equal to or greater than the
respective initial public offering prices. The market price of the
Shares may be affected significantly by factors such as
announcements by the Company or its competitors, variations in the
Company's results of operations, and market conditions in the
retail, electron commerce, and internet industries in general. The
market price may also be affected by movements in prices of stock in
general. As a result of these factors, purchasers of the Shares
offered hereby may not be able to liquidate an investment in the
Shares readily or at all.
Penny Stock Regulations.
The Company's Shares will be quoted on the "Electronic
Bulletin Board" maintained by the National Quotation Bureau, Inc.,
which reports quotations by brokers or dealers making a market in
particular securities. In view of the fact that no broker will be
involved in the Offering, it is likely to be difficult to find a
broker who is willing to make an active market in the stock. The
Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity
security that has a market price less than $5.00 per share. The
Company's shares will become subject to rules that impose additional
sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse).
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purpose of such securities
and must have received the purchaser's written consent to the
transaction prior to the purchase.
Additionally, for any transaction effected involving a penny
stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission
relating to the penny stock market. A broker-dealer also must
disclose the commissions payable to both the broker--dealer and the
registered representative, and current quotations for the
securities. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently,
these rules may restrict the ability of broker-dealers to sell the
Company's Shares and may affect the ability of purchasers in the
Offering to sell the Company's securities in the secondary market.
There is no assurance that a market will develop for the Company's
Shares.
Shares Eligible For Future Sale
All of the 9,385,000 Shares which are currently held, directly
or indirectly, by management have been issued in reliance on the
private placement exemption under the Securities Act of 1933, as
amended ("Act"). Such Shares will not be available for sale in the
open market without separate registration except in reliance upon
Rule 144 under the Act. In general, under Rule 144 a person (or
persons whose shares are aggregated) who has beneficially owned
shares acquired in a non-public transaction for at least on year,
including persons who may be deemed affiliates of the Company (as
that term is defined under the Act) would be entitled to sell within
any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock, or the
average weekly reported trading volume on all national securities
exchanges and through NASDAQ during the four calendar weeks
preceding such sale, provided that certain current public
information is then available. If a substantial number of the
Shares owned by these shareholders were sold pursuant to Rule 144 or
a registered offering, the market price of the Common Stock could be
adversely affected.
Forward-Looking Statements.
This Prospectus contains "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended,
and as contemplated under the Private Securities Litigation Reform
Act of 1995, including statements regarding, among other items, the
Company's business strategies, continued growth in the Company's
markets, projections, and anticipated trends in the Company's
business and the industry in which it operates. The words
"believe," "expect," "anticipate," "intends," "forecast," "project,"
and similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. The Company
cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from
those in the forward looking statements, including those factors
described under "Risk Factors" and elsewhere herein In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Prospectus will in
fact transpire or prove to be accurate. All subsequent written and
oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their
entirety by this section.
Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year 2000 date is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before,
on, or after January 1, 2000, and if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant system failure which could affect the Company's ability
to conduct normal business operations. This creates potential risk
for all companies, even if their own computer systems are Year 2000
compliant. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be
fully resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and products
may contain undetected errors or defects with Year 2000 date
functions that may result in material costs. Although management is
not aware of any material operational issues or costs associated
with preparing its internal systems for the Year 2000, the Company
may experience serious unanticipated negative consequences (such as
significant downtime for one or more of its web site properties) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of advertisers may be affected by Year 2000
issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. The Company does not
currently have any information about the Year 2000 status of its
advertising customers. However, these expenditures may result in
reduced funds available for web advertising or sponsorship of web
services, which could have a material adverse effect on its
business, results of operations, and financial condition. The
Company's Year 2000 plans are based on management's best estimates.
USE OF PROCEEDS
Following the transfer of the 20,000,000 Shares offered by the
Company pursuant to the debentures and warrants, this will represent
gross proceeds to the Company of approximately $8,600,000 (less
certain expenses of this offering). These proceeds, less the
expenses of the offering, will be used to provide working capital
for the Company.
The following table sets forth the use of proceeds from this
offering (based on the minimum and maximum offering amounts):
Use of Proceeds Minimum Offering Maximum Offering
Amount Percent Amount Percent
Transfer
Agent Fee $1,000 0.20% $1,000 0.01%
Printing Costs $1,000 0.20% $1,000 0.01%
Legal Fees $50,000 10.00% $50,000 0.58%
Accounting Fees $1,500 0.30% $1,500 0.02%
Working Capital $446,500 89.30% $8,546,500 99.38%
Total $500,000 100.00% $8,600,000 100.00%
Management anticipates expending these funds for the purposes
indicated above. To the extent that expenditures are less than
projected, the resulting balances will be retained and used for
general working capital purposes or allocated according to the
discretion of the Board of Directors. Conversely, to the extent that
such expenditures require the utilization of funds in excess of the
amounts anticipated, supplemental amounts may be drawn from other
sources, including, but not limited to, general working capital
and/or external financing. The net proceeds of this offering that
are not expended immediately may be deposited in interest or non-
interest bearing accounts, or invested in government obligations,
certificates of deposit, commercial paper, money market mutual
funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The offering price is not based upon the Company's net worth,
total asset value, or any other objective measure of value based
upon accounting measurements. The offering price was determined
under Securities and Exchange Commission Rule 457(g), which states
that where the securities to be offered pursuant to warrants or
other rights to purchase such securities the registration fee is to
be calculated upon the basis of the price at which the warrants or
rights or securities subject thereto are to be offered to the
public. If such offering price cannot be determined at the time of
filing the registration statement, the registration fee is to be
calculated upon the basis of the highest of the following: (1) the
price at which the warrants or rights may be exercised, if known at
the time of filing the registration statement; (2) the offering
price of securities of the same class included in the registration
statement; or (3) the price of securities of the same class, as
determined in accordance with paragraph (c) of that Rule. Since the
offering price based on the warrants and debentures cannot be
determined based on (1) and (2), it was calculated under Rule 457(c)
as the average of the bid and asked price as of a date within five
(5) business days of the filing date (June 25, 1999): $0.43 per
Share.
DILUTION
"Net tangible book value" is the amount that results from
subtracting the total liabilities and intangible assets of an entity
from its total assets. "Dilution" is the difference between the
public offering price of a security and its net tangible book value
per Share immediately after the Offering, giving effect to the
receipt of net proceeds in the Offering. As of February 28, 1999
(the date of the latest Form 10-QSB for the Company, the net
tangible book value of the Company was $(350,775) or $(0.0245) per
Share. Giving effect to the issue by the Company of all offered
Shares at the public offering price, the pro forma net tangible book
value of the Company would be $8,249,225, or $0.2340 per Share,
which would represent an immediate increase of $0.2585 in net
tangible book value per Share and $0.1960 per Share dilution per
share to new investors. Dilution of the book value of the Shares
may result from future share offerings by the Company.
The following table illustrates the pro forma per Share dilution
(these are based on the outstanding shares of 15,250,000 as of June
28, 1999 and do not include further issuances in connection with the
Form S-8's recently filed, which will be a maximum of 1,600,000
additional shares - see "Description of Securities"):
Assuming Maximum
Shares Sold
Offering Price (1) $0.4300
Net tangible book value per share
before Offering (2) $(0.0245)
Net tangible book value Share after
offering (3) $0.2340
Increase attributable to issue of
stock to new investors (4) $0.2585
Dilution to new investors (5) $0.1960
Percent Dilution to new investors (6) 54.42%
(1) Offering price before deduction of offering expenses,
calculated on a "Common Share Equivalent" basis.
(2) The net tangible book value per share before the offering
($0.0245) is determined by dividing the number of Shares outstanding
prior to this offering into the net tangible book value of the
Company.
(3) The net tangible book value after the offering is determined
by adding the net tangible book value before the offering to the
estimated proceeds to the Corporation from the current offering
(assuming all the Shares are issued), and dividing by the number of
common shares to be outstanding (15,250,000 as of June 28, 1999).
The net tangible book value per share after the offering ($0.2340)
is determined by dividing the number of Shares that will be
outstanding, assuming issue of all the Shares offered, after the
offering into the net tangible book value after the offering.
(4) The increase attributable to purchase of stock by new
investors is derived by taking the net tangible book value per share
after the offering ($0.2340) and subtracting from it the net
tangible book value per share before the offering ($0.0245) for an
increase of $0.2585.
(5) The dilution to new investors is determined by subtracting the
net tangible book value per share after the offering ($0.2340) from
the offering price of the Shares in this offering ($0.4300), giving
a dilution value of $0.1960.
(6) The Percent Dilution to new investors is determined by
dividing the book value after the offering ($0.2340) by the offering
price per Share ($0.4300), giving a dilution to new investors of
54.42%.
PLAN OF DISTRIBUTION
The Company will issue a maximum of 20,000,000 Shares of its
common stock, par value $0.001 per Share to the public in accordance
with a Registration Rights Agreement as explained below, and in
connection with acquisitions which the Company may make during the
term of the offering. There can be no assurance that any of these
Shares will be issued. The gross proceeds to the Company represented
by issue of all the Shares under this offering will be approximately
$8,600,000. No commissions or other fees will be paid, directly or
indirectly, by the Company, or any of its principals, to any person
or firm in connection with solicitation of sales of the shares. The
public offering price of the Shares will be modified, from time to
time, by amendment to this Prospectus, in accordance with changes in
the market price of the Company's common stock. These securities
are offered by the Company subject to prior issue and to approval of
certain legal matters by counsel.
As set forth in a Registration Rights Agreement and based upon
the terms and subject to the conditions of a subscription agreement
between the investor and the Company, the Company proposes to issue
and sell to certain investors six percent (6%) convertible
debentures of the Company, which will be convertible into shares of
the common stock, $0.001 par value (the "Common Stock"), of the
Company upon the terms and subject to the conditions of such
Debentures. In addition and pursuant to the terms of the same
Registration Rights Agreement and subscription agreement, the
Company proposes to issue to certain investors 150,000 Warrants
exercisable at a strike price equal to 105% of the five (5) day
average closing bid price for the Company's Shares for the five
trading days prior to the "Closing Date," as that term is defined in
the Registration Rights Agreement. The Registration Rights
Agreement, Form of Debenture, and Form of Warrant are incorporated
herein by reference, and are set forth in their entirety as Exhibits
4.2, 4.2, and 4.4 to this Form SB-2.
Under the terms of the Registration Rights Agreement, the
Company is required to prepare and file with the Securities and
Exchange Commission no later than ten days after the Closing Date,
a Registration Statement on Form SB-2, covering a sufficient number
of Shares for the investors into which the $500,000 of Debentures
and 150,000 Warrants would be convertible. The Registration
Statement shall cover 10,000,000 shares of the Company's Common
Stock. Such Registration Statement shall state that, in accordance
with the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable to prevent
dilution resulting from Stock splits, or stock dividends. If at any
time the number of shares of Common Stock into which the Debenture
and Warrants issued in this offering may be converted exceeds the
aggregate number of shares of Common Stock then registered, the
Company shall, within ten (10) business days after receipt of
written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence,
if such Registration Statement has not been declared effective by
the SEC at that time, to register all shares of Common Stock into
which the Debenture may be converted, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form SB-2 or
any other applicable registration statement, to register the shares
of Common Stock into which the Debenture may be converted that
exceed the aggregate number of shares of Common Stock already
registered.
Opportunity to Make Inquiries.
The Company will make available to each Offeree, prior to any
issue of the Shares, the opportunity to ask questions and receive
answers from the Company concerning any aspect of the investment and
to obtain any additional information contained in this Prospectus,
to the extent that the Company possesses such information or can
acquire it without unreasonable effort or expense.
Execution of Documents.
Each person desiring to be issued Shares, either as a
conversion of a debenture, or an exercise of a warrant, must complete,
execute, acknowledge, and delivered to the Company certain documents,
By executing these documents, the subscriber is agreeing that such
subscriber will be, a shareholder in the Company and will be otherwise
bound by the articles of incorporation and the bylaws of the Company
in the form attached to this Prospectus.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by or
against the Company has been threatened.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The names, ages, and respective positions of the directors,
officers, and significant employees of the Company are set forth
below. There are no other persons which can be classified as a
promoter or controlling person of the Company.
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company since
March 1997. From 1993 to the present, he has also served as the
President of Electronic Transactions & Technologies, a privately
held Nevada corporation which developed terminals for wireless home
and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President of Hall
Developments, a real estate development company he founded in 1991,
which employs a staff of 10 people. Mr. Hall spends approximately
20 hours per week searching out strategic alliances for the Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer since 1991.
Currently she owns and manages her own firm, D. Diane Hewitt
Designs. This firm's expertise is churches and employs a staff of
five people. Ms. Hewitt currently devotes approximately 25 hours
per week in working with the Company's image development and
consulting with the Company's advertising firm.
Anthony L. Hall, Vice President, Director of Technology.
Mr. Hall, age 34, has been Vice President and Director of
Technology of the Company since inception. Mr. Hall has been the
creative mind behind the state of the art advancements made by the
company. Mr. Hall is responsible for all technological decisions
including but not limited to telephone call center, web site design
and in- house software implementation and computer systems
engineering and support. Mr. Hall is a unique individual within the
technological community. A technological savante who combines
incomparable knowledge of the computer world with the savvy of a
successful businessman. Mr. Hall learned his trade over the last six
years with such renowned institutions as the Kraft Group (owners of
International Forest Products and the New England Patriots),
Fidelity Investments, Partners Health Care and most recently as
Managing Director of the firm he founded, Isis Technology Group.
Kevin J. Lewis, Vice President, Sports Book Operations.
Mr. Lewis, age 36, has been Vice President and Senior Manager
of Sports Book Operations of the Company since it was founded.
After a long and exhaustive process, Mr. Lewis was selected from a
select group of candidates to lead the operations and sports
handicapping management of the company. He has 19 years experience
as a sports book manager with several of the largest and most
profitable sports books in the world. He has worked in Las Vegas,
the Domincan Republic, Antigua, Costa Rica and Canada with such
respected sports books as Tradewinds, Grand Prix Sports Book and
WWTS. Mr. Lewis is known as a sage amongst his peers and is, with
little doubt, the best sports book and betting line manager in the
industry.
Over the next few months, James Wexler, will phase into the
position as CEO of the Company. Presently, Thomas S. Hughes is
fulfilling that role. Hughes will remain as the chairman of the
Company once James Wexler has taken the CEO position.
Mr. Wexler is a highly motivated professional with almost six
years experience in the investment banking industry primarily with
the firms of Morgan Stanley Dean Witter and Bear Stearns & Co., Inc.
In addition, Mr. Wexler has more than twelve years experience in the
gambling and sports handicapping fields and is considered a
knowledgeable expert within the industry. For many years, he has
served as a consultant to off shore sports books, handicappers and
sports bettors. Mr. Wexler's visionary leadership creates the ideal
union between fundamental business theory, state of the art
technology and the necessary knowledge of sports gambling.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this
Prospectus, the outstanding Shares of common stock of the Company
owned of record or beneficially by each person who owned of record,
or was known by the Company to own beneficially, more than 5% of the
Company's Common Stock, and the name and share holdings of each
officer and director and all officers and directors as a group.
Title of Class Name of Beneficial Amount and Percent
Owner(1) Nature of of Class
Beneficial
Owner (2)
Common Stock Electronic
Transactions &
Technologies 7,685,000 53.00%
Common Stock James S. Clinton 1,700,000 11.72%
Common Stock Thomas S. Hughes 1,000,000 6.90%
(1) Other than the Shares owned by Mr. Hughes, none of the other
officers or directors of the Company own any of the Shares.
Electronic Transactions & Technologies is a privately held
Nevada corporation, 70% of the stock of which is owned by Mr.
Hughes.
(2) Neither Mr. Clinton nor Mr. Hughes have the right to acquire any
amount of the Shares within sixty days from options, warrants,
rights, conversion privilege, or similar obligations.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock, with a par value of $0.001. The holders of
the Shares: (a) have equal ratable rights to dividends from funds
legally available therefore, when, as, and if declared by the Board
of Directors of the Company; (b) are entitled to share ratably in
all of the assets of the Company available for distribution upon
winding up of the affairs of the Company; (c) do not have preemptive
subscription or conversion rights and there are no redemption or
sinking fund applicable thereto; and (d) are entitled to one non-
cumulative vote per share on all matters on which shareholders may
vote at all meetings of shareholders. These securities do not have
any of the following rights: (a) cumulative or special voting
rights; (b) preemptive rights to purchase in new issues of Shares;
(c) preference as to dividends or interest; (d) preference upon
liquidation; or (e) any other special rights or preferences. In
addition, the Shares are not convertible into any other security.
There are no restrictions on dividends under any loan other
financing arrangements or otherwise. See a copy of the Articles of
Incorporation, and amendments thereto, and Bylaws of the Company,
attached as Exhibit 3.1, Exhibit 3.2, and Exhibit 3.3, respectively,
to this Form SB-2. As of the date of this Form SB-2, the Company
has 15,250,000 Shares of common stock outstanding (the Company filed
a Form S-8 with the Securities and Exchange Commission on May 14,
1999 for the registration of 900,000 shares of common stock to be
sold to certain consultants for the Company in exchange for services
rendered to the Company; in addition, on June 9, 1999 the Company
filed a Form S-8 for the registration of 1,450,000 shares of common
stock to be sold to certain consultants for the Company in exchange
for services rendered to the Company; as of June 28, 1999, only
750,000 shares out of the total of 2,350,000 shares of consultant
stock have been issued).
Non-Cumulative Voting.
The holders of Shares of Common Stock of the Company do not
have cumulative voting rights, which means that the holders of more
than 50% of such outstanding Shares, voting for the election of
directors, can elect all of the directors to be elected, if they so
choose. In such event, the holders of the remaining Shares will not
be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends.
The Company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the Company's Board of
Directors deems such distributions appropriate. Because the Company
does not intend to make cash distributions, potential shareholders
would need to sell their shares to realize a return on their
investment. There can be no assurances of the projected values of
the shares, nor can there be any guarantees of the success of the
Company.
A distribution of revenues will be made only when, in the
judgment of the Company's Board of Directors, it is in the best
interest of the Company's stockholders to do so. The Board of
Directors will review, among other things, the investment quality
and marketability of the securities considered for distribution; the
impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of an
initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
Upon the completion of this Offering, assuming the maximum
offering of 20,000,000 is sold, and the issue of shares to
consultants of the Company pursuant to the Form S-8, the Company's
authorized but unissued capital stock will consist of 64,500,000
shares of common stock. One effect of the existence of authorized
but unissued capital stock may be to enable the Board of Directors
to render more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy
contest, or otherwise, and thereby to protect the continuity of the
Company's management. If, in the due exercise of its fiduciary
obligations, for example, the Board of Directors were to determine
that a takeover proposal was not in the Company's best interests,
such shares could be issued by the Board of Directors without
stockholder approval in one or more private placements or other
transactions that might prevent, or render more difficult or costly,
completion of the takeover transaction by diluting the voting or
other rights of the proposed acquiror or insurgent stockholder or
stockholder group, by creating a substantial voting block in
institutional or other hands that might undertake to support the
position of the incumbent Board of Directors, by effecting an
acquisition that might complicate or preclude the takeover, or
otherwise.
Transfer Agent.
The Company has engaged the services of Corporate Stock
Transfer, 370 17th Street, Denver, Colorado 80202, to act as transfer
agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis,
will receive a direct or indirect interest in the small business
issuer, or was a promoter, underwriter, voting trustee, director,
officer, or employee of the small business issuer.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
No director of the Company will have personal liability to the
Company or any of its stockholders for monetary damages for breach
of fiduciary duty as a director involving any act or omission of any
such director since provisions have been made in the Articles of
Incorporation limiting such liability. The foregoing provisions
shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or, which
involve intentional misconduct or a knowing violation of law, (iii)
under applicable Sections of the Nevada Revised Statutes, (iv) the
payment of dividends in violation of Section 78.300 of the Nevada
Revised Statutes or, (v) for any transaction from which the director
derived an improper personal benefit.
The By-laws provide for indemnification of the directors,
officers, and employees of the Company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the Company if they were not
engaged in willful misfeasance or malfeasance in the performance of
his or her duties; provided that in the event of a settlement the
indemnification will apply only when the Board of Directors approves
such settlement and reimbursement as being for the best interests of
the Corporation. The Bylaws, therefore, limit the liability of
directors to the maximum extent permitted by Nevada law (Section
78.751).
The officers and directors of the Company are accountable to
the Company as fiduciaries, which means they are required to
exercise good faith and fairness in all dealings affecting the
Company. In the event that a shareholder believes the officers
and/or directors have violated their fiduciary duties to the
Company, the shareholder may, subject to applicable rules of civil
procedure, be able to bring a class action or derivative suit to
enforce the shareholder's rights, including rights under certain
federal and state securities laws and regulations to recover damages
from and require an accounting by management.. Shareholders who
have suffered losses in connection with the purchase or sale of
their interest in the Company in connection with such sale or
purchase, including the misapplication by any such officer or
director of the proceeds from the sale of these securities, may be
able to recover such losses from the Company.
The registrant undertakes the following:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted
to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the registrant are the officers
and directors as disclosed elsewhere in this Form SB-2. None of the
promoters have received anything of value from the registrant.
DESCRIPTION OF BUSINESS
The Business Vision of the Company.
The Company believes that by the year 2001, anyone with global
telephony will own or have access to different types of hardware
that can send ATM card with PIN or smart card payments to merchants.
ATM card with PIN or smart card payments are the same-as-cash (only
the merchant can reverse the transaction). These devices will
enable the consumer to send in what the Company calls transactions
which are Personal Encrypted Remote Financial Electronic Card
Transactions ("PERFECT"). These PERFECT transactions will originate
from homes, offices, cars, hotel rooms, and publicly placed PERFECT
equipment.
The driving industries behind the placement of these PERFECT
devices into the home will be the telephone, utility, cable,
finance, insurance and direct response industries who: (a) want
their banked consumers to pay cash from the home rather than a
check; and (b) want their non-banked consumers to pay cash from the
home rather send in a money order or walk in to pay the bills. The
Company estimates that over $1 billion in advertising and marketing
will be willingly spent by these industries over the next two years
to educate their consumers to pay their bills by same-as-cash
hardware enabled PERFECT transactions.
The Human Nature Question: The Company then asks the basic
question: After these PERFECT devices have migrated into global
homes as a simple same-as-cash bill payment device, then how long
before the average consumer demands to use the same device for
PERFECT wagering?
The PERFECT wagering marketplace: Presently, the global
wagering marketplace is estimated at $800 billion dollars. By 2001,
it is estimated at $1 trillion dollars.
The Company conservatively estimates that 30% of this or $300
billion dollars will be originating as PERFECT wagers from homes and
offices and cars. The long term goal of the Company is to establish
itself as the global leader in servicing PERFECT wagers.
The Company has also recently acquired Rogel Technologies, an
Internet related software firm. Rogel Technologies has signed a
Licensing Agreement with JVC who will sell the "secure email" to
Pacific Rim companies. These companies will pay $5.95 US per
employee per month. JVC will pay Rogel Technologies 50% of the
monthly fees. JVC expects to launch this business in about 2
months. The purpose of the acquisition is three fold:
1. Rogel Technologies is developing the Merchant Response Software
which is supplied by the Company to the gaming companies to respond
back to the PERFECT bank host commands through eGate.
