U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
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 or jurisdiction (Primary Standard I.R.S.
Employer
of incorporation Industrial Classification Identification
No.)
or organization) Code Number)
31310 Eaglehaven Center, Suite 10,
Rancho Palos Verdes, California 90275
(310) 541-4393
(Address and telephone number of Registrants 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
to 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.
?
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.?
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.?
If the delivery of the
prospectus is expected
to be made pursuant to
Rule 434, check the
following box.?
CALCULATION OF REGISTRATION FEE
Title of
each class
of
securities
to be
registered
Amount to
be
registered
(1)
Proposed
maximum
offering
price
per unit
(2)
Proposed
maximum
aggregate
offering
price
Amount of
registrati
on fee
Common
shares
10,000,000
$0.62
$6,200,000
$1,723.60
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 May 25, 1999.
PART I. INFORMATION REQUIRED IN PROSPCTU
PROSPECTUS
eCONNECT
(previously know as Betting, Inc.)
10,000,000 Shares (1)
Common Stock
Offering Price $0.62 per Share
eConnect, a Nevada corporation (Company), is hereby offering up
to 10,000,000 shares of its $0.001 par value common stock (Shares)
at
an offering price of $0.62 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 and
Commissions
(2)
Proceeds to
Issuer (3)
Per Share
$0.62
$0
$0.62
Total Minimum (1)
$500,000
$0
$500,000
Total Maximum
$6,200,000
$0
$6,200,000
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.
(2)
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 10,000,000 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 tc \l1 MEMORANDUM 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 companys 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 todays 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. 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 2, 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 $0.62 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. If all
the
Shares offered are transferred under the debentures and/or warrants,
this will represent the net proceeds from sale of the warrants and
debentures of a maximum of $6,200,000, 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 (14,500,000 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 tc \l 1 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys ability to utilize funds for the
successful development and distribution of revenues as derived by
the
revenues received by the Companys 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 Companys 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 Companys 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 managements 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
Companys
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 Companys 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 arms 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 Companys Board of Directors is responsible for valuation of
the Companys investments. There are a wide range of values which are
reasonable for an investment for the Companys 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 Companys
investments. The Companys Board of Directors will serve as the
valuation committee, responsible for valuing each of the Companys
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 Boards evaluation.
Additional Financing May Be Required.
Even if all of the 10,000,000 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 10,000,00 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 May 25, 1999 ($0.62). 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 Companys Securities.
Prior to the Offering, there has been only a limited public
market for the Shares being offered (a total of 14,500,000 as of May
25, 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 Companys 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 Companys 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 Companys 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 purchasers
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 Companys Shares and may affect
the ability of purchasers in the Offering to sell the Companys
securities in the secondary market. There is no assurance that a
market
will develop for the Companys 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
Companys
business strategies, continued growth in the Companys markets,
projections, and anticipated trends in the Companys 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 Companys expectations and are subject to a number of risks
and
uncertainties, certain of which are beyond the Companys 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 Companys 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 Companys Year
2000
plans are based on managements best estimates.
USE OF PROCEEDS tc \l 1 USEOFPROCEEDS
Following the transfer of the 10,000,000 Shares offered by the
Company pursuant to the debentures and warrants, this will represent
gross proceeds to the Company of approximately $6,200,000 (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
Amount Percent
Maximum Offering
Amount Percent
Transfer Agent
Fee
$1,000 0.20%
$1,000 0.02%
Printing Costs
$1,000 0.20%
$1,000 0.02%
Legal Fees
$50,000 10.00%
$50,000 0.81%
Accounting Fees
$1,500 0.30%
$1,500 0.02%
Working Capital
$446,500 89.30%
$6,146,500 99.13%
Total
$500,000 100.00%
$6,200,000 100.00%
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
tc \l 1 DILUTION
The offering price is not based upon the Companys 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
(May 25, 1999): $0.62 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-Q 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
$5,849,225, or $0.4086 per Share, which would represent an immediate
increase of $0.4331 in net tangible book value per Share and $0.0127
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:
Assuming Maximum
Shares Sold
Offering Price (1)
$0.6200
Net tangible book value per
share before Offering (2)
$(0.0245)
Net tangible book value
Share after offering (3)
$0.2405
Increase attributable to
issue of stock to
new investors (4)
$0.2605
Dilution to new investors (5)
$0.3795
Percent Dilution to new
investors (6,7)
38.79%
(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. The net tangible book value per share after the
offering
($0.2405) 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 as
determined in note 3 above.
(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 $0.2405 and subtracting from it the net tangible book value
per share before the offering ($0.0245) for an increase of $0.2650.