2. The development of the PERFECT Portal which is where merchants
will go to download their PERFECT Merchant Response Software and the
consumer will go to find out who are the PERFECT merchants accepting
PERFECT transactions.
3. To receive the projected 3 year $20 million in profits from the
JVC sale and servicing of "on line secure email".
The Mechanics of a PERFECT Wager.
A PERFECT wager is Jane Simms, effecting a $100 home Lottery
wager at 2 a.m. with her PERFECT hardware, which may have been made
by Panasonic and delivered to her by Bell Atlantic as a bill payment
device. After inserting her ATM card and inputting her bank
assigned PIN, she sends the transaction toll free by modem to the
Company bank host or to another bank host who is driving the
transaction. In seconds, her card is authorized and the cash has
been withdrawn from her bank account. Since real cash in real time
is now on the way to the Lottery, the Company bank host needs to
receive back an acknowledgment from the Lottery that the wager has
been accepted and that Jane Simms is the player.
The next step is the long-term revenue generator for the
Company. The bank host, which could be the Company, or X host or Y
Host then connects with eGate, the transaction division of the
Company, who then connects with the Lottery and basically says
computer to computer: "We have the cash completed, send back your
acknowledgment of the wager and we'll pass it on to the bank host
who is waiting for your reply." In about 6 seconds, Jane Simms is
receiving a printed receipt if she has a stand alone PERFECT device
or an email if she used a wireless mobile PERFECT device. Her
receipt will state the time and date of the transaction, the
numbers. She chose and her bank card authorization. Her receipt
will also state any instant taxation of any winnings which may have
already been sent to her bank account.
Jane could have just as easily played Bingo or Black Jack or
entered into a game of Bridge where she used her PERFECT equipment
and her interactive television to see her fellow 2 a.m. Bridge
players who all ante up real cash into a Pot to be held by an Ante
Up service, with the winner then receiving her cash less Federal and
State taxes and the 10% Ante Up service fee.
Business and Goals of the Company.
A portion of the Company business will be in electronic
("eGate")gate servicing hundreds of global bank hosts, who are
driving in millions of incoming second by second PERFECT wagers
which are originating from a variety of different PERFECT hardware
devices, such as the Company's patented stand alone PayMaster or
wireless PocketPay or Internet related SLICK or patent pending TV
Pin Pad Remote. eGate connects these bank hosts to the gaming
companies and sends back the gaming company "pay per play same as
cash acknowledgment" to the bank host.
One goal of the Company is to establish its presence in
Europe, Asia and Latin America as the prime source to service
PERFECT wagers. Management of the Company feels that the Company is
at least 2 years ahead of any other competition, which at the
present time is minimal.
The Business Structure of the Company.
The Company is composed of two principal divisions: eGaming
and eGate. The reader already understands that eGate is directly
dependent upon the emergence, marketing and distribution of
basically free PERFECT devices for home entry as same-as-cash bill
payment devices.
The Company is priming the pump by now distributing the
Company PayMaster in public locations. This PayMaster will enable
consumers to pay bills, shop from catalogs while waiting for the car
to be cleaned or the oil to be changed or a business meeting to
start in a hotel lobby, and to use their ATM card to open or
replenish their gaming accounts with eSportsbet.com and 777WINS.com,
two divisions of the Company with operations in Costa Rica.
The business of eGate is a long term development. Today,
PERFECT wagers do not exist. Over the next few months, the Company
will effect PERFECT wagers with eSportsbet.com and 777WINS.com.
The immediate 12 month goal of the Company is to acquire
gaming companies in the market segments of bingo, lottery, slots,
and racing. We already have acquired the market segment of internet
casino which is 777WINS.com and the market segment of sports bets
which is eSportsbet.com.
The acquisitions serve three purposes:
1. They are driving in revenues and profits for the Company.
2. They will serve as test beds for PERFECT wagering.
3. They will act as Group Gates to connect the PERFECT wager with
competitors in their specific market segment and they will take
a fee for the service.
One PERFECT wager could be coming in from a SONY device, being
driven by X bank host and being paid to Y Internet casino, but
routed by X bank host to eGate, who then routes the command to
777WINS.com who then connects with Y to complete the PERFECT wager.
For the connect service, 777WINS.com just generated a service fee
from a payment to a competitor Internet casino.
(a) eSportsbet.com.
The offshore gambling market is growing at a rapid rate. The
market for these products is estimated to be $49 Billion by year end
1998. Research proves that the major trend is that the potentials
in profits that will be reaped from offshore gambling have not
scratched the surface of this market. The trend has been toward the
development of off shore phone operations, not Internet capable
betting sites.
Independent market research indicates that there are currently
only one licensed off shore gaming operation for every 500,000
customers. The market, as a whole, is looking towards the
additional sports books for use in the expansion of the gambling
market.
(1) Primer on Sports Book Operations.
Get a line. . .
The Company receives the most accurate starting line available
from Don Best Handicapping services in Las Vegas, Nevada. This line
is an average of lines from 5 individual Las Vegas Sports Books and
2 off shore sports books including the Mirage, Hilton, Stardust, the
Carib and WWTS.
Open for business. . .
Telephone lines are answered to provide lines and accept
wagers from 10:00 a.m. until the start of the last game of the day,
approximately 10:00 p.m. Second half lines are available for
Monday Night Football and all major football games. Bets are
accepted until the start of the second half for these games.
Types of sports on which one can wager. . .
Anything you can find betting lines on; including, football,
baseball, basketball, hockey, college and pro. Additionally,
wagering will be available on major Boxing, Golf, Tennis, and Auto-
Racing events.
Types of wagers accepted. . .
ESportsbet.com accepts all types of wagers including, straight
bets, over/unders, parlays, teasers, propositions, money-lines,
action-reverses, buying points, sports futures and a variety of
propositions bets.
Moving the line. . .
The Company's Handicapping Manager, Mr. Kevin Lewis, who has
over nineteen years experience in the sports gambling business,
moves the line accordingly as the bets flow into the book to assure
a "balance of bets" for the Company.
Balancing the books. . .
If the book cannot equally balance the action, it will "lay
off" the necessary amounts of bets with other sports books.
eSportsbet.com has established accounts at 12 different off shore
gambling companies for this purpose.
In essence, the Company is in the "banking business" and not
the gambling business. The Company balances all bets and simply act
as a bank for bettors. The goal of the Company is to let the losing
bettors pay the winners and the Company, the bank, keeps the
excess. Also, the Company is not in the collection business. All
players are required to "post up" money to their account before they
are able to wager. A new account must "post up" money, by way of
credit card, money gram, bank wire, or check, to his or her account
and then may bet only with their available balance. Analogous to a
bank, the Company keeps 10% available at all times in case there is
a demand for funds by customers.
Further, as soon as an established client base has been
developed, an attractive profit center will be available. For
example, when eSportsbet.com has 2000 clients, with an average "post
up" of $1,000, we will have $2 million at our disposal. The Company
can invest this money in laddered CD's, Treasuries or money market
instruments in order to earn interest on the "float". A return of
only 5% on $2 million is an extra $100,000 to the Company, as the
client base grows and the assets under management grow, so do the
profits from our banking business.
Pay outs/Pay-ins
Absolutely no "credit" customers accepted; a customer must
pay to play. Accounts are open within 15 minutes of credit card
payment by customer, money gram, or bank wire. Pay outs to customer
upon request within 24 hours by any of the methods above.
(2) Business Strategy.
There are currently less than 50 off shore sports books
servicing an average less than 1000 clients each. In fact, there
are less than 10 Internet sites that are fully operational for on-
line wagering. In concise terms, less than 0.06 % of bettors are
wagering off shore. More significantly, less than 0.0125% of
bettors are wagering through the Internet. The off shore gambling
market is a virgin industry with over 80 million potential customers
and virtually no place for these people to bet. We are in a position
to exploit this opportunity and have already begun the process.
eSportsbet.com was founded in early 1998 and has recently
emerged from its development stage. The sports book has been fully
operational since September 1, 1998. Development of on-line sports
wagering services is now complete. This division of the company can
best be described as being in the business of providing a legal,
reliable, and secure home or bank to place wagers. Our key
strengths include state-of-the-art-technology, customer service and
innovative marketing. Our management team is in place. We have
hired a sports book manager to complete our team. We are currently
hiring ten employees to answer phone calls from prospective
customers and current clients who wish to place wagers.
The marketplace has been expanding rapidly. The Company is
now poised to capitalize on the convergence increased Internet
access, ease of web site operability and security with a flourishing
demand to place wagers in this form. Current customers of offshore
sports books are requesting that the Company provide the ability to
place wagers on-line much in the same way that individual investors
can enact stock transactions on-line with companies such as
Fidelity, Schwabb and E-Trade.
In addition to the core services outlined above,
eSportsbet.com plans to develop its client relationships through
other ancillary services to enhance repeat customers and to provide
more information than other gambling services companies. The
Company does not intend to re-invent the wheel. Gambling is
centuries old; the Company is simply making it easier, more
legitimate and more accessible to the customer.
Advertising and marketing will be the Company's largest
expense; the focus on attaining customers and keeping clients is the
Company's foremost goal. The idea is to keep customers indefinitely
by continually offering them a valuable service, thereby diminishing
our costs of continually reaching and appealing to them. In order
to separate the Company from others in this field, wise selection of
service offerings is therefore critical to eSportsbet.com's success.
(3) Attaining Customers.
A Boston advertising and marketing firm has been retained to
lead a direct marketing and advertising campaign that will focus on
separating the Company from its competition with the following: 10%
sign up bonus; $100 referral bonus; accounts insured by Barclays
Bank; and the opinion of management, the highest pay off odds in the
industry.
(4) Servicing Clients.
To assure the best possible service decisions are made, the
Company has implemented the following criteria for servicing the
most important asset, the Company's clients: Service assistance for
customers with opening new accounts, reducing time, effort and
expense by delineating responsibilities by department. Service will
be implemented using six separate departments: new accounts,
accounts payable and receivable, customer service, phone clerks to
accept wagers and the executive office.
(5) Customer Profile and Strategy.
eSportsbet.com's target market includes males between the ages
of 18 and 45 who are active sports gamblers currently. The most
typical customer for the Company's product is someone who is in
either the white or blue-collar field, and who currently uses our
product for recreational purposes. The customer is a wholly
dependent product of marketing and advertising. It is likely that
potential customers are going to be familiar with similar products,
and it anticipated that they will accept the Company's product
because of magazine and newspaper advertising, Internet advertising,
direct local marketing, referral and incentive based marketing
directed towards sports gamblers.
A demographic profile of eSportsbet.com customers:
Demographic Segment: Males
Title: Sports fans
Power: Decision-maker
Viewpoint: Gambling is and should be legal
Position: Job holders with some disposable income
Emotional Influences: Money and peer acceptance
Practical Influences: Making quick money
Education: High school and college
Limitations: Access to gambling arenas (sports books, casinos)
Age: 18-38 years old
Income: $30,000 - $120,000
Geographic: Metropolitan with local favorite sports teams
Occupation: Both white and blue collar
Attitude: Hands off government, the government should not tell me
what to do in the privacy of my own home
Responses from current off shore bettors indicate that off
shore betting is enjoying an excellent reputation and we fully
intend to continue this trend. Inquiries from prospective customers
suggest that there is considerable and ever growing demand for new
sports books. eSportsbet.com is poised for explosive growth and
accomplishment in the industry of sports gambling. eSportsbet.com's
strategy is to enhance, promote and support the fact that our
products are unique in terms of ease of operability, reliability,
and security. Furthermore, and most importantly, from a bettor's
perspective, our products offer the highest odds payoffs in the
entire industry.
(6) Sales Strategy.
Because of the special market characteristics (sports gambling
is a niche market), sales strategy includes a direct marketing plan
that pinpoints men between the ages of 18 and 45, who have
disposable income, and who currently wager. The determining factors
in choosing these channels are customer profile; (i.e., age, gender,
sports enthusiast, etc.). Attracting new clients will be determined
by the benefits that we provide and other betting services do not.
If it's easier to bet with us, more fun, more secure and potentially
more profitable we will get more customers.
(7) Marketing and Advertising Strategy.
eSportsbet.com's marketing strategy is to enhance, promote and
support the fact that the Company's product is unique in terms of
ease of operability, reliability, security. Most importantly, from
a bettor's perspective it is the opinion of management that the
Company's product offer the highest odds pay outs in the entire
industry.
The Company's product should be treated as a niche product. As
such, the target market segments to focus on are men who gamble.
Because of the special market characteristics (sports gambling is a
niche market), the sales strategy includes a direct marketing plan
that pinpoints men.
eSportsbet.com's marketing strategy incorporates plans to sell
its product through several channels. These distribution channels
include: Friday, Saturday and Sunday sports sections of regional
newspapers; print media in direct market sports and male dominated
periodicals; thirty and sixty second radio spots on popular sports
talk radio shows; printed flyers and brochures handed out at major
sporting events. The determining factors in choosing these channels
are customer profile; i.e., age, gender, sports enthusiast, etc. Key
competition uses only print media in industry publications and word
of mouth as distribution channels. The Company's mix of
distribution channels will give the advantages of complete market
saturation, not limiting the Company to region or sports specific
publications versus the competition.
eSportsbet.com recognizes the key to success at this time
requires extensive promotion. This must be done aggressively on a
wide scale. To accomplish the Company's sales goals, an extremely
capable advertising agency and public relations firm is required.
The Company will develop an advertising campaign built around
ease of operability, reliability, security, instant pay outs if
requested and most importantly from a bettor's perspective, and, in
the opinion of the Company, the highest pay out odds available
anywhere in the industry. Further, the Company will develop a
consistent reach and frequency with advertising throughout the year.
In addition to standard advertising practices, eSportsbet.com will
gain considerable recognition through grass roots, guerrilla
marketing campaigns. This strategy will include flyers handed out to
spectators of the four major sporting events and boxing, promotions
made available to local sports bars in Boston and other metropolitan
areas, and hiring of age college students to pass out flyers on
campus and fraternity houses across the country.
eSportsbet.com's overall advertising and promotional
objectives are to: Position eSportsbet.com as the leader in the
market; increase company awareness and brand name recognition;
generate qualified sales leads and potential new distributors;
create product-advertising programs supporting our market dominant
position; coordinate sales literature, materials, telemarketing
programs; and direct response promotions in order to continually
saturate the market with our name and logo. Establish the proper
image of eSportsbet.com which in our opinion is the "bank" of the
betting world and indicates that association with security, safety
and stability
eSportsbet.com's media strategy is to: Select primary sports
publications with high specific market penetration; frequent ads to
impact market with corporate image and product messages; strategic
positioning of ads around industry articles or appropriate
editorials; utilize U.S. editions of consumer, trade, or specialty
publications; take advantage of special high-interest issues of
major publications when possible, i.e. Superbowl, College Bowl
Season, NCAA Basketball "March Madness" tournament and various other
sports pre-season annuals; maximize ad life with monthly and weekly
publications. To get the most out of our promotional budget, we
will be selective and focus acutely as possible in choosing media
coverage which will focus on a male dominated audience.
In addition to standard advertising practices, considerable
recognition can be gained through grass roots campaigns; these
include flyers handed out to spectators of the four major sporting
events, including boxing and promotions and brochures made available
at local sports bars in Boston and other metropolitan areas.
Further, on a grass roots level, eSportsbet.com will be featured
prominently in the form of promotions offered by attractive women at
sports bars. In addition, these same women will be found prior to
game time in the parking lots of major sporting events handing out
flyers, brochures, etc.
If these grass roots campaigns work on a local level, there is
no reason to believe these ideas would not work in other
metropolitan areas such as New York, Dallas, Miami, Los Angeles, and
Chicago. If successful, the Company will quickly move to exploit
these fertile markets.
The Company is building its capabilities in database
marketing. Registration cards and periodic customer surveys will
help the Company understand the customer, and help to measure the
success of the marketing, sales and product activities. The Company
plans to develop a customer information system that will help make
sound decisions by providing historical answers to the marketing
questions that are posed.
The Company will use in house telemarketing service to perform the
following functions:
Address customer complaints
Respond to inquiries
Generate new business
(8) Direct Response Mail.
The Company will be exploring the benefits of incremental,
coordinated direct mail programs in the next several months. The
Company will be approaching this quantitatively, as customer
targeting ability is improved. The Company has purchased mailing
lists from sports gambling magazines and newsletters and sports
bettors from Las Vegas casinos. In addition, the direct mail
activities will be continually directed to the existing customer
base to ask for referrals. A $100 betting voucher will be provided
to these clients for every referral that signs up.
(9) Internal/External Newsletter.
The Company is currently planning to produce a newsletter to
serve as an informational piece for internal personnel, the sales
force, and customers. It will include sections covering each major
department or organization within eSportsbet.com, useful trade
information and the latest updates. Importantly, these newsletters
will provide incentives and promotions for clients and new
customers.
(10) The Competition.
Currently, the market is shared by less than 50 off shore
operations of which less than ten offer the capability for
interactive on-line Internet sports wagers. Users of the sports book
web sites are looking for such things as quality and security
improvements. Developments and increased traffic in the sports book
industry have resulted in the need to increase security, reliability
and simplicity of operability.
Over the past year, similar companies have proven that
meaningful features can be developed for this arena. These
companies have primarily focused on the use of 800 phone numbers to
improve the quality of use and access in these products. These
products have been successfully distributed in many areas of the
industry. WWTS, ABC Islands, Global Sports Network and Carib Sports
Book provide competitive products in this market.
In terms of product strength, eSportsbet.com has several
distinct advantages over the competition. First is its marked
advancement in web site technology. Other product strengths include
web site ease of operability and security. In marketing, our most
powerful assets are direct market research resulting in a creative
approach to reach new bettors.
Companies that compete in this market are homogenous in nature
in terms of products and services offered. All companies mentioned
above, the industry leaders, charge competitive prices as follows:
Competition:
$110 - $100 pay out
6 point 2-team teasers
13-5 parlay pay out
(800) phone betting
next day pay out to customers
no guarantee
no referral fee
no name bank insuring funds
eSportsbet.com:
$110 -$100 pay out
$105-$100 , bet by internet
(800) phone betting
internet betting
7 point 2-team teasers
14-5 parlay pay out
same day pay outs if requested
24 hour guarantee
$100 referral bonus
money held at Barclays Bank
The major strengths of our competitors are reputation only as
a result of length of service. The major weaknesses of our
competitors are an apparent unwillingness to offer a fair market in
terms of pricing and quality services.
The major competitors' most likely response to trends
affecting this industry will be inaction due stability in terms of
their own client base. The Company's product is positioned relative
to the major competitors by equal or higher odds for equal wagers
for our customers. The ability to interact by telephone or on-line
via the Internet with ease, simplicity, reliability and security is
unique to this product, and the Company's research indicates its
performance is superior to anything else on the market today.
An important point regarding industry competition: Data has
shown that where new gambling operations open for business, the
number of dollars spent by gamblers on total gambling activities
doubles. Rather than diverting funds from other gaming operations,
it simply draws new players into the market. Based on this
important fact, the Company expects to draw new bettors rather than
compete with established sports books for their current clientele
who are satisfied with the antiquated method of betting over the
telephone.
eSportsbet.com is not yet an Internet presence and but is
presently accepting calls over the phone. The goal of the Company is
to establish the Internet presence of eSportsbet.com by July 1999.
Its base of operations is in Costa Rica..
April 1999: Wagering transactions: $1.1 million
Revenues: $60,000
Net Profits: $15,000
May: About $600,000 in wagering transactions
(b) 777WINS.com.
The same general points made in the discussion as to
eSportsbet.com, set forth above, also apply to 777WINNS.com, the
Company's division for interest casino type games. On May 27, 1999,
the Company established a larger incoming bandwidth by MCI
Communications providing, at their cost, a satellite dish (the
previous bandwidth limited the speed of play and hence the number of
players at any one time).
The Revenue on a $100 wager is as follows:
If coming in from a Banner Ad at an Internet Merchants location, the
payment to the Merchant is 20% or $20. The present credit card fees
cost is 10% or $10. Therefore, the revenue from a $100 wager is
$70. The revenue from a non banner ad contact is $90. Net profits
are about 15% of the Wager.
With increase band width, the Company is projecting a
$1,000,000 plus month in June as the Company will be heavily
promoting a 777WINS.com tournament where the winners are flown all
expenses paid to the Gran Isle Casino in Costa Rica.
(c) Projected Budget Expenditures.
$5,000,000 Budget:
$1,000,000 to upgrade eSportsbet as a premier web site and to
aggressively market the services while at the same time holding on
to the call in service for non Internet customers.
$1,000,000 to upgrade 777WINS.com into an expanded site and to
double again the incoming band width.
$1,000,000 to put on fast track the development of the Company
PocketPay, which is a terminal and phone for the pocket, and which
would be marketed into the Asian market as a pay per play device and
also a business transaction device. And for the development of the
SLICK, which is an Internet device to bypass the Internet with same-
as-cash transactions.
$1,000,000 for the establishment of the Company bank host and the
Company Gate in the United Kingdom, Hong Kong, Mexico, Australia and
South Africa by October 1999.
$1,000,000 in reserve to be used to buy back 20% of the Company's
stock in the public float.
Conclusion.
By accepting the premise of global PERFECT devices available
to anyone with telephony by 2001, then one readily sees that the
PERFECT wagering market is a natural evolution and will quickly
become an accepted and legitimate and regulated industry. The
instant taxation of consumers' PERFECT winnings is a given and one
need only ask how long the USA lotteries would remain silent as they
watched home consumers using PERFECT devices to place same-as-cash
bill payments. The only reason lottery is not played from the home
today is simply because you can non play lottery on credit... it
must be cash. To date, no one has the ability to move real cash
from home to the lotteries. The PERFECT industry will change that.
Add in the fact that the Company is leading the way with
777WINS.com flying tournament winners to a real Costa Rican casino
and that the analogy of Internet casinos to land based casinos are
as to television is to the big screen cinemas, then one can readily
see that the global PERFECT wagering marketplace of 2001 could
easily be a $300 to $400 billion global marketplace.
With over $500 Billion spent on gambling in the U.S. alone in
1993, where over 90% of adults participate in some form of gambling,
the market for in-home on-line gambling immeasurable. In 1997,
close to 80 million Americans placed bets on sports. With less than
one offshore sports book operating for every 1,000,000 gamblers the
ground is truly untouched.
PLAN OF OPERATION
A discussion of the Company's plan of operation over the next
12 months in incorporated into the discussion of the Company's
business. See "Description of Business."
DESCRIPTION OF PROPERTY
The Company currently owns the following property in
connection with its operations:
(a) Four servers for the operation of eSportsbet.com and
777WINNS.com, valued at $15,000 each.
(b) Approximately $50,000 of various office equipment,
including personal computers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, certain transactions which occurred
between the Company and its officers and directors are set forth
below. With respect to each such transaction, the Company believes
that the terms of each transaction were approximately as favorable
to the Company as could have been obtained from an unrelated third
party:
(1) The Company utilized cash accounts maintained by ET&T to
fund day to day operations of the Company over the period of March
1998 through September 1998. At August 31, 1998, the net result of
these transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997 in exchange for service
rendered to the Company. The Company did not receive any cash
consideration for this common stock issuance and has treated this as
an expense to the Company of $375,000.
(3) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales, Inc.("HPOS")
(now know as Electronic Transactions & Technology - "ET&T")) (this
agreement is incorporated by reference at Exhibit 10.1 to this Form
SB-2). ET&T is a privately held corporation 70% owned by Thomas S.
Hughes, President of the Company, which is focused on the emergence
of the Personal Encrypted Remote Financial Electronic Card
Transactions industry (although this agreement was entered into
prior to Mr. Hughes becoming affiliated with the Company, it is
included here since certain of the conditions under that agreement
have not been completely fulfilled, as discussed below).
The assets included under this agreement are the following:
(a) The name "Betting, Inc.", as trademarked by HPOS; (b) The
Wagering Gate (receive incoming data transfer commands from the Host
Center and other competitive Host Centers who have received ATM and
SMART card wagering payment from off site home or office locations
and then who command the Wagering GATE to alert the recipient gaming
companies that they have been paid and to respond back with an
acknowledgement of such payment; and, the general promotion and
education of home ATM and SMART card wagering over the Internet
through the HPOS Secure Computer Keyboard or over the telephone
through the HPOS stand alone Infinity unit); (c) the specific
application of Wagering with an ATM card or SMART card with the
Secure Computer Keyboard (any other uses of the Secure Computer
Keyboard, such as Bill Pay or Impulse Purchase that are not Wagering
transactions, are not included); (d) the HPOS developed Merchant
Response Software for the specific application only of transacting
Off Site ATM and Smart card Wagering through the Wagering Gate; and
(e) HPOS' interest in the use of and revenue from the HPOS Personal
Encrypted Remote Financial Electronic Card transaction relating to
the Wagering Business in all HPOS partner countries.
Under terms of this licensing agreement, the Company is to
issue 2,900,000 shares of restricted common stock to HPOS in
exchange for licensing home ATM card and SMART card wagering
technology developed by HPOS. Of this amount, 2,755,000 shares were
placed in escrow subject to cancellation on February 10, 1998, in
the event the bid price of the common stock of the Company is not at
least $3.00 per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board or NASDAQ's Small
Cap Market from the date of the agreement through February 10, 1998
(this escrow agreement is incorporated by reference at Exhibit 10.2
to the Form SB-2).
As of the date of this Prospectus, the terms of the Licensing
Agreement have not been met by the Company. However, the Company
has entered into amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from February 10,
1998, to September 1, 1999, subject to certain conditions specified
in the agreement. All conditions set forth in the original
agreement need to be met on or before September 1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00 per
share for any twenty consecutive day period, then HPOS shall have
the option to purchase up to 13,822,000 additional shares of the
Company common stock at an exercise price of $.30 per share.
(4) On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act as
the bank host processing for all Company transactions that are sent
by terminals that read credit cards or ATM cards (this agreement is
incorporated by reference at Exhibit 10.3 to this Form SB-2). ET&T
is to charge the Betting, Inc. a fee of $0.25 per transaction or
2.5% of the wager being sent by Betting, Inc. to gaming operators.
These transactions are to originate from globally placed Betting,
Inc. equipment and/or Betting, Inc. licensed operators.
(5) On March 27, 1998, the Company entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions (this
agreement is incorporated by reference at Exhibit 10.4 to this Form
SB-2). This licensing supplements the technology licensed under the
Agreement date February 18, 1997. This agreement states that ET&T
licenses the following ET&T products to Betting, Inc. for the
exclusive global usage of wagering by PERFECT originated ATM cards,
credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that attaches to
phone lines and which calls the ET&T host processing center with
bank data.
The SLICK, defined as a stand alone keyboard terminal that attaches
to phone lines and call the ET&T host processing center with bank
data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone that
sends bank data by wireless transmission to the ET&T host processing
center.
The TV Pin Pad Remote, defined as a set top box and TV remote that
sends bank data by landline dial up transmission to the ET&T host
processing center.
Each ET&T product is exclusively licensed to Betting, Inc. on a
global basis for the application of PERFECT wagering at a licensing
fee of $2,000,000 each. This fee is being paid by the Company at
the rate of $30,000 per month. The duration of the exclusive
license is 20 years.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The Company's Shares are traded in the over-the-counter market
and the range of closing bid prices shown below is as reported by
the OTC Bulletin Board. The quotations shown reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 1999
High Low
First Quarter 1.0625 0.375
Per Share Common Stock Bid Prices by Quarter
For the Transition Period Ended on December 31, 1998 *
High Low
Transition Period 0.98 0.05
* Due to a change in the fiscal year end of the Company from August
31 to December 31 as a result of the merger of the Company with
Betting, Inc. (Missouri).
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter ** 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
** The Shares did not trade from February 18, 1998 through February
28, 1998
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter *** 8.125 7.625
Third Quarter *** 0.8125 0.0625
Fourth Quarter 0.5625 0.06
*** The Shares did not trade from December 13, 1996 through April
24, 1997
(b) Holders of Common Equity.
As of June 25, 1999, the Company estimates there were
approximately 400 beneficial shareholders of the Company's Common
Stock.
(c) Dividends.
The Company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation on November 18,
1993. The Board of Directors presently intends to retain any
earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
EXECUTIVE COMPENSATION
(a) No officer or director of the Company is receiving any
remuneration at this time.
(b) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
corporation in the event of retirement at normal retirement date
pursuant to any presently existing plan provided or contributed to
by the corporation or any of its subsidiaries.
(c) No remuneration is proposed to be in the future directly
or indirectly by the corporation to any officer or director under
any plan which is presently existing.
FINANCIAL STATEMENTS
The Financial Statements required by Item 310 of Regulation S-
B (in the form of the latest Annual Report on Form 10-KSB and
Quarterly Report on Form 10-QSB) are incorporated by reference in
this Prospectus, and are set forth in their entirety as Exhibits
13.1 and 13.2 to this Form SB-2.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On August 1, 1998, the Company engaged the services of George
Brenner, C.P.A. of Beverly Hills, California, to provide an audit of
the Company's financial statements for the fiscal years ended August
31, 1997 and 1998. The former accountant for the Company, BDO
Seidman L.L.P. of St. Louis Missouri declined the stand for re-
election for the 1997 engagement. The independent auditor's reports
for August 31, 1996 and 1995, were modified as to the uncertainties
about the Company's ability to continue as a going concern. The
decision to change accountants was approved by the Company's Board
of Directors with the selection of the successor accountant. The
Company and its former accountants had no disagreement during the
fiscal years ended August 31, 1996 and 1995, and through the date
they declined to stand for re-election.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Propsectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the Prospectus under
the heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
None.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an
index thereto, are attached.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a
fundamental change in the information in the
registration statement; and Notwithstanding the
forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation From the low or high end
of the estimated maximum offering range may be reflected
in the form of prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
(d) Provide to the underwriter at the closing specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-
2 and authorized this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorize, in the City of
Rancho Palos Verdes, State of California, on June 28, 1999.
eCONNECT
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any and
all capacities, to sign any and all amendments, including post-
effective amendments, to this Form SB-2 Registration Statement, and
to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission,
granting such attorney-in-fact the full power and authority to do
and perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that such attorney0in-fact may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Thomas S. Hughes
Thomas S. Hughes
President, Chief Executive Officer,
Director
June 28, 1999
/s/ Jack M. Hall
Jack M. Hall
Secretary, Director
June 28, 1999
/s/ Diane Hewitt
Diane Hewitt
Treasurer (Principal Financial and
Accounting Officer), Director
June 28, 1999
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
3.1 Articles of Incorporation See Below
3.2 Certificate of Amendment
of Amendment to Articles
of Incorporation See Below
3.3 Bylaws See Below
4.1 Class A Warrant Agreement
incorporated by reference
to Exhibit 4.2 of Leggoons,
Inc.'s Registration Statement
on Form S-1 filed on
October 28, 1993). Incorporated by
Reference
4.2 Registration Rights Agreement See Below
4.3 Form of Debenture See Below
4.4 Form of Warrant See Below
5, 23.1 Opinion Re: Legality;
Consent of Counsel See Below
10.1 Agreement to License Assets
(incorporated by reference
to Exhibit 10.16 to the
Form 8-K filed on
February 25, 1997) Incorporated by
Reference
10.2 Escrow Agreement
(incorporated by
reference to Exhibit 10.17 to the
Form 8-K filed on
February 25, 1997) Incorporated by
Reference
10.3 Host Processing Agreement
(incorporated by reference
to Exhibit 10.3 of the Form
10-KSB/A for the fiscal year
ended August 31, 1998) Incorporated by
Reference
10.4 Licensing Agreement
(incorporated by reference
to Exhibit 10.4 of the Form
10-KSB/A for the fiscal year
ended August 31, 1998) Incorporated by
Reference
13.1 Latest Annual Report to
Security Holders on Form
10-KSB/A See Below
13.2 Latest Quarterly Report
to Security Holders on
Form 10-QSB/A See Below
23.2 Consent of Accountant See Below
24 Special Power of Attorney See Signature Page
ARTICLES OF INCORPORATION
OF
BETTING, INC.
Know all men by these presents:
That we, the undersigned, for the purpose of association to
establish a corporation for the transaction of business and the
promotion and conduct of the objects and purposes hereinafter
stated, under the provisions of and subject to the requirements of
the laws of the State of Nevada, do make, record and file these
Articles of Incorporation in writing.
And we do hereby certify:
The name of this Corporation is: Error! Reference source not found.
The principal office in the State of Nevada is to be located at:
3360 W. Sahara Ave., Suite 200, Las Vegas, NV 89102
The Resident agent for this Corporation shall be: Daniel G. Chapman,
3360 W. Sahara Ave., Las Vegas, NV 89102.
This Corporation may also maintain an office or offices at such
other places within or outside the State of Nevada, as it may from
time to time determine. Corporate business of every kind and nature
may be conducted, and meetings of directors and stockholders held
outside the State of Nevada, the same as in the State of Nevada.
This Corporation may engage in any lawful activity.
This Corporation is authorized to issue only one class of shares of
stock, the total number of which is 25,000,000 shares, each with par
value of $0.001. Such stock may be issued by this Corporation from
time to time by the Board of Directors thereof. The shares of stock
shall be designated "Common Stock" and the holders thereof shall be
entitled to one (1) vote for each share held by them.
No Director or Officer of this Corporation shall be liable to this
Corporation or its stockholders for any breach of fiduciary duty as
Officer or Director of this Corporation. This provision shall not
affect liability for acts or omissions which involve intentional
misconduct, fraud, a knowing violation or law, or the payment of
dividends in violation of NRS 78.300.
All expenses incurred by Officers or Directors in defending a civil
or criminal action, suit, or proceeding, must be paid by this
Corporation as they are incurred in advance of a final disposition
of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of a Director or Officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction, that he
or she did not act in good faith, and in the manner he or she
reasonably believed to be or not opposed to the best interests of
this Corporation.
The members of the governing Board shall be styled Directors, and
the number of Directors shall not be less than one (1) pursuant to
the terms of NRS 78.115. The name and address of the first Board of
Directors, which shall consist of one (1) member is:
Tom Hughes
3360 W. Sahara Ave., Suite
200,
Las Vegas, NV 89102
The number of Directors of this Corporation may from time to time be
increased or decreased as set forth hereinabove by an amendment to
the By-Laws in that regard, and without the necessity of amending
these Articles of Incorporation.
The name and address of the incorporator is:
Daniel G. Chapman
3360 W. Sahara Ave., Suite 200
Las Vegas, NV 89102
The capital stock of this Corporation, after the amount of the
subscription price has been paid in cash or in kind, shall be and
remain non-assessable and shall not be subject to assessment to pay
debts of this Corporation.
This Corporation shall have perpetual existence.
No holder of any shares of this Corporation shall have any
preemptive right to purchase, subscribe for, or otherwise acquire
any shares of this Corporation of any class now or hereafter
authorized, or any securities exchangeable for or convertible into
such shares, or warrants or other instruments evidencing rights or
options to subscribe for, purchase or otherwise acquire such shares.
This Corporation shall not be governed by the provisions of NRS
78.411 to 78.444, inclusive.
Executed this 8th day of March, 1999.
/s/ Daniel G. Chapman
Daniel G. Chapman, Esq.
Verification
State of Nevada
SS
County of Clark
On this 8th day of March, 1999, before me, the undersigned, a
Notary Public in and for said State, personally appeared Daniel G.
Chapman, Esq. personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person who subscribed her name
to the Articles of Incorporation and acknowledged to me that she
executed the same freely and voluntarily and for the use and
purposes therein mentioned.
By: _/s/____________________________
Notary Public in and for said
County and State
CERTIFICATE OF ACCEPTANCE OF
APPOINTMENT AS RESIDENT AGENT
In the matter of Betting, Inc., I hereby certify that on the 8th day
of March, 1999, I accepted the appointment as Resident Agent of the
above-entitled corporation in accordance with NRS 78.090.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of
March, 1999.
/s/ Daniel G. Chapman
Daniel G. Chapman, Esq.
CERTIFICATE OF AMENDMENT OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
BETTING, INC.
I, Thomas S. Hughes, certify that:
1. The original articles were filed with the Office of the
Secretary of State on March 8, 1999.
2. As of this date, there is no issued or outstanding
stock.
3. Pursuant to a Board of Directors meeting at which in
excess of two-thirds voted in favor of the following
amendment, the company hereby adopts the following amendments
to the Articles of Incorporation of this Corporation:
Article One: The name of this Corporation is:
eCONNECT
Article Two: The Resident Agent for this Corporation
shall be:
Shawn F. Hackman, Esq., 3360 West Sahara Avenue, Suite 200, Las
Vegas, Nevada 89102
Article Four: This Corporation is authorized to issue
only one class of shares of stock, the total number of which is
100,000,000 shares, each with a par value of $0.001.
_/s/ Thomas S. Hughes_____________
Thomas S. Hughes,
President/Director
Verification
State of California
SS
County of Los Angeles
On this 25th day of May, 1999, before me, the undersigned, a
Notary Public in and for said State, personally appeared Thomas S.
Hughes personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who subscribed his name to
the Certificate of Amendment of Amendment to Articles of
Incorporation and acknowledged to me that he executed the same
freely and voluntarily and for the use and purposes therein
mentioned.
By: _/s/_______________________
Notary Public in and for said
County and State
BYLAWS
OF
BETTING, INC.
Article I: Offices
The principal office of Betting, Inc. ("Corporation") in the
Sate of Nevada shall be located in Las Vegas, County of Clark. The
Corporation may have such other offices, either within or without
the State of Nevada, as the Board of Directors my designate or as
the business of the Corporation my require from time to time.
Article II: Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held during the first ten (10) days in the
month of June in each year, or on such other date during the
calendar year as may be designated by the Board of Directors. If
the day fixed for the annual meeting shall be a legal holiday in the
Sate of Nevada, such meeting shall be held on the next succeeding
business day. If the election of Directors shall be held on the day
designated herein for any annual meeting of the shareholders or at
any adjournment thereof, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon
thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the President at the
request of the holders of not less than ten percent (10%) of all the
outstanding shares of the Corporation entitled to vote at the
meeting.
Section 3. Place of Meeting. The Board of Directors my
designate any place, either within our without the State of Nevada,
unless otherwise prescribed by statute, as the place of meeting for
any annual meeting or for any special meeting. A waiver of notice
signed by all shareholders entitled to vote at a meeting may
designate any place, either within our without the State of Nevada,
unless otherwise prescribed by statute, as the place for the holding
of such meeting. If no designation is made, the place of meeting
shall be the principal office of the Corporation.
Section 4. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called,
shall unless otherwise prescribed by statute, be delivered not less
than ten (10) nor more than sixty (60) days before the date of the
meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States Mail, addressed to the
shareholder at his address as it appears on the stock transfer books
of the Corporation, with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record.
For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof,
or shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper
purpose, the Board of Directors of the Corporation may provide that
the stock transfer books shall be closed for a stated period, but
not to exceed in any case fifty (50) days. If the stock transfer
books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least fifteen (15) days immediately
preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in
any case to be not more than thirty (30) days and, in case of a
meeting of shareholders, not less than ten (10) days, prior to the
date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders. When a determination
of shareholders entitled to vote at any meeting of shareholders has
been made as provided in this section, such determination shall
apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge
of the stock transfer books for shares of the Corporation shall make
a complete list of shareholders entitled to vote at each meeting of
shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each.
Such lists shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes
thereof.
Section 7. Quorum. A majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. If less
than a majority of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the
meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the
meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by
the shareholder or by his or duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the Corporation before or
at the time of the meeting. A meeting of the Board of Directors my
be had by means of telephone conference or similar communications
equipment by which all persons participating in the meeting can hear
each other, and participation in a meeting under such circumstances
shall constitute presence at the meeting.
Section 10. Voting of Shares by Certain Holders. Shares
standing in the name of another Corporation may be voted by such
officer, agent or proxy as the Bylaws of such Corporation may
prescribe or, in the absence of such provision, as the Board of
Directors of such Corporation may determine.
Shares held by an administrator, executor, guardian or
conservator my be voted by him either in person or by proxy, without
a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy,
but no trustee shall be entitled to vote shares held by him without
a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may
be voted by such receiver without the transfer thereof into his
name, if authority to do so be contained in an appropriate order of
the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
Shares of its own stock belonging to the Corporation shall not
be voted directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any
given time.
Section 11. Informal Action by Shareholders. Unless
otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to
the subject matter thereof.
Article III: Board of Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of
Directors of the Corporation shall be fixed by the Board of
Directors, but in no event shall be less than one ( 1 ). Each
Director shall hold office until the next annual meeting of
shareholder and until his successor shall have been elected and
qualified.
Section 3. Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this Bylaw
immediately after, and at the same place as, the annual meeting of
shareholders. The Board of Directors may provide, by resolution,
the time and place for the holding of additional regular meetings
without notice other than such resolution.
Section 4. Special Meetings. Special meetings of the Board
of Directors may be called by or at the request of the President or
any two Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix the place for holding any
special meeting of the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be
given at least one (1) day previous thereto by written notice
delivered personally or mailed to each Director at his business
address, or by telegram. If mailed, such notice shall be deemed to
be delivered when deposited in the United Sates mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any Directors may waive notice
of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully
called or convened.
Section 6. Quorum. A majority of the number of Directors
fixed by Section 2 of the Article III shall constitute a quorum for
the transaction of business at any meeting of the Board of
Directors, but if less than such majority is present at a meeting,
a majority of the Directors present may adjourn the meeting from
time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors.
Section 8. Action Without a Meeting. Any action that may be
taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so to be
taken, shall be signed before such action by all of the Directors.
Section 9. Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the
remaining Directors though less than a quorum of the Board of
Directors, unless otherwise provided by law. A Director elected to
fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any Directorship to be filled by reason of
an increase in the number of Directors may be filled by election by
the Board of Directors for a term of office continuing only until
the next election of Directors by the shareholders.
Section 10. Compensation. By resolution of the Board of
Directors, each Director may be paid his expenses, if any, of
attendance at each meeting of the Board of Directors, and may be
paid a stated salary as a Director or a fixed sum for attendance at
each meeting of the Board of Directors or both. No such payment
shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation thereof.
Section 11. Presumption of Assent. A Director of the
Corporation who is present at a meeting of the Board of Directors at
which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof, or shall
forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a Director who voted in favor of
such action.
Article IV: Officers
Section 1. Number. The officers of the Corporation shall be
a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors.
Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors,
including a Chairman of the Board. In its discretion, the Board of
Directors may leave unfilled for any such period as it may determine
any office except those of President and Secretary. Any two or more
offices may be held by the same person. Officers may be Directors
or shareholders of the Corporation.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of the shareholders. If
the election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as conveniently may be.
Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until
he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. Removal. Any officer or agent may be removed by
the Board of Directors whenever, in its judgement, the best
interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any,
of the person so removed. Election or appointment of an officer or
agent shall not of itself create contract rights, and such
appointment shall be terminable at will.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the
term.
Section 5. President. The President shall be the principal
executive officer of the Corporation and, subject to the control of
the Board of Directors, shall in general supervise and control all
of the business and affairs of the Corporation. He shall, when
present, preside at all meetings of the shareholders and of the
Board of Directors, unless there is a Chairman of the Board, in
which case the Chairman shall preside. He may sign, with the
Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, any deed, mortgages, bonds, contract, or other
instruments which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by there
Bylaws to some other officer or agent of the Corporation, or shall
be required by law to be otherwise signed or executed; and in
general shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 6. Vice President. In the absence of the President
or in the event of his death, inability or refusal to act, the Vice
President shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice President shall perform
such other duties as from time to time may be assigned to him by the
President or by the Board of Directors, If there is more than one
Vice President, each Vice President shall succeed to the duties of
the President in order of rank as determined by the Board of
Directors. If no such rank has been determined, then each Vice
President shall succeed to the duties of the President in order of
date of election, the earliest date having the first rank.
Section 7. Secretary. The Secretary shall: (a) keep the
minutes of the Board of Directors in one or more minute books
provided for the purpose; (b) see that all notices are duly given
in accordance with the provisions of the Bylaws or as required by
law; (c) be custodian of the corporate records and of the seal of
the Corporation and see that the seal of the Corporation is affixed
to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized; (d) keep a register
of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the
President certificates for share of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of
the Corporation, and (g) in general perform all duties incident to
the office of the Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of
the Corporation; (b) receive and give receipts for moneys due and
payable to the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions
of Article VI of these Bylaws; and (c) in general perform all of
the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the President or by
the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties
in such sum and with such sureties as the Board of Directors shall
determine.
Section 9. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors, and no officer
shall be prevented from receiving such salary by reason of the fact
that he is also a Director of the Corporation.
Article V: Indemnity
Section 1. Definitions. For purposes of this Article,
"Indemnitee" shall mean each Director or Officer who was or is a
party to, or is threatened to be made a party to, or is otherwise
involved in, any Proceeding (as hereinafter defined), by reason of
the fact that he or she is or was a Director or Officer of this
Corporation or is or was serving in any capacity at the request of
this Corporation as a Director, Officer, employee, agent, partner,
or fiduciary of, or in any other capacity for, another corporation,
partnership, joint venture, trust, or other enterprise. The term
"Proceeding" shall mean any threatened, pending or completed action
or suit (including, without limitation, an action, suit or
proceeding by or in the right of this Corporation), whether civil,
criminal, administrative or investigative.
Section 2. Indemnification. Each Indemnitee shall be
indemnified and held harmless by this Corporation for all actions
taken by him or her, and for all omissions (regardless of the date
of any such action or omission), to the fullest extent permitted by
Nevada law, against all expense, liability and loss (including,
without limitation, attorney fees, judgments, fines, taxes,
penalties, and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Indemnitee in connection with any
Proceeding. Indemnification pursuant to this Section shall continue
as to an Indemnitee who has ceased to be a Director or Officer and
shall inure to the benefit of his or her heirs, executors and
administrators. This Corporation may, by action of its Board of
Directors, and to the extent provided in such action, indemnify
employees and other persons as though they were Indemnitees. The
rights to indemnification as provided in this Article shall be non-
exclusive of any other rights that any person may have or hereafter
acquire under an statute, provision of this Corporation's Articles
of Incorporation or Bylaws, agreement, vote of stockholders or
Directors, or otherwise.
Section 3. Financial Arrangements. This Corporation may
purchase and maintain insurance or make other financial arrangements
on behalf of any person who is or was a Director, Officer, employee
or agent of this Corporation, or is or was serving at the request of
this Corporation in such capacity for another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against him or her and liability and expenses
incurred by him or her in such capacity, whether or not this
Corporation has the authority to indemnify him or her against such
liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating a
trust fund; (b) establishing a program of self-insurance; (c)
securing its obligation of indemnification by granting a security
interest or other lien on any of this Corporation's assets, and (d)
establishing a letter of credit, guarantee or surety. No financial
arrangement made pursuant to this section may provide protection for
a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud, or a knowing violation of law, except with
respect to advancing expenses or indemnification ordered by a court.
Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by this Corporation
or any other person approved by the Board of Directors, even if all
or part of the other person's stock or other securities is owned by
this Corporation. In the absence of fraud:
(a) the decision of the Board of Directors as to the
propriety of the terms and conditions of any insurance or
other financial arrangement made pursuant to this section, and
the choice of the person to provide the insurance or other
financial arrangement is conclusive; and
(b) the insurance or other financial arrangement is not void
or voidable; does not subject any Director approving it to
personal liability for his action; and even if a Director
approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
Section 4. Contract of Indemnification. The provisions of
this Article relating to indemnification shall constitute a contract
between this Corporation and each of its Directors and Officers,
which may be modified as to any Director or Officer only with that
person's consent or as specifically provided in this section.
Notwithstanding any other provision of the Bylaws relating to their
amendment generally, any repeal or amendment of this Article which
is adverse to any Director or Officer shall apply to such Director
or Officer only on a prospective basis and shall not limit the
rights of an Indemnitee to indemnification with respect to any
action or failure to act occurring prior to the time of such repeal
or amendment. Notwithstanding any other provision of these Bylaws,
no repeal or amendment of these Bylaws shall affect any or all of
this Article so as to limit or reduce the indemnification in any
manner unless adopted by (a) the unanimous vote of the Directors of
this Corporation then serving, or (b) the stockholders as set forth
in Article XII hereof; provided that no such amendment shall have
retroactive effect inconsistent with the preceding sentence.
Section 5. Nevada Law. References in this Article to Nevada
law or to any provision thereof shall be to such law as it existed
on the date these Bylaws were adopted or as such law thereafter may
be changed; provided that (a) in the case of any change which
expands the liability of an Indemnitee or limits the indemnification
rights or the rights to advancement of expenses which this
Corporation may provide, the rights to limited liability, to
indemnification and to the advancement of expenses provided in this
Corporation's Articles of Incorporation, these Bylaws, or both shall
continue as theretofore to the extent permitted by law; and (b) if
such change permits this Corporation, without the requirement of any
further action by stockholders or Directors, to limit further the
liability of Indemnitees or to provide broader indemnification
rights or rights to the advancement of expenses than this
Corporation was permitted to provide prior to such change, liability
thereupon shall be so limited and the rights to indemnification and
advancement of expenses shall be so broadened to the extent
permitted by law. The Corporation shall indemnify its Directors,
officers and employees as follows:
Article VI: Contracts, Loans, Checks, and Deposits
Section 1. Contracts. The Board of Directors may authorize
any office or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to
specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed
by such officer or officers, agent or agents of the Corporation and
in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
Article VII: Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates
representing shares of the Corporation shall be in such form as
shall be determined by the Board of Directors. Such certificates
shall be signed by the President and by the Secretary or by such
other officers authorized by law and by the Board of Directors so to
do, and sealed with the corporate seal. All certificates for shares
shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered
and cancelled, expect that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefore upon such terms and
indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate
for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed by the Corporation to be the
owner thereof for all purposes, Provided, however, that upon any
action undertaken by the shareholder to elect S Corporation status
pursuant to Section 1362 of the Internal Revenue Code and upon any
shareholders agreement thereto restricting the transfer of said
shares so as to disqualify said S Corporation status, said
restriction on transfer shall be made a part of the Bylaws so long
as said agreements is in force and effect.
Article VIII: Fiscal Year
The fiscal year of the Corporation shall begin on the 1st day
of January and end on the 31st day of December of each year.
Article IX: Dividends
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and condition provided by law and its
Articles of Incorporation.
Article X: Corporate Seal
The Board of Directors shall provide a corporate seal which
shall be circular in form and shall have inscribed thereon the name
of the Corporation and the state of incorporation and the words
"Corporate Seal."
Article XI: Waiver of Notice
Unless otherwise provided by law, whenever any notice is
required to be given to any shareholder or Director of the
Corporation under the provision of the Articles of Incorporation or
under the provisions of the applicable Business Corporation Act, a
waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of such notice.
Article XII: Amendments
These Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Board of Directors at any regular or
special meeting of the Board of Directors, or by the shareholders at
any regular or special meeting of the shareholders.
The above Bylaws are certified to have been adopted by the
Board of Directors of the Corporation on the 14th day of May, 1999.
/s/ Thomas S. Hughes
Thomas S. Hughes, Director
/s/ Jack M. Hall
Jack M. Hall, Director
/s/ Diane Hewitt
Diane Hewitt, Director
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of May ___, 1999,
("this Agreement"), is made by and between eConnect, a Nevada
corporation (the "Company"), and the person named on the signature
page hereto (the "Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement, between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed to issue and sell
to the Investor six percent (6%) Convertible Debentures of the
Company (the "Debentures"), which will be convertible into shares of
the common stock, one tenth of one cent ($0.001) par value (the
"Common Stock"), of the Company (the "Conversion Shares") upon the
terms and subject to the conditions of such Debentures; and
WHEREAS, pursuant to the terms of the Subscription Agreement
the Company has issued the Investor one hundred fifty thousand
(150,000) Warrants exercisable at a strike price equal to one
hundred five percent (105%) of the five (5) day average closing bid
price for the Company's Common Stock for the five trading days prior
to the "Closing Date" as that term is defined below.
WHEREAS, to induce the Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), and applicable state
securities laws with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall
have the following meaning:
(i) "Closing Date" means the date funds are received by the
Company pursuant to the Subscription Agreement.
(ii) "Investor" means the Investor and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(iii) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and
Warrants.
(iv) "Registration Statement" means a registration statement
of the Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes
(i) each Investor (as defined above) and (ii) each person who is a
permitted transferee or assignee of the Registrable Securities
pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the
Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and
file with the SEC, no later than ten (10) days after the Closing
Date, a Registration Statement on Form SB-2, covering a sufficient
number of shares of Common Stock for the Investors into which the
Five Hundred Thousand Dollars ($500,000) of Debentures and one
hundred fifty thousand (150,000) Warrants would be convertible. The
Registration Statement shall cover ten million (10,000,000) shares
of the Company's Common Stock. Such Registration Statement shall
state that, in accordance with the Securities Act, it also covers
such indeterminate number of additional shares of Common Stock as
may become issuable to prevent dilution resulting from Stock splits,
or stock dividends). If at any time the number of shares of Common
Stock into which the Debenture and Warrants issued in this offering
may be converted exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten (10) business
days after receipt of written notice from any Investor, either (i)
amend the Registration Statement filed by the Company pursuant to
the preceding sentence, if such Registration Statement has not been
declared effective by the SEC at that time, to register all shares
of Common Stock into which the Debenture may be converted, or (ii)
if such Registration Statement has been declared effective by the
SEC at that time, file with the SEC an additional Registration
Statement on Form SB-2 or any other applicable registration
statement, to register the shares of Common Stock into which the
Debenture may be converted that exceed the aggregate number of
shares of Common Stock already registered.
(b) Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors acting by majority in interest
of the Registrable Securities subject to such underwritten offering
shall have the right to select one legal counsel to represent their
interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to
the Company. The Investors who hold the Registrable Securities to
be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such
investment banker or bankers and manager or managers so selected in
accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or
state securities laws, which are payable by the Company pursuant to
Section 5 hereof) with respect to their Registrable Securities and
the fees and expenses of such legal counsel so selected by the
Investors.
(c) Payment by the Company. If the Registration Statement
covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not declared effective
within thirty (30) days from the Closing Date, then the Company
shall pay investor as liquidated damages three percent (3%) of the
principal amount of the Debentures issued at that time for every
thirty (30) day period or portion thereof until the Registration
Statement is declared effective.
The Company acknowledges that its failure to have the
Registration Statement declared effective within thirty (30) days
from the Closing Date will cause the Investor to suffer damages in
an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section
represents the parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its
obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement, the Subscription
Agreement and the Debenture.
3. Obligation of the Company. In connection with the
registration of the Registrable Securities, the Company shall do
each of the following:
(a) Prepare promptly, and file with the SEC within ten (10)
days of the Closing Date, a Registration Statement with respect to
not less than the number of Registrable Securities provided in
Section 2(a), above, and thereafter use its best efforts to cause
each Registration Statement relating to Registrable Securities to
become effective the earlier of (i) five (5) business days after
notice from the Securities and Exchange Commission that the
Registration Statement may be declared effective, or (b) thirty (30)
days after the Closing Date, and keep the Registration Statement
effective at all times until the earliest of (i) the date that is
two years after the Closing Date (ii) the date when the Investors
may sell all Registrable Securities under Rule 144 without volume
limitations or (iii) the date the Investors no longer own any of the
Registrable Securities (the "Registration Period"), which
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration
effective at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof as set forth in the Registration
Statement;
(c) Furnish to each Investor whose Registrable Securities
are included in the Registration Statement and its legal counsel
identified to the Company, (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the
Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(d) Use its best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under
such other securities or blue sky laws of such jurisdictions as the
Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request and in which significant
volumes of shares of Common Stock are traded, (ii) prepare and file
in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions
as may be necessary to maintain such registrations and qualification
in effect at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions: provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (B) subject itself to general taxation in
any such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that
cause more than nominal expense or burden to the Company or (E) make
any change in its articles of incorporation or by-laws or any then
existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which
the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes
any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and uses its best efforts promptly to
prepare a supplement or amendment to the Registration Statement or
other appropriate filing with the SEC to correct such untrue
statement or omission, and deliver a number of copies of such
supplement or amendment to each Investor as such Investor may
reasonably request;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being
sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any notice of
effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest
possible time;
(g) Use its commercially reasonable efforts, if eligible,
either to (i) cause all the Registrable Securities covered by the
Registration Statement to be listed on a national securities
exchange and on each additional national securities exchange on
which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or
(ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities
Dealers Automated Quotations System ("NASDAQ") "Small
Capitalization" within the meaning of Rule 11Aa2-1 of the SEC under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the NASDAQ
Small Cap Market; or if, despite the Company's commercially
reasonable efforts to satisfy the preceding clause (i) or (ii), the
Company is unsuccessful in doing so, to secure NASD authorization
and quotation for such Registrable Securities on the over-the-
counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. ("NASD")
as such with respect to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities
not later than the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may
reasonably request and registration in such names as the Investors
may request; and, within five (5) business days after a Registration
Statement which includes Registrable Securities is ordered effective
by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose
Registrable Securities are included in such Registration /statement)
an appropriate instruction and opinion of such counsel, if so
required by the Company's transfer agent; and
(j) Take all other reasonable actions necessary to expedite
and facilitate distribution to the Investor of the Registrable
Securities pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have
the following obligations;
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Investor
that such Investor shall timely furnish to the Company such
information regarding itself, the Registrable Securities held by it,
and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute
such documents in connection with such registration as the Company
may reasonably request. At least five (5) days prior to the first
anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such
Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two
(2) business days prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-
Responsive Investor"), then the Company may file the Registration
Statement without including Registrable Securities of such Non-
Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described
in Section 3(e) or 3(f), above, such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until
such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and, if so directed
by the Company, such investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses,
other than underwriting discounts and commissions incurred in
connection with registrations, filing or qualifications pursuant to
Section 3, but including, without limitations, all registration,
listing, and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company shall be borne by
the Company.
6. Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this
Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds such Registrable
Securities, the directors, if any, of such Investor, the officers,
if any, of such Investor, each person, if any, who controls any
Investor within the meaning of the Securities Act or the Exchange
Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as
such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or
any prospectus included therein: (i) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or
any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with
the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act,
the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being collectively referred to
as "Violations"). The Company shall reimburse the Investors,
promptly as such expenses are incurred and are due and payable, for
any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not
(i) apply to any Claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (ii) with
respect to any preliminary prospectus, inure to the benefit of any
such person from whom the person asserting any such Claim purchased
the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (iii) be available to the
extent such Claim is based on a failure of the Investor to deliver
or cause to be delivered the prospectus made available by the
Company; or (iv) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company, its officers, directors and
agents (including Counsel) against any claims arising out of or
based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by
or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such
limitations and conditions as are applicable to the Indemnification
provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Person or Indemnified Party and
shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement
of any action (including any governmental action), such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. In such event, the
Company shall pay for only one separate legal counsel for the
Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates.
The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by
an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however,
that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault
standards set forth in Section 6; (b) no seller of Registrable
Securities guilty or fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation; and (c) contribution by
any seller of Registrable Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. Reports under Exchange Act. With a view to making
available to the Investors the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities
of the Company to the public without registration ("Rule 144"), the
Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company
and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. Assignment of the Registration Rights. The rights to
have the Company register Registrable Securities pursuant to this
Agreement shall be automatically assigned by the Investors to any
transferee of in excess of fifty (50%) percent or more of the
Registrable Securities (or all or any portion of any Debenture of
the Company which is convertible into such securities) only if: (a)
the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or
assigned, (c) immediately following such transfer or assignment the
further disposition of such securities by the transferee or assignee
is restricted under the Securities Act and applicable state
securities laws, and (d) at or before the time the Company received
the written notice contemplated by clause (b) of this sentence the
transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein. In the event of
any delay in filing or effectiveness of the Registration Statement
as a result of such assignment, the Company shall not be liable for
any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and investors who hold a majority in interest of the
Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. Interest. Nothing contained herein shall be deemed to
establish or require the payment of interest to the Investor at a rate
in excess of the maximum rate permitted by governing law. In the
event that the rate of interest required to be paid hereunder exceeds
the maximum rate permitted by governing law, the rate of interest
required to be paid thereunder shall be automatically reduced to the
maximum rate permitted under the governing and any amounts collected
in excess of the permissible amount shall be deemed a payment of
principal. To the extent that such excess amount exceeds the
aggregate principal amount of the Debenture, such excess shall be
returned with reasonable promptness by the Investor to the Company.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company received conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election
received from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given
when personally delivered (by hand, by courier, by telephone line
facsimile transmission, receipt confirmed, or other means) or sent
by certified mail, return receipt requested, properly addressed and
with proper postage pre-paid (i) if to the Company, at its executive
office (ii) if to the Investor, at the address set forth under its
name in the Subscription Agreement, with a copy to its designated
attorney and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such
other address as each such party furnishes by notice given in
accordance with this Section 12(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified
mail, four (4) business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by the interpreted in
accordance with the laws of the State of California without
reference to its conflicts of laws rules or principles. Each of the
parties consents to the exclusive jurisdiction of the federal courts
of the State of California in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on
forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation
of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not effect the validity or enforceability of
the remainder of this Agreement or the validity or enforceability of
this Agreement in any other jurisdiction. This Agreement may be
amended only by an instrument in writing signed by the party to be
charged with enforcement.
(e) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There
are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context
may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement,
once executed by a party, may be delivered to the other party hereto
by telephone line facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement. A
facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
eConnect
By:____________________________________
Name:__________________________________
Title:___________________________________
_______________________________________
(Name of Investor)
By: ____________________________________
Name:__________________________________
Title:___________________________________
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT
TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT
TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ISSUANCE DATE May __, 1999
DUE DATE May __, 2002
AMOUNT $500,000
NUMBER MAY-1999-101
FOR VALUE RECEIVED, eConnect, a Nevada corporation (the
"Company"), hereby promises to pay to
_______________________________ or registered assigns (the "Holder")
on May __, 2002, (the "Maturity Date"), the principal amount of Five
Hundred Thousand Dollars ($500,000) U.S., and to pay interest on the
principal amount hereof, in such amounts, at such times and on such
terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount
of this Debenture (the "Debenture") at the rate of six percent
(6.0%) per annum, payable at the time of each conversion, with
respect to the principal amount of the Debenture being converted,
until the principal amount hereof is paid in full or has been
converted. Interest shall be computed on the basis of a three
hundred sixty (360) day year of twelve (12), thirty (30) day months.
Each payment shall be paid in cash or in freely trading Common
Stock of the Company, at the Company's option. If the interest is to
be paid in cash, the Company shall make such payment within five (5)
business days of the of "Conversion Date" as that term is defined in
Section 3.2(b). If the interest is to be paid in Common Stock,
said Common Stock shall be delivered to the Holder, or per Holder's
instructions, within five (5) business days of the date of
conversion. The Debentures are subject to automatic conversion at
the end of three years from the date of issuance at which time all
Debentures outstanding will be automatically converted based upon
the formula set forth in Section 3.2. The closing shall be deemed
to have occurred on the date the funds are received by the Company
or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for
the Holder to receive payment of the principal amount hereof. The
Company shall have the option of paying the interest on this
Debenture in United States dollars or in common stock upon
conversion pursuant to Article 1 hereof. The Company may draw a
check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the
Register (as defined in Section 7.2 below). Interest and principal
payments shall be subject to withholding under applicable United
States Federal Internal Revenue Service Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its
option, to convert it into shares of common stock, par value of one
tenth of one cent ($0.001) per share, of the Company ("Common
Stock") at any time which is before the close of business on the
Maturity Date, except as set forth in Section 3.1(c) below. The
number of shares of Common Stock issuable upon the conversion of
this Debenture is determined pursuant to Section 3.2 and rounding
the result to the nearest whole share.
(b) Less than all of the principal amount of this Debenture
may be converted into Common Stock if the portion converted is five
thousand dollars ($5,000) or a whole multiple of five thousand
dollars ($5,000) and the provisions of this Article 3 that apply to
the conversion of all of the Debenture shall also apply to the
conversion of a portion of it. This Debenture may not be converted,
whether in whole or in part, except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the third anniversary of the date hereof, the
unconverted portion of such Debenture will automatically be
converted into shares of Common Stock on such date in the manner set
forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon the Company's receipt of a facsimile or
original of Holder's signed Notice of Conversion and the original
Debenture to be converted, the Company shall instruct its transfer
agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Debenture, or portion thereof is
convertible in accordance with the provisions regarding conversion set
forth in the conversion notice. The Company or its counsel shall act
as Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
(b) Conversion Date. The face amount of the Debentures, plus
accrued interest, may be converted anytime after the Closing Date.
Such conversion shall be effectuated by surrendering to the Company,
or its attorney, this Debenture to be converted together with a
facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated. The
date on which the Notice of Conversion is effective ("Conversion
Date") shall be deemed to be the date on which the Holder has
delivered to the Company a facsimile or original of the signed Notice
of Conversion, as long as the original Debentures to be converted are
received by the Company or its designated attorney within five (5)
business days thereafter. As long as the Debentures to be converted
are received by the Company or its designated attorney within five (5)
business days after it receives a facsimile or original of the signed
Notice of Conversion, the Company shall deliver to the Holder, or per
the Holder's instructions, the shares of Common Stock, without
restrictive legend or stop transfer instructions, within four (4)
business days of receipt of the facsimile Conversion Notice.
(c) Issuance of Common Stock. Upon the conversion of any
Debentures and upon receipt by the Company or its attorney of a
facsimile or original of Holder's signed conversion notice Company
shall instruct Company's transfer agent to issue Stock Certificates
with restrictive legend or stop transfer instructions, as may be
required pursuant to the terms of the Subscription Agreement entered
into by the Company and Holder in the name of Holder (or its nominee)
and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent
and that the Common Stock shall otherwise be freely transferable on
the books and records of Company.
(d) Conversion Rate. Anytime after the Closing Date, Holder
is entitled to convert the face amount of this Debenture, plus accrued
interest, into Common Stock at the lesser of (a) $0.72 or (b) seventy
percent (70%) of the average of the lowest three (3) day bid prices as
reported by Bloomberg, LP for the twenty day period prior to the
Conversion Date (each being referred to as the "Conversion Price"). No
fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be, to the nearest whole share.
The Debentures are subject to a mandatory, thirty-six (36) month
conversion feature at the end of which all Debentures outstanding will
be automatically converted, upon the terms set forth in this section
("Mandatory Conversion Date").
(e) Nothing contained in this Debenture shall be deemed to
establish or require the payment of interest to the Company at a rate
in excess of the maximum rate permitted by governing law. In the
event that the rate of interest required to be paid exceeds the
maximum rate permitted by governing law, the rate of interest required
to be paid thereunder shall be automatically reduced to the maximum
rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
Certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated as
a shareholder of record on and after the conversion date. Upon
surrender of any Debentures that are to be converted in part, the
Company shall issue to the Holder a new Debenture equal to the
unconverted amount, if so requested in writing by Holder.
(g) In the event the Common Stock is not delivered per the
written instructions of the Holder, within four (4) business days
after the Conversion Date, then in such event the Company shall pay
to Holder one percent (1%) in cash, of the dollar value of the
Debentures being converted per each day after the fourth (4th)
business day following the Conversion Date that the Common Stock is
not delivered.
The Company acknowledges that its failure to deliver the
Common Stock within four (4) business days after the Conversion Date
will cause the Holder to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that
the form and amount of such liquidated damages are reasonable and
will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the
Common Stock pursuant to the terms of this Agreement.
To the extent that the failure of the Company to issue the
Common Stock pursuant to this Section 4 is due to the unavailability
of authorized but unissued shares of Common Stock, the provisions of
this Section 4(g) shall not apply but instead the provisions of
Section 4(h) shall apply.
The Company shall make any payments incurred under this
Section 4(g) in immediately available funds within three (3)
business days from the date of issuance of the applicable Common
Stock. Nothing herein shall limit a Holder's right to pursue actual
damages or cancel the conversion for the Company's failure to issue
and deliver Common Stock to the Holder within six (6) business days
after the Conversion Date.
(h) The Company shall at all times reserve and have available
all Common Stock necessary to meet conversion of the Debentures by
all Holders of the entire amount of Debentures then outstanding.
If, at any time Holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares of
Common Stock available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being
referred to herein as the "Conversion Default Date"), the Company
shall issue to the Holder all of the shares of Common Stock which
are available, and the Notice of Conversion as to any Debentures
requested to be converted but not converted (the "Unconverted
Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default
("Notice of Conversion Default") to all existing Holders of
outstanding Debentures, by facsimile, within three (3) business day
of such default (with the original delivered by overnight or two
day courier), and the Holder shall give notice to the Company by
facsimile within five (5) business days of receipt of the original
Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding
Debentures payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance
price of the outstanding and/or tendered but not converted
Debentures held by each Holder where N = the number of days from the
Conversion Default Date to the date (the "Authorization Date") that
the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall
send notice ("Authorization Notice") to each Holder of outstanding
Debentures that additional shares of Common Stock have been
authorized, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion
Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as
follows: (i) in the event Holder elects to take such payment in
cash, cash payments shall be made to such Holder of outstanding
Debentures by the fifth (5th) day of the following calendar month,
or (ii) in the event Holder elects to take such payment in stock,
the Holder may convert such payment amount into Common Stock at
the conversion rate set forth in Section 3.2(d) at anytime after the
fifth (5th) day of the calendar month following the month in which
the Authorization Notice was received, until the expiration of the
mandatory twenty-four (24) month conversion period. The Company
acknowledges that its failure to maintain a sufficient number of
authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages
in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a
provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section
represents the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its
obligations to deliver the Common Stock pursuant to the terms of
this Debenture. Nothing herein shall limit the Holder's right to
pursue actual damages or cancel the conversion for the Company's
failure to maintain a sufficient number of authorized shares of
Common Stock.