(6) The dilution to new investors is determined by subtracting the
net tangible book value per share after the offering ($0.2405) from
the
offering price of the Shares in this offering ($0.6200), giving a
dilution value of ($0.3795).
(7) The Percent Dilution to new investors is determined by dividing
the Dilution to new investors ($0.3795) by the offering price per
Share ($0.6200) giving a dilution to new investors of 38.79%.
PLAN OF DISTRIBUTION tc \l 1 PLAN OF DISTRIBUTION
The Company will issue a maximum of 10,000,000 Shares of its
common stock, par value $0.001 per Share to the public in accordance
with a Registration Rights Agreement as explained below. 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 $6,200,000. 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
Companys 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 Companys 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 Companys 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 tc \l 1 LITIGATION
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 firms expertise is churches and employs a staff of five
people.
Ms. Hewitt currently devotes approximately 25 hours per week in
working with the Companys image development and consulting with the
Companys 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. Wexlers
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
Companys
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
Owner (1)
Amount and
Nature of
Beneficial
Owner (2)
Percent of Class
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
14,500,000 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 given to
certain
consultants for the Company in exchange for services rendered to the
Company; as of the date of this Prospectus, these shares have not
yet
been issued pending qualification by coordination in the States of
California and Connecticut).
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 Companys directors.
Dividends.
The Company does not currently intend to pay cash dividends. The
Companys proposed dividend policy is to make distributions of its
revenues to its stockholders when the Companys 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 Companys Board of Directors, it is in the best
interest
of the Companys 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 investees securities on its customers, joint
venture associates, management contracts, other investors, financial
institutions, and the companys 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 of
10,000,000 is converted and/or exercised) and the issue of 900,000
shares to consultants of the Company pursuant to the Form S-8, the
Companys authorized but unissued capital stock will consist of
74,600,000 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
Companys 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 Companys 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 directors 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 shareholders 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
well 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 Companys 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 Companys 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 CDs, 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 Companys largest expense;
the focus on attaining customers and keeping clients is the Companys
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.coms 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 Companys 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.coms target market includes males between the ages of
18 and 45 who are active sports gamblers currently. The most
typical
customer for the Companys 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 Companys 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.coms 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 bettors 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 its
easier to bet with us, more fun, more secure and potentially more
profitable we will get more customers.
(7) Marketing and Advertising Strategy.
eSportsbet.coms marketing strategy is to enhance, promote and
support the fact that the Companys product is unique in terms of
ease
of operability, reliability, security. Most importantly, from a
bettors
perspective it is the opinion of management that the Companys
product
offer the highest odds pay outs in the entire industry.
The Companys 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.coms 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 Companys 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 Companys 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 bettors 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.coms 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.coms 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 Companys 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 Companys 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
Companys 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 Companys
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 Companys plan of operation over the next
12
months in incorporated into the discussion of the Companys 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 NASDs Electronic
Bulletin Board or NASDAQs 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 Companys 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 ***
.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 May 25, 1999, the Company estimates there were
approximately 400 beneficial shareholders of the Companys 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 Companys 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 Companys 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 auditors reports for August 31,
1996
and 1995, were modified as to the uncertainties about the Companys
ability to continue as a going concern. The decision to change
accountants was approved by the Companys 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 May 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
May 28, 1999
/s/ Jack M. Hall
Jack M. Hall
Secretary, Director
May 28, 1999
/s/ Diane Hewitt
Diane Hewitt
Treasurer (Principal
Financial and
Accounting Officer),
Director
May 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 10.1 of the Form 10-Q
for the quarter ended February
28, 1999)
Incorporated by Reference
10.4
Licensing Agreement
(incorporated by reference to
Exhibit 10.2 of the Form 10-Q
for the quarter ended February
28, 1999)
Incorporated by Reference
13.1
Latest Annual Report to
Security Holders on Form 10-
KSB
See Below
13.2
Latest Quarterly Report to
Security Holders on Form 10-
QSB
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 Corporations 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 Corporations 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 persons 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 persons
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 Corporations 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
September and end on the 31st day of August 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
Companys 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
Companys
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 Companys 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 Companys 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 Investors 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 Investors 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 Investors
election
to exclude all of such Investors 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 Investors
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 Investors 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 Companys 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
Holders 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 Holders 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 Companys receipt of a facsimile or
original of Holders 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 Holders
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 Holders 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 Holders signed conversion notice Company shall
instruct
Companys 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 Companys 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 Holders right to pursue actual damages or cancel the
conversion for the Companys 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 Holders 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 Holders 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 Holders 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 Holders
right to pursue actual damages or cancel the conversion for the
Companys 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 Companys or any of its subsidiaries stock option,
for
the purpose of the Companys 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 Companys 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 Companys 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
Warrantholders 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 Companys 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 cashiers 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 Companys receipt of a facsimile or original of
Warrantholders 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
Warrantholders 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 Warrantholders 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 Companys 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 Warrantholders right to pursue actual damages for the
Companys 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
Warrantholders 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 Warrantholders 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 Warrantholders
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 Warrantholders right to pursue
actual damages for the Companys 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
applicants 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
shareholders 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 Companys 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
Companys 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 Companys 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 Companys 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
May 27, 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 10,000,000 shares of its common
stock
(Shares), $0.001 par value per Share, at an offering price of $0.62
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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: August 31, 1998
Commission file number: 33-68570
BETTING, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1239043
(State of incorporation) (IRS Employer Identification number)
31310 Eaglehaven Center, Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices and Zip Code)
(310) 541-4393
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Betting, Inc. Common Stock $.01 Par Value
Betting, Inc. 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) has 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 registrants knowledge, in
definitive proxy or informational statements incorporated by
reference
in Part III of this form 10-KSB or any amendment to this form 10-
KSB.