(i) The Company shall furnish to Holder such number of
prospectuses and other documents incidental to the registration of
the shares of Common Stock underlying the Debentures, including any
amendment of or supplements thereto. Holder shall acknowledge in
writing the receipt, the careful reading, and the understanding
thereof, prior to any conversion under Article 3 hereof.
(j) The Holder is limited in the amount of this Debenture it
may convert and own. Other than the Mandatory Conversion provisions
contained in this Debenture which are not limited by the following,
in no other event shall the Holder be entitled to convert, and the
Company must not permit conversion of, any amount of Debentures in
excess of that amount upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by the Holder
and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted
portion of the Debenture, and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to
which the determination of this provision is being made, would
result in beneficial ownership by the Holder and its affiliates of
more than four and 99/100 percent (4.99%) of the outstanding shares
of Common Stock of the Company. (after taking into account the
shares to be issued to the Holder upon such conversion). For
purposes of this provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13 D-G thereunder, except as otherwise provided in clause
(1) of such provision.
(k) Nothing contained in the Debenture shall be deemed to
establish or require the payment of interest to the Purchaser at a
rate in excess of the maximum rate permitted by governing law. In the
event that the rate of interest required to be paid under the
Debenture exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing and any
amounts collected in excess of the permissible amount shall be deemed
a payment of principal. To the extent that such excess amount exceeds
the aggregate principal amount of the Debenture, such excess shall be
returned with reasonable promptness by the Holder to the Company.
(l) Redemption: The Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the
balance on the Debentures as follows: In the event the Company
exercises such right of redemption anytime following the Closing
Date, it shall pay the Holder, in U.S. currency the benefit of the
bargain (intrinsic value), that is, the principal amount of the
Debenture being redeemed, plus accrued interest and the profit the
Holder would have received upon conversion of that portion of the
Debenture being redeemed and sale of the Common Stock. The date by
which the Debentures must be delivered to the Escrow Agent shall not
be later than five (5) business days following the date the Company
notifies the Holder by facsimile of the redemption. The Company
shall give the Holder at least twenty (20) business days advance
written notice of its intent to redeem.
(m) Investment Intent. The Holder of this Debenture by
acceptance hereof, agrees that this Debenture is being acquired for
investment and that such Holder will not offer, sell or otherwise
dispose of this Debenture or the shares of Common Stock issuable upon
conversion thereof except under circumstances which will not result in
violation of the 1933 Act or any applicable state Blue Sky law or
similar laws relating to the sale of securities.
(n) Adjustment. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
Section 3.3. Fractional Shares. The Company shall not issue
fractional shares of Common Stock, or scrip representing fractions
of such shares, upon the conversion of this Debenture. Instead, the
Company shall round up or down, as the case may be, to the nearest
whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue
of shares of Common Stock upon the conversion of this Debenture.
However, the Holder shall pay any such tax which is due because the
shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company shall
reserve the number of shares of Common Stock required pursuant to
and upon the terms set forth in Section 3(a) of the Subscription
Agreement entered into by the Company and Holder, to permit the
conversion of this Debenture. All shares of Common Stock which may
be issued upon the conversion hereof shall upon issuance be validly
issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has
not been registered under the Securities Act of 1933, as amended,
(the "Act") and is being issued under Section 4(2) of the Act and
Rule 506 of Regulation D promulgated under the Act. This Debenture
and the Common Stock issuable upon the conversion thereof may only
be offered or sold pursuant to registration under or an exemption
from the Act.
Section 3.7. Mergers, Etc. If the Company merges or
consolidates with another corporation or sells or transfers all or
substantially all of its assets to another person and the holders of
the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a
condition of such merger, consolidation, sale or transfer, the
Company and any such successor, purchaser or transferee shall amend
this Debenture to provide that it may thereafter be converted on the
terms and subject to the conditions set forth above into the kind
and amount of stock, securities or property receivable upon such
merger, consolidation, sale or transfer by a holder of the number of
shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent
as may be practicable to adjustments provided for in this Article 3.
Article 4. Mergers and Adjustments
Section 4.1 Mergers. The Company shall not consolidate or
merge into, or transfer all or substantially all of its assets to,
any person, unless such person assume in writing the obligations of
the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and
the obligations of the Company shall terminate upon such written
assumption.
Section 4.2 Adjustments. The number of shares of Common
Stock purchasable upon the conversion of this Debenture shall be
subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common
Stock in Common Stock or securities convertible into, exchangeable
for or otherwise entitling a holder thereof to receive Common Stock,
(ii) declare a dividend payable in cash on its Common Stock and at
substantially the same time offer its shareholders a right to
purchase new Common Stock (or securities convertible into,
exchangeable for or other entitling a holder thereof to receive
Common Stock) from the proceeds of such dividend (all Common Stock
so issued shall be deemed to have been issued as a stock dividend),
(iii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iv) combine its
outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (v) issue by reclassification, reorganization or
recapitalization of its Common Stock any shares of Common Stock or
other securities of the Company, the number of shares of Common
Stock issuable upon conversion of this Debenture immediately prior
thereto shall be adjusted so that the Holder of this Debenture shall
be entitled to receive after the happening of any of the events
described above that number and kind of shares as the Holder would
have received had this Debenture been converted immediately prior to
the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this subdivision shall become
effective immediately after the close of business on the record date
in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in the
case of a stock split, subdivision, combination or reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock evidences
of its indebtedness or assets (excluding cash dividends other than
as described in Section 4.2(a)), or rights, options or warrants or
convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock, then in such case,
the number of shares of Common Stock thereafter issuable upon
conversion of this Debenture shall be determined by multiplying the
number of shares of Common Stock theretofore issuable upon
conversion of this Debenture, by a fraction, of which the numerator
shall be the closing bid price per share of Common Stock on the
record date for such distribution, and of which the denominator
shall be the closing bid price of the Common Stock less the then
fair value (as determined by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock
issuable hereunder otherwise required to be made by this Section 4.2
will not have to be adjusted if such adjustment would not require an
increase or decrease in one percent (1%) or more in the number of
shares of Common Stock issuable upon conversion of this Debenture.
No adjustment in the number of shares of Common Stock issuable upon
conversion of this Debenture will be made for the issuance of shares
of capital stock to directors, employees or independent contractors
pursuant to the Company's or any of its subsidiaries' stock option,
for the purpose of the Company's Common Stock warrants issued,
issuable or to be issued for services rendered by others to the
Company, stock ownership or other benefit plans or arrangements or
trusts related thereto or for issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under such
plan.
Article 5. Reports
The Company will mail to the Holder hereof at its address as
shown on the Register a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission
promptly after the filing thereof and a copy of any annual,
quarterly or other report or proxy statement that it gives to its
shareholders generally at the time such report or statement is sent
to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs
if (a) the Company does not make the payment of the principal of
this Debenture when the same becomes due and payable at maturity,
upon redemption or otherwise, (b) the Company does not make a
payment, other than a payment of principal, for a period of five (5)
business days thereafter, (c) the Company fails to comply with any
of its other agreements in this Debenture and such failure continues
for the period and after the notice specified below, (d) the Company
pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter defined): (i) commences a voluntary case; (ii) consents
to the entry of an order for relief against it in an involuntary
case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its
property or (iv) makes a general assignment for the benefit of its
creditors or (v) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that: (A) is for relief against
the Company in an involuntary case; (B) appoints a Custodian of the
Company or for all or substantially all of its property or (C)
orders the liquidation of the Company, and the order or decree
remains unstayed and in effect for sixty (60) days, (e) the
Company's Common Stock is no longer listed on any recognized
exchange including electronic over-the-counter bulletin board. As
used in this Section 6.1, the term "Bankruptcy Law" means Title 11
of the United States Code or any similar federal or state law for
the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event of
Default until the holders of at least twenty-five percent (25%) of
the aggregate principal amount of the Debentures outstanding notify
the Company of such default and the Company does not cure it within
five (5) business days after the receipt of such notice, which must
specify the default, demand that it be remedied and state that it is
a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and
is continuing, the Holder hereof by notice to the Company, may
declare the remaining principal amount of this Debenture to be due
and payable. Upon such declaration, the remaining principal amount
shall be due and payable immediately
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered
series of Debentures which are identical except as to the principal
amount and date of issuance thereof and as to any restriction on the
transfer thereof in order to comply with the Securities Act of 1933
and the regulations of the Securities and Exchange Commission
promulgated thereunder. Such Debentures are referred to herein
collectively as the "Debentures". The Debentures shall be issued in
whole multiples of five thousand dollars ($5,000).
Section 7.2. Record Ownership. The Company, or its attorney,
shall maintain a register of the holders of the Debentures (the
"Register") showing their names and addresses and the serial numbers
and principal amounts of Debentures issued to or transferred of
record by them from time to time. The Register may be maintained in
electronic, magnetic or other computerized form. The Company may
treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this
Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to
this Debenture, convert it into Common Stock and otherwise exercise
all of the rights and powers as the absolute owner hereof.
Section 7.3. Registration of Transfer. Transfers of this
Debenture may be registered on the books of the Company maintained
for such purpose pursuant to Section 7.2 above (i.e., the Register).
Transfers shall be registered when this Debenture is presented to
the Company with a request to register the transfer hereof and the
Debenture is duly endorsed by the appropriate person, reasonable
assurances are given that the endorsements are genuine and
effective, and the Company has received evidence satisfactory to it
that such transfer is rightful and in compliance with all applicable
laws, including tax laws and state and federal securities laws.
When this Debenture is presented for transfer and duly transferred
hereunder, it shall be canceled and a new Debenture showing the name
of the transferee as the record holder thereof shall be issued in
lieu hereof. When this Debenture is presented to the Company with
a reasonable request to exchange it for an equal principal amount of
Debentures of other denominations, the Company shall make such
exchange and shall cancel this Debenture and issue in lieu
thereof Debentures having a total principal amount equal to this
Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture
becomes worn, defaced or mutilated but is still substantially intact
and recognizable, the Company or its agent may issue a new Debenture
in lieu hereof upon its surrender. Where the Holder of this
Debenture claims that the Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue a new Debenture in place
of the original Debenture if the Holder so requests by written
notice to the Company actually received by the Company before it is
notified that the Debenture has been acquired by a bona fide
purchaser and the Holder has delivered to the Company an indemnity
bond in such amount and issued by such surety as the Company deems
satisfactory together with an affidavit of the Holder setting forth
the facts concerning such loss, destruction or wrongful taking and
such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of
this Debenture shall be duly given if it is in writing and delivered
in person or mailed by first class mail, postage prepaid and
directed to the Holder of the Debenture at its address as it appears
on the Register or if to the Company to its principal executive
offices. The time when such notice is sent shall be the time of the
giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of
money or the performance of a condition or obligation on a Saturday
or Sunday or a public holiday, or authorizes or requires the payment
of money or the performance of a condition or obligation within,
before or after a period of time computed from a certain date, and
such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation
performed on the next succeeding business day, and if the period
ends at a specified hour, such payment may be made or condition
performed, at or before the same hour of such next succeeding
business day, with the same force and effect as if made or performed
in accordance with the terms of this Debenture. A "business day"
shall mean a day on which the banks in New York are not required or
allowed to be closed.
Article 10. Waivers
The holders of a majority in principal amount of the
Debentures may waive a default or rescind the declaration of an
Event of Default and its consequences except for a default in the
payment of principal or conversion into Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires,
words in the singular number include the plural, and in the plural
include the singular, and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates, words of
the neuter gender may refer to any gender. The numbers and titles
of sections contained in the Debenture are inserted for convenience
of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation
hereof. Wherever, in this Debenture, a determination of the Company
is required or allowed, such determination shall be made by a
majority of the Board of Directors of the Company and if it is made
in good faith, it shall be conclusive and binding upon the Company
and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this
Debenture shall be governed and construed by the provisions hereof
and in accordance with the laws of the State of California
applicable to agreements that are negotiated, executed, delivered
and performed solely in the State of California.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any
litigation based thereon, or arising out of, under, or in connection
with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or
Holder shall be brought and maintained exclusively in the federal
courts of the State of California without reference to its conflicts
of laws rules or principles. The Company hereby expressly and
irrevocably submits to jurisdiction exclusively with the federal
Courts of the State of California for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with such
litigation. The Company further irrevocably consents to the service
of process by registered mail, postage prepaid, or by personal
service within or without the State of California. The Company
hereby expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter may
have to the laying of venue of any such litigation brought in any
such court referred to above and any claim that any such litigation
has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction
of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise) with respect to itself or its property. The Company
hereby irrevocably waives such immunity in respect of its
obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company
hereby knowingly, voluntarily and intentionally waive any rights
they may have to a trial by jury in respect of any litigation based
hereon, or arising out of, under, or in connection with, this
agreement, or any course of conduct, course of dealing, statements
(whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and
sufficient consideration for this provision and that this provision
is a material inducement for the Holder entering into this
agreement.
(c) Submission To Jurisdiction . Any legal action or
proceeding in connection with this Agreement or the performance
hereof shall be brought exclusively in the federal courts located in
the California and the parties hereby irrevocably submit to the
exclusive jurisdiction of such courts for the purpose of any such
action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this
Debenture as of the date first written above.
eConnect
By
Name:___________________________
Title:____________________________
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of
______________, 199_ to convert $_________________ of the Debentures
into Shares of Common Stock (the "Shares") of eConnect (the
"Company") according to the conditions set forth in the Subscription
Agreement dated May ____, 1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
(principal amount of Debenture, $10,000 or integral multiples of
$10,000) of principal amount of this Debenture together with all
accrued and unpaid interest hereon.
Date: Signed:
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
FORM OF WARRANT TO PURCHASE 150,000 SHARES OF
COMMON STOCK OF eCONNECT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO REGISTRATION UNDER OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
Exercisable Commencing May __, 1999;
Void after May __, 2002
THIS CERTIFIES that, for value received,
_________________________ or its registered assigns (the
"Warrantholder") is entitled, subject to the terms and conditions
set forth in this Warrant, to purchase from eConnect, a Nevada
corporation (the "Company"), one hundred fifty thousand (150,000)
fully paid, duly authorized and nonassessable shares (the "Shares"),
of Common Stock, one-tenth of one cent ($0.001) par value per share,
of the Company (the "Common Stock"), at any time commencing May __,
1999 and continuing up to 5:00 p.m. New York City time on May __,
2002 (the "Exercise Period") at an exercise price of one hundred
five percent (105%) of the five (5) day average closing bid price of
the Company's Common Stock as reported by Bloomberg, LP for the five
(5) trading days prior to the "Closing Date" as that term is defined
in the Subscription Agreement entered into by the Company and
Warrantholder, subject to adjustment pursuant to Section 8 hereof.
This Warrant is subject to the following provisions, terms and
conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued only in
registered form.
1.2 Transfer. This Warrant shall be transferable only on
the books of the Company maintained at its principal executive
offices upon surrender thereof for registration of transfer duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant or
Warrants in appropriate denominations to the person or persons
entitled thereto.
1.3 Common Stock to be Issued. Upon the exercise of any
Warrants and upon receipt by the Company of a facsimile or original of
Warrantholder's signed Election to Exercise (See Exhibit A), Company
shall instruct its transfer agent to issue stock certificates, subject
to the restrictive legend set forth below, in the name of
Warrantholder (or its nominee) and in such denominations to be
specified by Warrantholder representing the number of shares of Common
Stock issuable upon such exercise, as applicable. Company warrants
that no instructions, other than these instructions, have been given
or will be given to the transfer agent and that the Common Stock shall
otherwise be freely transferable on the books and records of the
Company. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated as
a shareholder of record on and after the exercise date. Upon
surrender of any Warrant that is to be converted in part, the
Company shall issue to the Warrantholder a new Warrant equal to the
unconverted amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO REGISTRATION UNDER OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
Section 2. Exchange of Warrant Certificate. Any Warrant
certificate may be exchanged for another certificate or certificates
of like tenor entitling the Warrantholder to purchase a like
aggregate number of Shares as the certificate or certificates
surrendered then entitle such Warrantholder to purchase. Any
Warrantholder desiring to exchange a warrant certificate shall make
such request in writing delivered to the Company, and shall
surrender, properly endorsed, the certificate evidencing the Warrant
to be so exchanged. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new Warrant certificate as
so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) (i)Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time after May __, 1999,
but before 5:00 p.m., New York City time on May __, 2002, (the
"Expiration Time"), to purchase from the Company up to the number of
Shares which the Warrantholder may at the time be entitled to
purchase pursuant to the terms of this Warrant, upon surrender to
the Company at its principal executive office, of the certificate
evidencing this Warrant to be exercised, together with the attached
Election to Exercise form duly filled in and signed, and upon
payment to the Company of the Warrant Price (as defined in and
determined in accordance with the provisions of Section 7 and 8
hereof) or as provided in Section 3(a)(i) hereof, for the number of
Shares with respect to which such Warrant is then exercised.
Payment of the aggregate Warrant Price shall be made in cash, wire
transfer or by cashier's check or any combination thereof.
(b) Subject to the terms of this Warrant, upon such
surrender of this Warrant and payment of such Warrant Price as
aforesaid, the Company shall promptly issue and cause to be
delivered to the Warrantholder or to such person or persons as the
Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may
designate in writing) for the number of duly authorized, fully paid
and non-assessable whole Shares to be purchased upon the exercise of
this Warrant, and shall deliver to the Warrantholder Common Stock or
cash, to the extent provided in Section 9 hereof, with respect to
any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have
become a holder of such Shares as of the close of business on the
date of the surrender of this Warrant and payment of the Warrant
Price, notwithstanding that the certificates representing such
Shares shall not actually have been delivered or that the Share and
Warrant transfer books of the Company shall then be closed. This
Warrant shall be exercisable, at the sole election of the
Warrantholder, either in full or from time to time in part and, in
the event that any certificate evidencing this Warrant (or any
portion thereof) is exercised prior to the Termination Date with
respect to less than all of the Shares specified therein at any time
prior to the Termination Date, a new certificate of like tenor
evidencing the remaining portion of this Warrant shall be issued by
the Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or original of
Warrantholder's signed Election to Exercise, the Company shall
instruct its transfer agent to issue one or more stock Certificates
representing that number of shares of Common Stock which the
Warrantholder is entitled to purchase in accordance with the terms and
conditions of this Warrant and the Election to Exercise attached
hereto. The Company shall act as Registrar and shall maintain an
appropriate ledger containing the necessary information with respect
to each Warrant.
(d) Such exercise shall be effectuated by surrendering to the
Company, or its attorney, the Warrants to be converted together with
a facsimile or original of the signed Election to Exercise which
evidences Warrantholder's intention to exercise those Warrants
indicated. The date on which the Election to Exercise is effective
("Exercise Date") shall be deemed to be the date on which the
Warrantholder has delivered to the Company a facsimile or original of
the signed Election to Exercise, as long as the original Warrants to
be exercised are received by the Company or its designated attorney
within five (5) business days thereafter. As long as the Warrants to
be exercised are received by the Company within five (5) business days
after it receives a facsimile or original of the signed Election to
Exercise, the Company shall deliver to the Warrantholder, or per the
Warrantholder's instructions, the shares of Common Stock within three
(3) business days of receipt of the Warrants to be converted.
(e) Nothing contained in this Warrant shall be deemed to
establish or require the payment of interest to the Warrantholder at
a rate in excess of the maximum rate permitted by governing law. In
the event that the rate of interest required to be paid exceeds the
maximum rate permitted by governing law, the rate of interest required
to be paid thereunder shall be automatically reduced to the maximum
rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Warrantholder to the
Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
Certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated as
a shareholder of record on and after the exercise date. Upon
surrender of any Warrants that are to be converted in part, the
Company shall issue to the Warrantholder new Warrants equal to the
unconverted amount, if so requested by Warrantholder.
(g) In the event the Common Stock is not delivered per the
written instructions of the Warrantholder, within the time set forth
in Section 3(d) above, then in such event the Company shall pay to
Warrantholder one percent (1%) in cash of the dollar value of the
Warrants being converted per each day after the fifth (5th) business
day following the Exercise Date that the Common Stock is not
delivered. The Company acknowledges that its failure to deliver the
Common Stock within five (5) business days after the Exercise Date
will cause the Warrantholder to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Warrant a provision for
liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents
the parties' good faith effort to qualify such damages and, as such,
agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its
obligations to deliver the Common Stock pursuant to the terms of
this Warrant.
To the extent that the failure of the Company to issue the
Common Stock pursuant to this Section 3 is due to the unavailability
of authorized but unissued shares of Common Stock, the provisions of
this Section 3(g) shall not apply but instead the provisions of
Section 3(h) shall apply.
The Company shall make any payments incurred under this
Section 3(g) in immediately available funds within three (3)
business days from the date of issuance of the applicable Common
Stock. Nothing herein shall limit a Warrantholder's right to pursue
actual damages for the Company's failure to issue and deliver Common
Stock to the Warrantholder within the time set forth in Section 3(d)
above
(h) The Company shall at all times reserve and have available
all Common Stock necessary to meet exercise of the Warrants by all
Warrantholders of the entire amount of Warrants then outstanding.
If, at any time Warrantholder submits an Election to Exercise and
the Company does not have sufficient authorized but unissued shares
of Common Stock available to effect, in full, a exercise of the
Warrants (a "Exercise Default", the date of such default being
referred to herein as the "Exercise Default Date"), the Company
shall issue to the Warrantholder all of the shares of Common Stock
which are available, and the Election to Exercise as to any Warrants
requested to be converted but not converted (the "Unconverted
Warrants"), upon Warrantholder's sole option, may be deemed null and
void. The Company shall provide notice of such Exercise Default
("Notice of Exercise Default") to all existing Warrantholders of
outstanding Warrants, by facsimile, within one (1) business day of
such default (with the original delivered by overnight or two day
courier), and the Warrantholder shall give notice to the Company by
facsimile within five (5) business days of receipt of the original
Notice of Exercise Default (with the original delivered by overnight
or two day courier) of its election to either nullify or confirm the
Election to Exercise.
The Company agrees to pay to all Warrantholders of outstanding
Warrants payments for a Exercise Default ("Exercise Default
Payments") in the amount of (N/365) x (.24) x the initial exercise
price of the outstanding and/or tendered but not converted Warrants
held by each Warrantholder where N = the number of days from the
Exercise Default Date to the date (the "Authorization Date") that
the Company authorizes a sufficient number of shares of Common Stock
to effect exercise of all remaining Warrants. The Company shall
send notice ("Authorization Notice") to each Warrantholder of
outstanding Warrants that additional shares of Common Stock have
been authorized, the Authorization Date and the amount of
Warrantholder's accrued Exercise Default Payments. The accrued
Exercise Default shall be paid in cash or shall be convertible into
Common Stock at the Exercise Rate, at the Warrantholder's option,
payable as follows: (i) in the event Warrantholder elects to take
such payment in cash, cash payments shall be made to such
Warrantholder of outstanding Warrants by the fifth day of the
following calendar month, or (ii) in the event Warrantholder elects
to take such payment in stock, the Warrantholder may convert such
payment amount into Common Stock at the exercise rate set forth in
Section 7 at anytime after the fifth (5th) day of the calendar month
following the month in which the Authorization Notice was received,
until the expiration of the Warrant.
The Company acknowledges that its failure to maintain a
sufficient number of authorized but unissued shares of Common Stock
to effect in full an exercise of all the Warrants will cause the
Warrantholder to suffer damages in an amount that will be difficult
to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Warrant a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort
to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not
relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Warrant.
Nothing herein shall limit the Warrantholder's right to pursue
actual damages for the Company's failure to maintain a sufficient
number of authorized shares of Common Stock.
(i) The Company shall furnish to Warrantholder such number
of prospectuses and other documents incidental to the registration
of the shares of Common Stock underlying the Warrants, including any
amendment of or supplements thereto. Warrantholder shall
acknowledge in writing the receipt, the careful reading, and the
understanding thereof, prior to any exercise under this Section 3.
(j) Each person in whose name any certificate for shares of
Common Stock shall be issued shall for all purposes be deemed to
have become the holder of record of the Common Stock represented
thereby on the date on which the Warrant was surrendered and payment
of the purchase price and any applicable taxes was made,
irrespective of date of issue or delivery of such certificate,
except that if the date of such surrender and payment is a date when
the Shares transfer books of the Company are closed, such person
shall be deemed to have become the holder of such Shares on the next
succeeding date on which such Share transfer books are open. The
Company shall not close such Share transfer books at any one time
for a period longer than seven (7) days.
Section 4. Payment of Taxes. The Company shall pay all
documentary stamp taxes, if any, attributable to the initial
issuance of the Shares; provided, however, that the Company shall
not be required to pay any tax or taxes which may be payable, (i)
with respect to any secondary transfer of this Warrant or the Shares
or (ii) as a result of the issuance of the Shares to any person
other than the Warrantholder, and the Company shall not be required
to issue or deliver any certificate for any Shares unless and until
the person requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have produced evidence that
such tax has been paid to the appropriate taxing authority.
Section 5. Mutilated or Missing Warrant. In case the
certificate or certificates evidencing this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the
Company of such loss, theft or destruction of such Warrant and of a
bond of indemnity, if requested, also satisfactory to the Company in
form and amount, and issued at the applicant's cost. Applicants for
such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges
as the Company may prescribe.
Section 6. Reservation of Shares. The issuance, sale and
delivery of the Warrants have been duly authorized by all required
corporate action on the part of the Company and when issued, sold
and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and
validly issued, fully paid, and non-assessable and enforceable in
accordance with their terms, subject to the laws of bankruptcy and
creditors' rights generally. The Company shall pay all taxes in
respect of the issue thereof. As a condition precedent to the
taking of any action that would result in the effective purchase
price per share of Common Stock upon the exercise of this Warrant
being less than the par value per share (if such shares of Common
Stock then have a par value), the Company will take such corporate
action as may, in the opinion of its counsel, be necessary in order
that the Company may comply with all its obligations under this
Agreement with regard to the exercise of this Warrant.
Prior to exercise of all the Warrants, if at anytime exercise
of all the Warrants outstanding results in an insufficient number of
shares of Common Stock being available to cover exercise of this
Warrant in full, then in such event, the Company will move to call and
hold a shareholder's meeting within forty-five (45) days of such event
for the purpose of authorizing additional Shares to cover exercise of
this Warrant in full. in such an event the Company shall: (1)
recommend its current or future officers, directors and other control
people to vote their shares in favor of increasing the authorized
number of shares of Common Stock and (2) recommend to all shareholders
to vote their shares in favor of increasing the authorized number of
shares of Common Stock to the extent permitted by law. As for any
shareholders who do not vote on the issue of increasing the authorized
number of shares of Common Stock, such failure to vote shall
automatically be taken as a vote in favor of increasing the authorized
number of shares of Common Stock. The proxy sent out by the Company to
all shareholders shall provide that if no vote is received a consent
to action will be executed on behalf of those shares of Common Stock
for which no vote was received, in favor of increasing the authorized
number of shares of Common Stock of the Company to the extent
permitted by law. Company represents and warrants that under no
circumstances will it deny or prevent Warrantholder from exercising
the Warrants as permitted under the terms of the Warrants.
Section 7. Warrant Price. From May __, 1999 through 5:00
p.m. New York City time on May __, 2002, the price per Share (the
"Warrant price") at which Shares shall be purchasable upon the
exercise of this Warrant shall be one hundred five percent (105%) of
the five (5) day average closing bid price of the Company's Common
Stock as reported by Bloomberg, LP for the five (5) trading days
prior to the "Closing Date" as that term is described in the
Subscription Agreement entered into by the Company and
Warrantholder, subject to adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of
this Warrant and the Warrant Price shall be subject to adjustment
from time to time after the date hereof upon the happening of
certain events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the
exercise of this Warrant shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common
Stock in Common Stock or securities convertible into, exchangeable
for or otherwise entitling a holder thereof to receive Common Stock,
(ii) declare a dividend payable in cash on its Common Stock and at
substantially the same time offer its shareholders a right to
purchase new Common Stock (or securities convertible into,
exchangeable for or other entitling a holder thereof to receive
Common Stock) from the proceeds of such dividend (all Common Stock
so issued shall be deemed to have been issued as a stock dividend),
(iii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iv) combine its
outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (v) issue by reclassification of its Common
Stock any shares of Common Stock of the Company, the number of
shares of Common Stock issuable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the holders of
the Warrants shall be entitled to receive after the happening of any
of the events described above that number and kind of shares as the
holders would have received had such Warrants been converted
immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this
subdivision shall become effective immediately after the close of
business on the record date in the case of a stock dividend and
shall become effective immediately after the close of business on
the effective date in the case of a stock split, subdivision,
combination or reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock evidences
of its indebtedness or assets (excluding cash dividends other than
as described in Section (8)(a)(ii)), then in such case, the number
of shares of Common Stock thereafter issuable upon exercise of the
Warrants shall be determined by multiplying the number of shares of
Common Stock theretofore issuable upon exercise of the Warrants, by
a fraction, of which the numerator shall be the closing bid price
per share of Common Stock on the record date for such distribution,
and of which the denominator shall be the closing bid price of the
Common Stock less the then fair value (as determined by the Board of
Directors of the Company, whose determination shall be conclusive)
of the portion of the assets or evidences of indebtedness so
distributed per share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock
issuable hereunder otherwise required to be made by this Section 8
will not have to be adjusted if such adjustment would not require an
increase or decrease in one percent (1%) or more in the number of
shares of Common Stock issuable upon exercise of the Warrant. No
adjustment in the number of Shares purchasable upon exercise of this
Warrant will be made for the issuance of shares of capital stock to
directors, employees or independent contractors pursuant to the
Company's or any of its subsidiaries' stock option, stock ownership
or other benefit plans or arrangements or trusts related thereto or
for issuance of any shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on
securities of the Company and the investment of additional optional
amounts in shares of Common Stock under such plan.
(d) Whenever the number of shares of Common Stock issuable
upon the exercise of the Warrants is adjusted, as herein provided
the Warrant Price shall be adjusted (to the nearest cent) by
multiplying such Warrant Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of shares
of Common Stock issuable upon the exercise of each share of the
Warrants immediately prior to such adjustment, and of which the
denominator shall be the number of shares of Common Stock issuable
immediately thereafter.
(e) The Company from time to time by action of its Board of
Directors may decrease the Warrant Price by any amount for any
period of time if the period is at least twenty (20) days, the
decrease is irrevocable during the period and the Board of Directors
of the Company in its sole discretion shall have made a
determination that such decrease would be in the best interest of
the Company, which determination shall be conclusive. Whenever the
Warrant Price is decreased pursuant to the preceding sentence, the
Company shall mail to holders of record of the Warrants a notice of
the decrease at least fifteen (15) days prior to the date the
decreased Warrant Price takes effect, and such notice shall state
the decreased Warrant Price and the period it will be in effect.
8.2 Mergers. Etc. In the case of any (i) consolidation or
merger of the Company into any entity (other than a consolidation or
merger that does not result in any reclassification, exercise,
exchange or cancellation of outstanding shares of Common Stock of
the Company), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company as an entirety or
substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a
change in par value, or from par value to no par value), in each
case as a result of which shares of Common Stock shall be converted
into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of Warrants
then outstanding shall have the right thereafter to exercise such
Warrant only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer,
capital reorganization or reclassification by a holder of the number
of shares of Common Stock of the Company into which such Warrants
would have been converted immediately prior to such consolidation,
merger, sale, transfer, capital reorganization or reclassification,
assuming such holder of Common Stock of the Company (A) is not an
entity with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or an
affiliate of a constituent entity, and (B) failed to exercise his or
her rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind
or amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer is not the same for
each share of Common Stock of the Company held immediately prior to
such consolidation, merger, sale or transfer by other than a
constituent entity or an affiliate thereof and in respect of which
such rights or election shall not have been exercised ("non-electing
share"), then for the purpose of this Section 8.2 the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share
shall be deemed to be the kind and amount so receivable per share by
a plurality of the non-electing shares). If necessary, appropriate
adjustment shall be made in the application of the provision set
forth herein with respect to the rights and interests thereafter of
the holder of Warrants, to the end that the provisions set forth
herein shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock or
other securities or property thereafter deliverable on the exercise
of the Warrants. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The Company shall not effect
any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor company
or entity (if other than the Company) resulting from such
consolidation, merger, sale or transfer assumes, by written
instrument, the obligation to deliver to the holder of Warrants such
shares of stock, securities or assets as, in accordance with the
foregoing provision, such holder may be entitled to receive under
this Section 8.2.
8.3 Statement of Warrants. Irrespective of any adjustments
in the Warrant Price of the number or kind of shares purchasable
upon the exercise of this Warrant, this Warrant certificate or
certificates hereafter issued may continue to express the same price
and number and kind of shares as are stated in this Warrant.
Section 9. Fractional Shares. Any fractional shares of
Common Stock issuable upon exercise of the Warrants shall be rounded
to the nearest whole share or, at the election of the Company, the
Company shall pay the holder thereof an amount in cash equal to the
closing bid price thereof. Whether or not fractional shares are
issuable upon exercise shall be determined on the basis of the total
number of Warrants the holder is at the time exercising and the
number of shares of Common Stock issuable upon such exercise.
Section 10. No Rights as Stockholders: Notices to
Warrantholders. Nothing contained in this Warrant shall be
construed as conferring upon the Warrantholder or its transferees
any rights as a stockholder of the Company, including the right to
vote, receive dividends, consent or receive notices as a stockholder
with respect to any meeting of stockholders for the election of
directors of the Company or any other matter. If, however, at any
time prior to 5:00 p.m., New York City time, on May __, 2002, (the
"Expiration Time") and prior to the exercise of this Warrant, any of
the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1; or
(b) a dissolution, liquidation or winding up of the Company
or any consolidation, merger or sale of its property, assets and
business as an entirety; then in any one or more of said events, the
Company shall give notice in writing of such event to the
Warrantholder at least ten (10) days prior to the date fixed as a
record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights, or other rights or for the
effective date of any dissolution, liquidation of winding up or any
merger, consolidation, or sale of substantially all assets, but
failure to mail or receive such notice or any defect therein or in
the mailing thereof shall not affect the validity of any such action
taken. Such notice shall specify such record date or the effective
date, as the case may be.
Section 11. Successors. All the covenants and provisions of
this Warrant by or for the benefit of the Company or the
Warrantholder shall bind and inure to the benefit of their
respective successors and permitted assigns hereunder.
Section 12. Applicable Law. This Warrant shall be construed
and enforced in accordance with and the rights of the parties shall
be governed by the laws of the State of California.
Section 13. Benefits of this Agreement. Nothing in this
Warrant shall be construed to give to any person or corporation
other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Warrant, and this Warrant shall be
for the sole and exclusive benefit of the Company and the
Warrantholder.
Section 14. Piggy-back Registration Rights. If at any time
the Company shall propose to prepare on its own behalf or on behalf
of any of its stockholders (other than Warrantholder) a registration
statement in connection with an underwritten public offering of any
equity securities of the Company, the Company shall give
Warrantholder written notice at least twenty (20) days before the
anticipated filing date of such registration statement. Should
Warrantholder desire to have any of the Shares included in such
registration statement Warrantholder shall so advise the Company in
writing no later than fifteen (15) days after the Company's notice
is given, setting forth the number or amount of Shares which
Warrantholder requests to be included in the registration statement,
and the Company shall include the securities specified in such
request in such registration statement and keep such registration
statement in effect and maintain compliance with each federal and
state law and regulation as set forth herein. The Company may, at
its option, require that the amount of Shares offered for sale by
Warrantholder pursuant to this Section 14 be decreased if, in the
opinion of the Company's investment banking firm, such reduction is
necessary in order to permit the orderly distribution and sale of
the securities being offered. If the Company shall require such a
reduction, Warrantholder shall have the right to withdraw from the
offering.
Section 15. Definitions.
"Common Stock" shall mean (i) Common Stock, one-tenth of one
cent ($0.001) par value per share, of the Company and (ii) any other
security purchasable upon the exercise of this Warrant upon the
happening of certain events.
IN WITNESS WHEREOF, the parties have caused this Warrant to be
duly executed, all as of the day and year first above written.
eConnect
By
Name:___________________________
Title:____________________________
EXHIBIT A
eCONNECT
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase
thereunder, _______shares of Common Stock (the "Share") provided for
therein, and requests that certificates for the Shares be issued in
the name of:*
Name:___________________________________________________________
Address:_________________________________________________________
Social Security No.________________________________________________
or Tax ID Number:_________________________________________________
and, if such number of Shares shall not be all of the Shares
purchasable under the Warrant, that a new Warrant certificate for
the balance of the Shares purchasable under the within Warrant be
registered in the name of the undersigned Warrantholder or his
Assignee* as indicated below and delivered to the address stated
below:
Dated:________, 19___
Name of Warrantholder of
Assignee (Please Print)_____________________________________________
Address:_________________________________________________________
Signature:________________________________________________________
Signature Guaranteed:______________________________________________
Signature of Guarantor
____________________
* The Warrant contains restrictions on sale, assignment or
transfer.
** Note: The above signature must correspond with the name as
written on the face of this Warrant certificate in every
particular, without alteration or enlargement or any change
whatever, unless this warrant has been assigned.
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________
________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
the within Warrant, hereby irrevocably constituting and appointing
_________Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated:______________, 19____
________________________________**
Signature of Registered Holder
Signature Guaranteed: ________________________________
Signature of Guarantor
____________________
* The Warrant contains restrictions on sale, assignment or
transfer.
** Note: The signature of this assignment must correspond with
the name as it appears upon the face of the Warrant certificate in
every particular, without alteration or enlargement or any change
whatever.
Shawn F. Hackman, a P.C.
3360 West Sahara Avenue, Suite 200
Las Vegas, Nevada 89102
June 28, 1999
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect (formerly known as Betting, Inc.) - Form SB-2
Dear Sir/Madame:
We have acted as counsel to eConnect, a Nevada corporation
("Company"), in connection with its Registration Statement on Form
SB-2 relating to the registration of 20,000,000 shares of its common
stock ("Shares"), $0.001 par value per Share, at an offering price
of $0.43 per Share.
In our representation we have examined such documents,
corporate records, and other instruments as we have deemed necessary
or appropriate for purposes of this opinion, including, but not
limited to, the Articles of Incorporation and Bylaws of the Company.
Based upon the foregoing, it is our opinion that the Company
is duly organized and validly existing as a corporation under the
laws of the State of Nevada, and that the Shares, when issued and
sold, will be validly issued, fully paid, and non-assessable.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement.
Sincerely,
/s/ Shawn F. Hackman
Shawn F. Hackman, Esq.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its charter)
Missouri (2) 43-1239043
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
31310 Eaglehaven Center
Suite 10, Rancho Palos Verdes, California 90275
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.01 Par Value; Class A Warrants
Indicate by check mark whether the registrant (1) has 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) been subject to such filing requirements for
the past 90 days. Yes No X .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not 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 aggregate market value of the voting stock held by non-
affiliates of the registrant as of August 31, 1998: Common Stock,
par value $0.01 per share -- $1,785,000. As of August 31, 1998, the
registrant had 14,284,234 shares of common stock issued and
outstanding.
(1) Effective on June 4, 1999, the name was changed to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of organization was
changed to Nevada.
TABLE OF CONTENTS
PART I PAGE
MEMORANDUM SUMMARY 7
RISK FACTORS 9
USEOFPROCEEDS 16
DILUTION 16
PLAN OF DISTRIBUTION 18
LITIGATION 19
MEMORANDUM SUMMARY 7
RISK FACTORS 9
USEOFPROCEEDS 16
DILUTION 16
PLAN OF DISTRIBUTION 18
LITIGATION 19
PART I.
ITEM 1. BUSINESS.
(a) Business Development
Betting, Inc., was organized under the laws of the State of
Missouri on September 1, 1981, as HANDY-TOP, INC. On April 20,
1983, the Articles of Incorporation were amended to change the name
of the corporation to HTI Corporation. On May 28, 1993, the
Articles of Incorporation were amended to change the name of the
corporation to Leggoons, Inc. In addition to changing the company's
name, the May 28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common stock from
40,000 to 10,000,000 and decreased the par value of the common stock
from $1.00 per share to $.01 per share. Also on May 28, 1993,
Leggoons, Inc., declared a 14-for-1 stock split. Unless otherwise
indicated, all share and per share data are reflected on a post
split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of its
assets and liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors" (the "Assignment"). An
Assignment is a business liquidation device available as an
alternative to bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the "Assignee"), will be
required to properly, timely, and orderly dispose of all remaining
assets for the benefit of creditors. Leggoons, Inc., continued to
maintain its' status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an Agreement
to License Assets from Home Point of Sales, Inc.(HPOS). HPOS is a
privately held corporation focused on the emergence of the Personal
Encrypted Remote Financial Electronic Card Transactions industry.
This industry provides consumers with the option to instantly pay
bills or impulse purchase from home with real time cash
transactions. Management believes the proprietary technology and the
large demand for wagering opportunities in today's marketplace will
combine to generate substantial sales for Leggoons, Inc., over the
medium term.
Thomas S. Hughes, Chairman of HPOS, became Chairman and
President of Leggoons, Inc., on March 1, 1997. He will focus on
procedures, policies and state approvals to begin home lottery, off
track betting, casino and sports ATM card and SMART card wagering.
A search is presently being conducted to locate a CEO/COO for the
Company. The CEO/COO will assemble a team of professionals to
develop the procedures and policies of home ATM card and SMART card
wagering. This development process will include a close focus on
the political and the instant taxation of home winnings issues
associated with home ATM card and SMART card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as Chairman
and President of the Leggoons, Inc. Leggoons, Inc., intends to seek
shareholder ratification of its name change from Leggoons, Inc. to
Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the "Company") is positioning itself to
facilitate same as cash ATM card or smart card transactions that are
originating from bank host processing centers and are being sent to
gaming operators. These transactions are being effected with
electronic equipment that allows self service pay per play and no
actual communications between the player and the gaming operator.
These types of transactions will be originating from homes,
offices, and public walk in locations. The Company will act as the
interface that will communicate data to the gaming operators,
receive back their acknowledgment of the transaction and then pass
on this gaming acknowledgment to the bank host processing center
that has been standing by for this information and has already
completed the bank authorization of the pay per play transaction.
The business model of the Company is to receive a fee per
transaction paid to Betting, Inc. by the bank host processing center
at the moment of the transaction. In general, this fee will be from
between 2% to 6% of the wager placed on a pay per play or a $6 flat
fee in the case of an account being opened.
The internet gaming industry is an industry that has developed
significantly in recent years. The internet gaming industry as a
whole is under increasing governmental scrutiny as the industry
develops. It is possible that at some point in the future there
could be legislation against gambling on the internet or other
similar methods.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel and Snooggel.
On January 19, 1996, Leggoons, Inc., entered into a Licensing
Agreement with Robert Tamsky, a former director and employee of the
Leggoons, Inc. Pursuant to the terms of the Licensing Agreement,
the Leggoons, Inc., granted Mr. Tamsky effective January 1, 1996,
the right to use the LEGGOONS trademark in connection with the
design, production, marketing, sales and sublicensing of all
clothing, wearing apparel and accessories bearing the "LEGGOONS"
symbol. This right will continue until December 31, 1998, and may
be extended thereafter each year for an additional year. In
consideration for the license, Mr. Tamsky, according to the
Licensing Agreement, shall pay to the Leggoons, Inc. a royalty of
five percent of the net sales of "LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date. On June 12, 1996, Leggoons, Inc., transferred
all of its assets and liabilities to a third party assignee,
under an "Assignment for the Benefit of Creditors." Included in the
Assignment were the rights and obligations of the Licensing
Agreement.
Item 2. Description of Property.
Not Applicable
Item 3. Legal Proceedings.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information
The Common Stock is traded in the over-the-counter market and
the range of closing bid prices shown below is as reported by the
OTC Bulletin Board. The quotations shown reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter 8.125 7.625
Third Quarter 0.8125 0.0625
Fourth Quarter 0.5625 0.06
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there were 400
beneficial shareholders of the Company's Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation on November 18,
1993. The Board of Directors presently intends to retain any
earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was $196,968.
The Company recognized $0 in revenue while preparing the setup of
the Company to commence operations as a facilitator of same as cash
ATM card or smart card transactions that are originating from bank
host processing centers and are being sent to gaming operators. The
loss was due to consulting fees of $122,020 and general and
administrative expenses of $74,948.
During the period September 1, 1996, through February 28,
1997, the Company was operating as Leggoons, Inc. (a public shell
available for merger or acquisition). During this six month period
the net loss from continuing operations was $35,912. This loss was
due to general and administrative expenses of $35,912. The primary
general and administrative expenses incurred during the six month
period ended February 28, 1997, were legal expenses related to the
HPOS license agreement, accounting fees for the audit of Leggoons,
Inc., financial statements as of and for the year ended August 31,
1996, and stock expenses required to maintain Leggoons, Inc., public
shell status. During the period March 1, 1997, through August 31,
1997, the Company was maintaining operations as Betting, Inc.
During this six month period the net loss from continuing operations
was $1,663,533. This loss was due to operating expenses of
$1,663,533. The operating expenses were consulting fees of
$565,740, research and development expenses of $450,331, software
development costs of $507,600 and general and administrative
expense of $139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August 31, 1998,
the Company issued 6,441,000 shares of common stock for services
rendered and payments on accounts payable and due to stockholder.
For the shares of common stock issued for services rendered and
payments on accounts payable during the period September 1, 1997,
through August 31, 1998, the following valuation policies were used
so that a financial value could be assigned to the stock issuance
transactions: the closing "market" stock price on the day of each
common stock issuance was used to determine "fair market value" of
the 1,369,000 unrestricted common shares issued; the closing
"market" stock price on the day of each common stock issuance less
a 50% discount was used to determine "fair market value" of the
2,322,000 restricted common shares issued. Common shares that were
issued and for which no performance was received, 2,750,000 shares,
were valued at par value, $.01 per share. For the 2,750,000 shares
of common stock issued for which no performance was received a stop
has been placed on the stock certificates with the Company's stock
transfer agent.
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The "fair
market value" of such common stock issued, $153,160, has primarily
been expensed as $122,020 in consulting fees and $31,140 in general
and administrative expenses during the year ended August 31, 1998.
Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
During the six month period from September 1, 1996, through
February 28, 1997, Leggoons, Inc., principal stockholder, James S.
Clinton, provided the operating capital needed to fund operations.
During the six month period from March 1, 1997, through August 31,
1997, operations were funded via advances from HPOS and by issuing
common stock for funds and services rendered. During the period
March 1, 1997, through August 31, 1997, the Company issued 4,710,234
shares of common stock for services rendered. For the 2,999,734
shares of common stock issued for services rendered during the
period March 1, 1997, through May 31, 1997, the following valuation
policies were used so that a financial value could be assigned to
the stock issuance transactions: the closing "market" stock price on
the day of each common stock issuance was used to determine "fair
market value" of the 520,000 unrestricted common shares issued; the
closing "market" stock price on the day of each common stock
issuance less a 50% discount was used to determine "fair market
value" of the 1,725,734 restricted common shares issued. Common
shares that were issued and for which no performance was received,
754,000 shares, were valued at par value, $.01 per share. For the
1,710,500 shares of common stock issued for services rendered during
the period June 1, 1997, through August 31, 1997, an average closing
stock price of $.20 was used to determine "fair market value" of
each share issued so that a financial value could be assigned to the
stock issuance transactions..
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The "fair
market value" of such common stock issued, $1,297,805, has primarily
been expensed as $304,240 in consulting fees, $445,128 in research
and development costs, $500,000 in software development costs and
$48,437 in general and administrative expenses during the year ended
August 31, 1997. Some of the common stock shares issued were
registered with the Securities and Exchange Commission using Form S-
8 Registration Statements.
The common shares of stock issued for noncash consideration
were, in some cases, given for past services rendered to HPOS in
developing its' product.
The management of the Company is continuing its search for
additional private investors to provide the funds needed to fund day
to day operations. It is also the goal of management to register
and complete additional public stock offerings of its common stock.
The Company has an accumulated deficit of $5,467,602. The
Company's losses from operations and inability to generate
sufficient cash flow from normal operations to meet its obligations
as they come due raise substantial doubt about the Company's ability
to continue as a going concern. The Company's ability to continue
in existence is dependent upon future developments, including
obtaining financing and achieving a level of profitable operations
sufficient to enable it to meet its obligations as they become due.
Plan of Operations
The plan of the Company is to establish partners in countries
including, but not limited to, the United Kingdom, China, Mexico,
Australia and South Africa with the stated goal being the
establishment of the wagering gate between the bank hosts in that
country and the gaming operators. The second phase will be the
connection between the various countries Company wagering gates so
that same day per play between countries will be possible.
Establishing the wagering gate presence involves the linking
of Betting, Inc. to both the gaming operators and the bank hosts.
In effect, the Company will be a data host processing center whose
business is the passing of messages back and forth between the bank
hosts and the gaming operators.
The Company is currently satisfying its cash requirements by
issuing Betting, Inc. common stock for services rendered. The
Company intends to issue Betting, Inc. common stock at some point in
the future to satisfy a $237,000 obligation to the designer and
developer of the Merchant Response Software used with the Company's
hardware products. The $237,000 obligation is included in accounts
payable at August 31, 1998.
On May 22, 1996, Leggoons, Inc., entered into an Addendum to
the Stock Purchase Agreement it initially entered into on September
5, 1995, with Infinitron Investments International, Inc. of
Vancouver B.C. ("Infinitron"). Pursuant thereto 100% of the shares
of common stock of Infinitron would be exchanged for approximately
4,797,500 shares of common stock of Leggoons, Inc., which would
represent approximately 95% of the post-split Leggoons, Inc.,
outstanding common stock. The Addendum provided, among other
things, that Leggoons, Inc., would use its best efforts to obtain
SEC clearance of its proxy statement by July 22, 1996, and
Infinitron will use its best efforts to fully cooperate with
Leggoons, Inc., in obtaining such clearance.
On July 3, 1996, counsel for Infinitron informed Leggoons,
Inc., that Infinitron does not intend to proceed with the
transactions contemplated by the Stock Acquisition Agreement.
Counsel for Infinitron stated that the basis for that action was
that he noted "a number of irregularities in the relationships
and dealings among the principals of Leggoons and Infinitron, "
however he did not provide any specifics relating to that
allegation. Leggoons, Inc., believes these claims to be baseless
and without merit.
Settlement negotiations have been completed, including verbal
approval by Infinitron and Leggoons, Inc., of the settlement
documents. Generally, under the terms of the settlement, Leggoons,
Inc. shareholders are to receive 186,721 shares of Infinitron common
stock, which represents approximately 3% of Infinitron's outstanding
shares of common stock on August 5, 1996. The 186,721 shares of
common stock of Infinitron will be held for the benefit of the
Leggoons, Inc., stockholders as their "loss of the bargain" under
the proposed merger.
As of March 31, 1999, the settlement agreement has not been
executed by all parties. If, and when, this settlement agreement is
executed the Company will be able to determine how any proceeds of
the settlement agreement affect its plan of operations for the next
twelve months. There can be no assurance that a settlement
agreement will be executed and the shareholders will receive any
proceeds.
Year 2000 Issue
Most companies have computer systems that use two digits to
identify a year in the date field (e.g. "99" for 1999). These
systems must be modified to handle turn-of-the century calculations.
If not corrected, systems failures or miscalculations could occur,
potentially causing disruptions of operations, including, among
other things, the inability to process transactions or engage in
other normal business activities. This creates potential risk for
all companies, even if their own computer systems are Year 2000
compliant.
The Company is in the process of developing an ongoing program
of communication with suppliers and vendors to determine the extent
to which those companies are addressing Year 2000 compliance issues.
There can be no assurance that the Company will be able to develop
a contingency plan that will adequately address issues that may
arise in the Year 2000.
In 1999, a contingency plan will be developed in the event key or
critical suppliers or vendors are unable to meet the Year 2000
compliance. The timeframe for completing or documenting contingency
plans has not been finalized.
The Company's Year 2000 plans are based on management's best
estimates. Based on currently available information, management
does not believe that the Year 2000 issues will have a material
adverse impact on the Company's financial condition or results of
operations; however, because of the uncertainties in this area, no
assurances can be given in this regard.
Item 7. Financial Statements.
Financial statements as of and for the year ended August 31,
1998, and for the year ended
August 31, 1997 are presented in a separate section of this report
following Part IV.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not Applicable
PART III.
Item 9. Directors, Executive Officers and Compliance With Section
16(a) of the Exchange Act.
(a) Directors and Executive Officers
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company since
March 1997. From 1993 to the present, he has also served as the
President of Electronic Transactions & Technologies, a privately
held Nevada corporation which developed terminals for wireless home
and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President of Hall
Developments, a real estate development company he founded in 1991,
which employs a staff of 10 people. Mr. Hall spends approximately
20 hours per week searching out strategic alliances for the Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer since 1991.
Currently she owns and manages her own firm, D. Diane Hewitt
Designs. This firm's expertise is churches and employs a staff of
five people. Ms. Hewitt currently devotes approximately 25 hours
per week in working with the Company's image development and
consulting with the Company's advertising firm.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors, certain officers and persons holding 10%
or more of the Company's common stock to file reports regarding
their ownership and regarding their acquisitions and dispositions of
the Company's common stock with the Securities and Exchange
Commission. The Company is unaware that any required reports were
not timely filed.
Item 10. Executive Compensation.
The following table sets forth information concerning
compensation paid by BETTING, INC. for services rendered during
fiscal year 1998, 1997, and 1996 for the Chief Executive Officer and
for each of the Company's other executive officers whose annual
salary and bonus exceeds $100,000.
Summary Compensation Table
Name and
Principal
Position
Year Salary Bonus Other Stock SARs Option Compensation
($) ($) ($) ($) (#)($) ($)
Thomas Hughes
1998 -0- -0- -0- -0- -0- -0- -0-
Thomas Hughes
1997 -0- -0- -0- 375,000 -0- -0- -0-
James S. Clinton, President and Chief Executive Officer
1996 -0- -0- -0- -0- -0- -0- -0-
Perquisites and other personal benefits are omitted because they do
not exceed either $50,000 or 10% of the total of annual salary and
bonus for the named executive officer.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of August 31, 1998, the
beneficial ownership of the Company's Common Stock by each person
who is known by the Company to own beneficially more than 5% of the
issued and outstanding shares of the Company's Common Stock.
Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial Ownership1
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064 1,417,000 18.0%
Thomas S. Hughes
31310 Eaglehaven Circle
Rancho Palos Verdes, CA 90275 1,000,000 12.7%
1On January 24, 1996, Mr. Larry Langston entered into an Option
Agreement with Steven Walters, a former officer and director of
Leggoons, Inc., which grants Mr. Walters an option to purchase
261,500 of Mr. Langston's common stock shares. The option price is
$100,000, the option may not be exercised prior to November 23,
1996, and expires on July 24, 1997. Mr. Walters, in turn, has
assigned the right to purchase 130,750 of such shares to the Claude
E. Clinton Family Trust for which Mr. Clinton, an officer and
director of Leggoons, Inc., acts as Trustee (Mr. Clinton is not the
beneficiary of the trust but has the right to vote the shares) in
consideration of $50,000 cash and a loan to Mr. Walters in the
amount of $50,000. The option was exercised by Mr. Walters.
However, the shares are not included in the total shares for James
S. Clinton due to the additional shares being issued after August
31, 1998.
The following table shows, as of August 31, 1998, certain
information with respect to BETTING, INC. Common Stock beneficially
owned by directors and executive officers of the Company. Unless
otherwise noted, all shares are owned directly or indirectly with
sole voting and investment power.
Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial Ownership1
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064 1,417,000 18.0%
Thomas S. Hughes
31310 Eaglehaven Circle
Rancho Palos Verdes, CA 90275 1,000,000 12.7%
1 Shares reported include shares owned by spouses of officers and
directors. No options to acquire any BETTING, INC. common stock are
owned by any officer or director.
Item 12. Certain Relationships and Related Transactions.
During the past two fiscal years, certain transactions which
occurred between the Company and its officers and directors are set
forth below. With respect to each such transaction, the Company
believes that the terms of each transaction were approximately as
favorable to the Company as could have been obtained from an
unrelated third party:
(1) The Company utilized cash accounts maintained by ET&T to
fund day to day operations of the Company over the period of March
1998 through September 1998. At August 31, 1998, the net result of
these transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997 in exchange for service
rendered to the Company. The Company did not receive any cash
consideration for this common stock issuance and has treated this as
an expense to the Company of $375,000.
(3) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales, Inc.("HPOS")
(now know as Electronic Transactions & Technology - "ET&T")) (this
agreement is incorporated by reference at Exhibit 10.1 to this Form
SB-2). ET&T is a privately held corporation 70% owned by Thomas S.
Hughes, President of the Company, which is focused on the emergence
of the Personal Encrypted Remote Financial Electronic Card
Transactions industry (although this agreement was entered into
prior to Mr. Hughes becoming affiliated with the Company, it is
included here since certain of the conditions under that agreement
have not been completely fulfilled, as discussed below).
The assets included under this agreement are the following:
(a) The name "Betting, Inc.", as trademarked by HPOS; (b) The
Wagering Gate (receive incoming data transfer commands from the Host
Center and other competitive Host Centers who have received ATM and
SMART card wagering payment from off site home or office locations
and then who command the Wagering GATE to alert the recipient gaming
companies that they have been paid and to respond back with an
acknowledgement of such payment; and, the general promotion and
education of home ATM and SMART card wagering over the Internet
through the HPOS Secure Computer Keyboard or over the telephone
through the HPOS stand alone Infinity unit); (c) the specific
application of Wagering with an ATM card or SMART card with the
Secure Computer Keyboard (any other uses of the Secure Computer
Keyboard, such as Bill Pay or Impulse Purchase that are not Wagering
transactions, are not included); (d) the HPOS developed Merchant
Response Software for the specific application only of transacting
Off Site ATM and Smart card Wagering through the Wagering Gate; and
(e) HPOS' interest in the use of and revenue from the HPOS Personal
Encrypted Remote Financial Electronic Card transaction relating to
the Wagering Business in all HPOS partner countries.
Under terms of this licensing agreement, the Company is to
issue 2,900,000 shares of restricted common stock to HPOS in
exchange for licensing home ATM card and SMART card wagering
technology developed by HPOS. Of this amount, 2,755,000 shares were
placed in escrow subject to cancellation on February 10, 1998, in
the event the bid price of the common stock of the Company is not at
least $3.00 per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board or NASDAQ's Small
Cap Market from the date of the agreement through February 10, 1998
(this escrow agreement is incorporated by reference at Exhibit 10.2
to the Form SB-2).
As of the date of this Form 10-KSB, the terms of the Licensing
Agreement have not been met by the Company. However, the Company
has entered into amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from February 10,
1998, to September 1, 1999, subject to certain conditions specified
in the agreement. All conditions set forth in the original
agreement need to be met on or before September 1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00 per
share for any twenty consecutive day period, then HPOS shall have
the option to purchase up to 13,822,000 additional shares of the
Company common stock at an exercise price of $.30 per share.
(4) On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act as
the bank host processing for all Company transactions that are sent
by terminals that read credit cards or ATM cards (this agreement is
incorporated by reference at Exhibit 10.3 to this Form SB-2). ET&T
is to charge the Betting, Inc. a fee of $0.25 per transaction or
2.5% of the wager being sent by Betting, Inc. to gaming operators.
These transactions are to originate from globally placed Betting,
Inc. equipment and/or Betting, Inc. licensed operators.
(5) On March 27, 1998, the Company entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions (this
agreement is incorporated by reference at Exhibit 10.4 to this Form
SB-2). This licensing supplements the technology licensed under the
Agreement date February 18, 1997. This agreement states that ET&T
licenses the following ET&T products to Betting, Inc. for the
exclusive global usage of wagering by PERFECT originated ATM cards,
credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that attaches to
phone lines and which calls the ET&T host processing center with
bank data.
The SLICK, defined as a stand alone keyboard terminal that attaches
to phone lines and call the ET&T host processing center with bank
data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone that
sends bank data by wireless transmission to the ET&T host processing
center.
The TV Pin Pad Remote, defined as a set top box and TV remote that
sends bank data by landline dial up transmission to the ET&T host
processing center.
Each ET&T product is exclusively licensed to Betting, Inc. on a
global basis for the application of PERFECT wagering at a licensing
fee of $2,000,000 each. This fee is being paid by the Company at
the rate of $30,000 per month. The duration of the exclusive
license is 20 years.
PART IV.
ITEM 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants . . . . . . . . . . . 16
Balance Sheets of the Company as
of August 31, 1998 and August 31, 1997 . . . . . . . . . . 17
Statements of Operations for the year
ended August 31, 1998, the year ended
August 31, 1997, and the year ended August 31, 1996 . . . . . 18
Statement of Shareholders' Equity (Deficiency)
for the year ended June 30, 1998, the year ended
June 30, 1997, and the year ended June 30, 1996 . . . . . . 19
Statements of Cash Flows for the year
ended June 30, 1998, the year ended
June 30, 1997, and the year ended June 30, 1996 . . . . . 20
Notes to Financial Statements . . . . . . . . . . . . . . 21
(b) Reports on Form 8-K. There are no reports on Form 8-K filed
during the last quarter of the fiscal year covered by this report.
(c) Exhibits included or incorporated by reference herein: See
Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eConnect (formerly known as
Betting, Inc.)
Dated: June 18, 1999 By: /s/ Thomas S, Hughes
Thomas S. Hughes, President
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Thomas S. Hughes
Thomas S. Hughes
President, Chief Executive Officer,
Director
June 18, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
June 18, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
June 18, 1999
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 490
BEVERLY HILLS CALIFORNIA 90212
AUDITOR'S REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of Betting, Inc. as of
August 31, 1998 and the related statements of operations, changes in
stockholders' equity, (deficit), and cash flows for the years ended
August 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Betting,
Inc. as of August 31, 1998, and the results of its operations and
its cash flows for the years ended August 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note 8A ("Continued Existence") to the financial
statements, the Company's recurring losses from operations and
inability to generate sufficient cash flow from normal operations
raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 8A. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
As discussed in Note 8B ("Common Stock Issued in Excess of
Authorized Shares") the Company is attempting to convert excess
shares of common shares issued to preferred shares. The effect, if
any, of this uncertainty on the future operations of the Company
cannot presently be determined.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
April 7, 1999
Beverly Hills, California
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEET
August 31, 1998
ASSETS
Current Assets:
Cash $0
Total current assets 0
Total Assets $0
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $283,971
Due to related party 18,969
Commissions payable 21,400
Total current liabilities 324,340
Contingencies (Note 8)
Stockholders' Equity (Deficit):
Common stock, $.01 par value,
authorized 10,000,000 shares;
issued and outstanding,
14,284,234 (Note 8b) 142,842
Preferred stock, $.01 par value,
authorized 5,000,000 shares;
issued and outstanding - none
(Note 8b)
Additional paid-in capital 5,000,420
Accumulated deficit (5,467,602)
Total stockholders' equity (deficit) (324,340)
Total Liabilities and Stockholders'
Equity (Deficit) $0
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended Year Ended
August 31, 1998 August 31, 1997
Revenue $0 $0
Operating Expenses
(Note 4)
Consulting Fees 122,020 565,740
General and
Administrative Expenses 74,948 175,774
Research and Development
Expenses 0 450,331
Software Development
Costs 0 507,600
Total Operating
Expenses (196,968) (1,699,445)
Net Loss (Note 1) $(196,968) $(1,699,445)
Net Loss per
Common Share $(.02) $(.41)
Weighted Average Common
Shares Outstanding 10,994,465 4,106,620
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Number of Par value Preferred Additional Accumulated Stockholders'
Common Stock Paid-In Deficit Equity
Shares Capital (Deficit)
Balance at
August 31, 1997
7,843,234 $78,432 $0 $4,855,535 ($5,270,634) ($336,667)
Issuance of 6,441,000 shares of Common
stock at various $ per share [1] (Non-Cash Transactions)
6,441,000 64,410 0 144,885 0 209,295
Net loss
0 0 0 0 (196,968) (196,968)
Balance at August 31, 1998
14,284,24 $142,842 $0 $5,000,420 ($5,467,602)($324,340)
(1) S-8 common shares valued at market value on day of issuance;
Restricted common shares valued at market value on day of issuance
less 50% discount; Common shares for which no performance was
received valued at par value of $.01 per common share.
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended Year Ended
August 31, 1998 August 31, 1997
Operating Activities
Continuing operations:
Net loss (Note 7) $(43,808) $(401,640)
Changes in assets and
liabilities:
Accounts payable 21,793 270,839
Commissions payable 3,001 18,399
Cash Used in Operating
Activities (19,014) (112,402)
Financing Activities
Continuing operations:
Proceeds from
additional borrowings
from stockholder 18,969 26,947
Proceeds from issuance
of common stock 0 85,500
Cash Provided by
Financing Activities 18,969 112,447
Net Increase (Decrease)
in Cash (45) 45
Cash at Beginning of
Year 45 0
Cash at End of Year $0 $45
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the years ended August
31, 1998 and 1997, respectively. The following summarizes noncash
investing and financing transactions:
Year Ended August 31, 1998
Issuance of 5,341,000 shares of common
stock for services rendered $153,160
Issuance of 750,000 shares of common stock for
payment on due to stockholder 35,135
Issuance of 350,000 shares of common stock for
payment on accounts payable 21,000
Year Ended August 31, 1997
Issuance of 4,710,234 shares of common stock for
services rendered $1,297,805
See accompanying notes to financial statements
and accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Betting, Inc. (the "Company") is positioning itself to
facilitate same as cash ATM card or smart card transactions that are
originating from bank host processing centers and are being sent to
gaming operators. These transactions are being effected with
electronic equipment that allows self service pay per play and no
actual communications between the player and the gaming operator.
These type of transactions will be originating from homes, offices,
and public walk in locations. The Company will act as the interface
that will communicate data to the gaming operators, receive back
their acknowledgment of the transaction and then pass on this gaming
acknowledgment to the bank host processing center that has been
standing by for this information and has already completed the bank
authorization of the pay per play transaction. The business model
of the Company is to receive a fee per transaction paid to Betting,
Inc. by the bank host processing center at the moment of the
transaction. In general, this fee will be from between 2% to 6% of
the wager placed on a pay per play or a $6 flat fee in the case of
an account being opened. The Company has many characteristics
commonly associated with a development stage company. A development
stage company devotes substantially all of its efforts to
establishing a new business and its planned principal operations
either (a) have not commenced or (b) have commenced, but have not
produced any significant revenue. However, due to the company's
previously established operation as a public shell, a development
stage company presentation is not appropriate for these financial
statements.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which were sold to
better specialty and department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel and Snooggel.
On January 19, 1996, Leggoons, Inc., adopted a formal plan to
discontinue the designing, selling, manufacturing and distribution
of its apparel products. As part of such plan, Leggoons, Inc.,
discontinued production on April 30, 1996, and intended to either
sell or liquidate the operations within twelve months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an "Assignment for
Benefit of Creditors." An Assignment is a business liquidation
device available as an alternative to bankruptcy. The third party
assignee, a Nebraska corporation named Leggoons, Inc. II, is
required to properly, timely and orderly dispose of all remaining
assets for the benefit of creditors. Leggoons, Inc., continued to
maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc., entered into an
Agreement to License Assets from Home Point of Sales, Inc.(HPOS).
HPOS is a privately held corporation focused on the emergence of
the Personal Encrypted Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the option to
instantly pay bills or impulse purchase from home with real time
cash transactions. Management believes the proprietary technology
and the large demand for wagering opportunities in today's
marketplace will combine to generate substantial sales for Leggoons,
Inc., over the medium term.
Under terms of the Licensing Agreement, the Company will issue
2,900,000 shares of restricted common stock to HPOS in exchange for
licensing home ATM card and SMART card wagering technology developed
by HPOS. Of this amount, 2,755,000 shares will be placed in escrow
and are subject to cancellation on February 10, 1998, in the event
the bid price of the common stock of the Company is not at least
$3.00 per share for any twenty consecutive day period as reported on
the NASD's Electronic Bulletin Board or NASDAQ's Small Cap Market
from the date of the agreement through February 10, 1998.
As of the date of these financial statements the terms of the
Licensing Agreement have not been met by the Company. However, the
Company has entered into amendment(s) of the original agreement that
provide for an extension of the cancellation deadline from February
10, 1998, to September 1, 1999, subject to certain conditions
specified in the agreement. As of the date of these financial
statements, none of the conditions have been met. All conditions
set forth in the original agreement need to be met on or before
September 1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00 per
share for any twenty consecutive day period, then HPOS shall have
the option to purchase up to 13,822,000 additional shares of the
Company common stock at an exercise price of $.30 per share.
Thomas S. Hughes, Chairman of HPOS, became Chairman and
President of Leggoons on March 1, 1997. He will focus on
procedures, policies and State approvals to begin home lottery, off
track betting, casino and sports ATM card and SMART card wagering.
The Company intends to seek shareholder approval of its name change
from Leggoons, Inc. to Betting, Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon consummation of
a transaction
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand
deposits, and short-term investments with original maturities of
three months or less.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense when
incurred. Costs incurred to internally develop software, including
costs incurred during all phases of development, are charged to
expense as incurred.
STOCKHOLDERS' EQUITY
The following valuation policies were used so that a financial
value can be assigned to stock issuance transactions: the closing
"market" stock price on the day of each common stock issuance was
used to determine "fair market value" of unrestricted common shares
issued; the closing "market" stock price on the day of each common
stock issuance less a 50% discount was used to determine "fair
market value" of restricted common shares issued. Common shares
that were issued and for which no performance was received were
valued at par value, $.01 per share.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the
weighted average number of common and common equivalent shares
outstanding during the period. Shares issuable pursuant to
outstanding stock warrants have been excluded from the computation
as the effect is antidilutive. Fully diluted net loss per share for
all periods presented is not materially different from primary loss
per share.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for temporary differences
between the bases of assets and liabilities for financial statement
and income tax purposes. If it is more likely than not that all or
some portion of a deferred tax asset will not be realized, a
valuation allowance is recorded. (See Note 2)
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 expenses during the reporting period. Actual results
could differ from those estimates.
(2) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August 31, 1998, that
were generated by Leggoons, Inc. The unused net operating losses
expire in various amounts from 2009 to 2012. However, due to change
of ownership rules of section 382 of the Internal Revenue Code some
or all of these NOL carryforwards may be unavailable to offset any
future income of Betting, Inc. The Company generated losses of
approximately $1,658,000 during the six month period ended August
31, 1997, and losses of approximately $197,000 during the year ended
August 31, 1998. These losses, totaling $4,655,000 may not qualify
as federal and state NOL carryforwards due to the possible
nondeductibility of the noncash service costs incurred and the
change of ownership rules of section 382 of the Internal Revenue
Code. The Company provides an allowance for the entire amount of
any deferred tax assets that are applicable to the NOL.
(3) COMMON STOCK WARRANTS
The Company had outstanding warrants to purchase approximately
900,000 shares of common stock. The warrants were exercisable at
$3.75 per share and expired on November 18, 1997.
(4) STOCKHOLDERS' EQUITY (DEFICIT)
During the period September 1, 1997, through August 31, 1998,
the Company issued 6,441,000 shares of common stock for services
rendered and payments on accounts payable. For the shares of common
stock issued for services rendered during the period September 1,
1997, through August 31, 1998, the following valuation policies were
used so that a financial value could be assigned to the stock
issuance transactions: the closing "market" stock price on the day
of each common stock issuance was used to determine "fair market
value" of the 1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each common stock
issuance less a 50% discount was used to determine "fair market
value" of the 2,322,000 restricted common shares issued. Common
shares that were issued and for which no performance was received,
2,750,000 shares, were valued at par value, $.01 per share. For the
2,750,000 shares of common stock issued for which no performance was
received a stop has been placed on the stock certificates with the
Company's stock transfer agent.
For the period September 1, 1997, through August 31, 1998, the
financial value of the common stock issued for no cash consideration
is required to be expensed by the Company. The "fair market value"
of such common stock issued, $153,160, has primarily been expensed
as $122,020 in consulting fees and $31,140 in general and
administrative expenses during the year ended August 31, 1998. Some
of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
During the period March 1, 1997, through August 31, 1997, the
Company issued 4,710,234 shares of common stock for services
rendered. For the 2,999,734 shares of common stock issued for
services rendered during the period March 1, 1997, through May 31,
1997, the following valuation policies were used so that a financial
value could be assigned to the stock issuance transactions: the
closing "market" stock price on the day of each common stock
issuance was used to determine "fair market value" of the 520,000
unrestricted common shares issued; the closing "market" stock price
on the day of each common stock issuance less a 50% discount was
used to determine "fair market value" of the 1,725,734 restricted
common shares issued. Common shares that were issued and for which
no performance was received, 754,000 shares, were valued at par
value, $.01 per share. For the 1,710,500 shares of common stock
issued for services rendered during the period June 1, 1997, through
August 31, 1997, an average closing stock price of $.20 was used to
determine "fair market value" of each share issued so that a
financial value could be assigned to the stock issuance
transactions.
For the period September 1, 1996, through August 31, 1997, the
financial value of the common stock issued for no cash consideration
is required to be expensed by the Company. The "fair market value"
of such common stock issued, $1,297,805, has primarily been expensed
as $304,240 in consulting fees, $445,128 in research and development
costs, $500,000 in software development costs and $48,437 in general
and administrative expenses during the year ended August 31, 1997.
Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
(5) RELATED PARTY TRANSACTIONS
COMMON STOCK ISSUED
The Company issued 1,000,000 shares of restricted common stock
to Thomas S. Hughes during the year ended August 31, 1997. The
Company did not receive any cash consideration for this common stock
issuance and was valued at $375,000. See Note (4).
The Company issued 286,234 shares of restricted common stock
to former associates of Thomas S. Hughes at a company called Betts,
Inc. The restricted common shares were valued at $41,864.
TRANSACTIONS WITH HPOS
The Company utilized cash accounts maintained by HPOS to fund
day to day operations of the Company. Thomas S. Hughes is the
Chairman of both the Company and HPOS. At August 31, 1998, the net
result of these transactions is a payable to HPOS of $18,969.
DUE TO STOCKHOLDER
The Company had a due to stockholder payable to James S.
Clinton, former Chairman of Leggoons, Inc., in the amount of $35,135
for advances made to Leggoons, Inc., prior to March 1, 1997. This
was paid in full by the issuance of 750,000 shares of restricted
common stock during the year ended August 31, 1998.
(6) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1998 and 1997, the Company recorded
adjustments that increased its net loss by approximately $27,500
and$1,558,000, respectively. These adjustments were primarily
related to the issuance of common stock for no cash consideration.
(7) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing transactions for
the years ended August 31, 1998 and August 31, 1997:
1998 1997
Net loss from Continuing Operations $ 43,808 401,640
Issuance of common stock for
Consulting Fees and General and
Administrative Expenses 153,160 1,297,805
Income Statement Net Loss $196,968 $1,699,445
(8) CONTINGENCIES
(A) CONTINUED EXISTENCE
The Company's financial statements are presented on the going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the accompanying financial statements, the Company has
shown a significant loss from operations and has negative working
capital and a stockholders' deficit. This raises substantial doubt
about the Company's ability to continue.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems, principally by obtaining
additional debt financing and equity capital and ultimately upon
achieving profitability. While pursuing additional debt and equity
funding, the Company must continue to operate on limited cash flow.
Management is committed to developing the product and continues to
receive small amounts of funding from private investors. It is the
goal of management to receive additional funding from an additional
public offering of its common stock within twelve months.
There is no assurance that the Company can achieve the
profitability and positive liquidity discussed above. The financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going
concern.
(B) COMMON STOCK ISSUED IN EXCESS OF AUTHORIZED SHARES
During the year ended August 31, 1998, the Company issued a
total of 6,441,000 shares of common stock. This has resulted in the
total issued common shares exceeding the 10,000,000 common shares
authorized by 4,284,234 common shares. Most of these shares were to
have been preferred stock. Due to an error that was discovered
after the close of the year, however, all of the shares were issued
as common shares, resulting in the Company issuing more common
shares than its articles of incorporation authorize. The Company is
in the process of "recalling" these certificates totaling 4,550,000
shares and replacing them with preferred certificates. The net
result will not be significantly different. Holders of preferred
shares will have a priority over common stockholders with respect to
dividends and liquidation rights, but no dividends are required or
anticipated. The preferred stockholders will have voting rights
equal to those of the common stockholders. The stockholders' equity
(deficit) section of the balance sheet then would be restated as
follows to take into account the preferred stock:
August 31, 1998 Proforma Adjustment Restated
August 31,1998
Stockholders' Equity (Deficit):
Common stock, $.01
par value, authorized
10,000,000 shares;
issued and
outstanding,9,734,234
$142,842 $(45,500) $97,342
Preferred stock, $.01
par value, authorized
5,000,000 shares;
issued and
outstanding - 4,550,000
0 45,500 45,500
Additional paid-in
capital
5,000,420 0 5,000,420
Accumulated deficit
(5,467,602) 0 (5,467,602)
Total stockholders'
equity (deficit)
$(324,340) $0 $(324,340)
(9) SUBSEQUENT EVENTS (UNAUDITED)
CONSENT DECREE ENTERED WITH SECURITIES AND EXCHANGE COMMISSION
The Company has not, to the date of this report, filed
necessary quarterly or annual reports with the United States
Securities and Exchange Commission (the "SEC") since May 31, 1998.
This constitutes a violation by the Company of a provision of the
Securities Exchange Act of 1934, as amended. The Company entered
into a consent decree with the SEC by which the Company agreed to
file all necessary reports by April 9, 1999, and agreed to file all
required reports with the SEC on a timely basis in the future.
EXHIBIT INDEX
Number Exhibit Description
3.1 Leggoons, Inc. Articles of Incorporation and Amendments,
incorporated by reference to Exhibit 3.1 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by reference to
Exhibit 3.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
4 Class A Warrant Agreement, incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
10.1 Agreement to License Assets (incorporated by reference to
Exhibit 10.16 to the Form 8-K filed on February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to Exhibit 10.17
to the Form 8-K filed on February 25, 1997).
10.3 ET&T Host Processing Agreement (see below).
10.4 ET&T Licensing Agreement (see below).
27 Financial Data Schedule
/TEXT>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its charter)
Missouri (2) 43-1239043
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
31310 Eaglehaven Center
Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.01 Par Value; Class A Warrants
Indicate by check mark whether the registrant (1) has 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) been subject to such filing requirements for
the past 90 days. Yes No X .
As of February 28, 1999, the registrant had 14,354,798 shares
of common stock issued and outstanding.
Transitional Small Business Dislcosure Format (check one): Yes
No X .
(1) Effective on June 4, 1999, the name was changed to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of organization was
changed to Nevada.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS AS OF FEBRUARY 28, 1999
AND AUGUST 31, 1998 3
STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED FEBRUARY 28, 1999
AND FEBRUARY 28, 1998 4
STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED FEBRUARY 28, 1999 AND
FEBRUARY 28, 1998 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 12
PART I.
ITEM 1. FINANCIAL STATEMENTS.
BETTING, INC.
BALANCE SHEETS
February 28, August 31,
1999 1998
ASSETS (Unaudited) (Audited)
Cash $ 22,510 $ 0
Total Assets $ 22,510 $ 0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 280,316 $ 283,971
Due to related party 35,569 18,969
Commissions payable 57,400 21,400
Total current liabilities 373,285 324,340
Commitments and Contingencies (Note 10)
Stockholders' Equity (Deficit):
Common stock, $.01 par value,
authorized 10,000,000 shares;
issued and outstanding,14,354,798
and 14,284,234 at February 28,
1999 and 1998, respectively 143,548 142,842
Preferred stock, $.01 par
value, authorized 5,000,000
shares; issued and
outstanding - none - -
Additional paid-in capital 5,157,064 5,000,420
Accumulated deficit (5,651,387) (5,467,602)
Total stockholders' equity
(deficit) (350,775) (324,340)
Total Liabilities and
Stockholders' Equity (Deficit) $ 22,510 $ 0
See accompanying notes to interim financial statements
BETTING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
General and
Administrative expenses
$ 175,730 $ 48,775 $ 183,785 $143,468
Total Operating Expenses
(175,730) (48,775) (183,785) (143,468)
Net loss (175,730) (48,775) $(183,785) $(143,468)
Net loss per common share
$ (.01) $ (.00) $ (.01) $ (.01)
Weighted average
shares outstanding
14,316,067 11,062,234 14,316,067 10,489,984
See accompanying notes to interim financial statements
BETTING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
February 28, February 28,
1999 1998
Cash Flows From Operating Activities
Net loss (Note 9) $ (175,735) $ (25,128)
Changes in assets and liabilities:
Accounts payable (3,655) 7,999
Commissions payable 36,000 3,001
Cash Used in Operating Activities (143,390) (14,128)
Cash Flows From Financing Activities:
Proceeds from additional borrowings
from stockholder 0 0
Proceeds from issuance of
common stock 149,300 0
Proceeds from borrowings
from related party 16,600 15,694
Cash provided by financing
activities 165,900 15,694
Net increase in cash 22,510 1,566
Cash at beginning of period 0 45
Cash at end of period $ 22,510 $ 1,611
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the six months ended
February 28, 1999 and 1998, respectively.
The following summarizes noncash investing and financing
transactions:
Six Months Ended February 28, 1999
Issuance of 161,000 shares of common stock
for services rendered $8,050
Six Months Ended February 28, 1998
Issuance of 1,769,000 shares of common stock
for services rendered $82,590
Issuance of 750,000 shares of common stock
for due to stockholder 35,135
Issuance of 350,000 shares of common stock
for accounts payable 21,000
See accompanying notes to interim financial statements.
BETTING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Unaudited Interim Periods:
The information furnished herein relating to interim periods
has not been audited by independent Certified Public Accountants.
In the opinion of the Company's management, the financial
information in this report reflects any adjustments that are
necessary for a fair statement of results for the interim periods
presented in accordance with generally accepted accounting
principles. All such adjustments are of a normal and recurring
nature. The accounting policies followed by the Company, and
additional footnotes, are set forth in the audited financial
statements included in the company's Annual Report Form 10-KSB/A
filed with the SEC on April 8, 1999.
2. Initial Public Stock Offering:
On November 18, 1993, the Company completed an initial public
offering in which it sold 900,000 Units at $3.125 per Unit. Each
Unit consisted of one share of Common Stock and one Class A Warrant.
Three Warrants entitled the holder thereof to purchase one share of
Common Stock at $3.75 per share and expired on November 18, 1997.
The warrants were callable in total by the Company after November
18, 1994, at a redemption price of $.05 per warrant upon 60 days
prior notice if the common stock has traded above $3.75 for at least
20 out of the 30 trading days preceding the date of the notice of
redemption.
3. Earnings (loss) Per Share:
Net earnings (loss) per share are computed using the weighted
average number of common and common equivalent shares outstanding
during the period. The Class A Warrants issued during the public
offering are anti-dilutive and have not been included in the
computation of common equivalent shares outstanding. Fully diluted
net earnings (loss) per share for all periods presented is not
materially different from primary net earnings (loss) per share.
4. Income Taxes:
Effective September 1, 1987, the Company elected to be taxed
under Subchapter S of the Internal Revenue Code. As such, the
Company's taxable income or loss was included in the individual tax
returns of its shareholders for Federal and State income tax
purposes. Upon the closing of the public stock offering on November
18, 1993, the Company terminated its Subchapter S election.
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August 31, 1997, that
were generated by Leggoons, Inc. The unused net operating losses
expire in various amounts from 2009 to 2012. However, due to change
of ownership rules of section 382 of the Internal Revenue Code some
or all of these NOL carryforwards may be unavailable to offset any
future income of Betting, Inc. The Company generated losses of
approximately $1,658,000 during the six month period ended August
31, 1997, losses of approximately $197,000 during the year ended
August 31, 1998, and losses of approximately $183,000 during the six
months ended February 28, 1999. These losses, totaling $4,838,000,
may not qualify as federal and state NOL carryforwards due to the
possible nondeductibility of the noncash service costs incurred and
the change of ownership rules of section 382 of the Internal Revenue
Code. The Company provides an allowance for the entire amount of
any deferred tax assets that are applicable to the NOL.
5. Due to Stockholder
The Company had a due to stockholder payable to James S.
Clinton, former Chairman of Leggoons, Inc., in the amount of $35,135
for advances made to Leggoons, Inc., prior to March 1, 1997. This
payable was paid in full during the six months ended February 28,
1998, by the issuance of 750,000 shares of restricted common stock.
6. Due to Related Party
The Company utilizes cash advances from HPOS/E.T.T. to fund
day to day operations of the Company. Thomas S. Hughes is the
Chairman of both the Company and HPOS/E.T.T.
7. Accumulated Deficit:
As a result of the termination of the Company's S Corporation
status on November 18, 1993, the accumulated deficit of $1,168,375
incurred through that date was closed out against additional paid-in
capital. The $5,651,387 of deficit on the balance sheet at February
28, 1999, is the result of operations from November 18, 1993, to
February 28, 1999.
8. Stockholders Equity:
During the period September 1, 1998, through February 28,
1999, the Company issued 161,000 shares of common stock for services
rendered. The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The "fair
market value" of such common stock issued, $8,050, has been expensed
as consulting fees during the six months ended February 28, 1999.
During the period September 1, 1997, through November 30,
1997, the Company issued 2,869,000 shares of common stock for
payments on accounts payable and services rendered. For the
1,769,000 shares of common stock issued for services rendered during
the period September 1, 1997, through November 30, 1997, the closing
"market" stock price was used to determine "fair market value" of
the 569,000 unrestricted common shares issued; the closing "market"
stock price less a 50% discount was used to determine "fair market
value" of the 1,200,000 restricted common shares issued. The
financial value of the common stock issued for no cash consideration
is required to be expensed by the Company. The "fair market value"
of such common stock issued, $82,590, has primarily been expensed as
$63,450 in consulting fees, $7,140 in legal fees, and $12,000 in
general and administrative expenses during the three months ended
November 30, 1997. Some of the common stock shares issued were
registered with the Securities and Exchange Commission using Form S-
8 Registration Statements.
9. Cash Flow and Income Statement Reconciliation
The following reconciles noncash financing transactions for the six
months ended February 28, 1999:
Net loss $ 175,735
Issuance of 161,000 shares of common stock for Consulting
Fees 8,050
Income Statement Net Loss $ 183,785
The following reconciles noncash financing transactions for the six
months ended February 28, 1998:
Net loss $ 25,128
Issuance of 2,469,000 shares of common stock for Consulting
Fees, and General and Administrative Expense 118,340
Income Statement Net Loss $ 143,468
10. Contingencies
(a) Going Concern.
The Company's financial statements are presented on the going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the accompanying financial statements, the Company has
shown a significant loss from operations and has negative working
capital and a stockholders' deficit. This raises substantial doubt
about the Company's ability to continue.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems, principally by obtaining
additional debt financing and equity capital and ultimately upon
achieving profitability. While pursuing additional debt and equity
funding, the Company must continue to operate on limited cash flow.
Management is committed to developing the product and continues to
receive small amounts of funding from private investors. It is the
goal of management to receive additional funding from an additional
public offering of its common stock within twelve months.
There is no assurance that the Company can achieve the
profitability and positive liquidity discussed above. The financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going
concern.
(b) Common Stock Issued in Excess of Authorized Shares.
During the year ended August 31, 1998, the Company issued a
total of 6,441,000 shares of common stock. This has resulted in the
total issued common shares exceeding the 10,000,000 common shares
authorized by 4,284,234 common shares. Most of these shares were to
have been preferred stock. Due to an error that was discovered
after the close of the year, however, all of the shares were issued
as common shares, resulting in the Company issuing more common
shares than its articles of incorporation authorize. The Company is
in the process of "recalling" these certificates totaling 4,550,000
shares and replacing them with preferred certificates. The net
result will not be significantly different. Holders of preferred
shares will have a priority over common stockholders with respect to
dividends and liquidation rights, but no dividends are required or
anticipated. The preferred stockholders will have voting rights
equal to those of the common stockholders. The stockholders' equity
(deficit) section of the balance sheet then would be restated as
follows to take into account the preferred stock:
February 28, Proforma Restated
1999 Adjustment February 28, 1999
Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding,
9,803,834
$143,548 $(45,500) $ 98,048
Preferred stock, $.01 par value, authorized 5,000,000
shares; issued and outstanding - 4,550,000
0 45,500 45,500
Additional paid-in capital
5,157,064 0 5,157,064
Accumulated deficit
(5,651,387) 0 (5,651,387)
Total stockholders' equity (deficit)
$ (350,775) $ 0 $ (350,775)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with
the financial statements of the Company and notes thereto contained
elsewhere in this report.
Results of Operations.
The Company had virtually no operations during the three month
period ended November 30, 1998, due to the unavailability of funds.
Near the end of the three month period ended November 30, 1998, and
during the three month period ended February 28, 1999, the Company
received cash from the sale of its common stock to a private
investors and from advances to the company by related parties.
These funds were used for operations during the three month period
ending February 28, 1999. The primary general and administrative
expenses incurred during the six month period ended February 28,
1999, were consulting fees of $20,650, legal fees of $17,862,
accounting fees of $21,559, license fees of $92,000 and stock
expenses of $10,371. The primary general and administrative expenses
incurred during the six month period ended February 28, 1998, were
consulting fees, legal fees, office expenses and stock expenses.
Liquidity and Capital Resources.
Net cash used in operating activities by the Company was
$143,390 for the six month period ended February 28, 1999 versus
$14,128 in the comparable prior year period.
Capital Expenditures.
No material capital expenditures were made during the quarter
ended on February 28, 1999.
Year 2000 Issue.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year 2000 date is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before,
on, or after January 1, 2000, and if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant system failure which could affect the Company's ability
to conduct normal business operations. This creates potential risk
for all companies, even if their own computer systems are Year 2000
compliant. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be
fully resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and products
may contain undetected errors or defects with Year 2000 date
functions that may result in material costs. Although management is
not aware of any material operational issues or costs associated
with preparing its internal systems for the Year 2000, the Company
may experience serious unanticipated negative consequences (such as
significant downtime for one or more of its web site properties) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of advertisers may be affected by Year 2000
issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. The Company does not
currently have any information about the Year 2000 status of its
advertising customers. However, these expenditures may result in
reduced funds available for web advertising or sponsorship of web
services, which could have a material adverse effect on its
business, results of operations, and financial condition. The
Company's Year 2000 plans are based on management's best estimates.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis contains
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and as contemplated under the
Private Securities Litigation Reform Act of 1995, including
statements regarding, among other items, the Company's business
strategies, continued growth in the Company's markets, projections,
and anticipated trends in the Company's business and the industry in
which it operates. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are
based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the
Company's control. The Company cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including, among others, the following: reduced or lack
of increase in demand for the Company's products, competitive
pricing pressures, changes in the market price of ingredients used
in the Company's products and the level of expenses incurred in the
Company's operations. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information
contained herein will in fact transpire or prove to be accurate.
The Company disclaims any intent or obligation to update "forward
looking statements".
PART II.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by or
against the Company has been threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's
stockholders during the first quarter of the fiscal year covered by
this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. There are no reports on Form 8-K
filed during the second quarter of the fiscal year covered by this
report
(b) Exhibits included or incorporated by reference herein:
See Exhibit Index
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eConnect (formerly known as
Betting, Inc.)
Dated: June 18, 1999 By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
EXHIBIT INDEX
Exhibit No. Description
3.1 Leggoons, Inc. Articles of Incorporation and Amendments,
incorporated by reference to Exhibit 3.1 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by reference to
Exhibit 3.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
4 Class A Warrant Agreement, incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
10.1 Agreement to License Assets (incorporated by reference to
Exhibit 10.16 to the Form 8-K filed on February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to Exhibit 10.17
to the Form 8-K filed on February 25, 1997).
10.3 ET&T Host Processing Agreement (incorporated by reference to
Exhibit 10.3 of the Form 10-KSB for the period ending on August 31,
1998).
10.4 ET&T Licensing Agreement (incorporated by reference to Exhibit
10.4 of the Form 10-KSB for the period ending on August 31, 1998).
27 Financial Data Schedule (see below).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22
<CURRENT-LIABILITIES> 373
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> (351)
<TOTAL-LIABILITY-AND-EQUITY> 22
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (184)
<INCOME-TAX> 0
<INCOME-CONTINUING> (184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
May 27, 1999
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect (formerly know as Betting, Inc.) - Form SB-2
Dear Sir/Madame:
As a certified public accountant, I hereby consent to the
inclusion in this Form SB-2 Registration Statement of my report
dated April 7, 1999 in Betting, Inc.'s Form 10-KSB for the fiscal
year ended August 31, 1998, and to all references to my firm
included in this Registration Statement.
Sincerely,
/s/ George Brenner
George Brenner, C.P.A.