[ ]
Revenues for the fiscal year ended August 31, 1998: $0
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the closing average bid and
asked price of the Common Stock on August 31, 1998, as reported on
the
OTC Bulletin Board, was $1,785,000
Number of shares of common stock outstanding as of August
31,1998: 14,284,234
Documents Incorporated by Reference: Registrants Annual Report on
Form
10-KSB filed in February 1999, Registrants Annual Report on Form 10-
KSB
filed on January 17, 1997, Exhibits in Registrants Annual Report on
Form 10-K filed on December 14, 1995, and Exhibits in Registrants
Annual Report on Form 10-K filed on November 29, 1994, are
incorporated
by reference to the exhibit index attached hereto. Exhibits in
Registrants Registration Statement on Form S-1 filed on October 28,
1993, are incorporated by reference to the exhibit index attached
hereto.
BETTING, INC.
Index to Annual Report
on Form 10-KSB
Part I
Page
Item 1- Description of Business
3-4
Item 2- Description of Property
4
Item 3- Legal Proceedings
4
Item 4- Submission of Matters to a
Vote of Security Holders
4
Part II
Item 5- Market for Common Equity and
Related Stockholder Matters
5
Item 6- Managements Discussion and
Analysis of Financial Condition
Results of Operations
6-9
Item 7- Financial Statements
9
Item 8- Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
9
Part III
Item 9- Directors, Executive Officers
and Compliance With Section 16(a) of
the Exchange Act
9
Item 10- Executive Compensation
9-10
Item 11- Security Ownership of
Certain Beneficial Owners and
Management
10-11
Item 12- Certain Relationships and
Related Transactions
11
Part IV
Item 13- Exhibits, Financial
Statement Schedules and Reports on
Form 8-K
12
PART I
Item 1. Description of 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 companys 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 todays 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
First Quarter
1/8
1/32
Second Quarter
1/16
1/32
Third Quarter
1/8
1/16
Fourth Quarter
3/16
1/16
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High
Low
First Quarter
3/8
1/8
Second Quarter
1/2
1/8
Third Quarter
15/16
1/16
Fourth Quarter
9/16
1/16
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there were 400
beneficial shareholders of the Companys 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 Companys earnings, capital
requirements and other factors.
Item 6. Managements Discussion and Analysis of Financial
Condition
and Results of Operations
Results of Continuing 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 expenses 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
Companys 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
Companys 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 Companys ability to continue
as
a going concern. The Companys 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 countrys 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 Companys 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 Infinitrons 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 Companys Year 2000 plans are based on managements best
estimates. Based on currently available information, management
does
not believe that the Year 2000 issues will have a material adverse
impact on the Companys 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, 50, Chief Executive Officer,
President and Director of the Company since 1997. Founder of
Electronic Transactions and Technologies (formerly HPOS).
Jack M. Hall, 67, Director of the Company since 1997
D. Diane Hewitt, 50, Director of the Company since 1997.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys directors, certain officers and persons holding 10% or
more
of the Companys common stock to file reports regarding their
ownership
and regarding their acquisitions and dispositions of the Companys
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 Companys other executive officers whose annual salary and
bonus
exceeds $100,000.
Summary Compensation Table
Name and
Principal
Position
Year
Salary
($)
Bonus
($)
Other
($)
Stock
($)
SARs
(#)
($)
Options/
($)
Comp
ensa
tion
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
Execu-
tive
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 Companys 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 Companys Common Stock.
Name and Address of
Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Percent of Class
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064
1,417,0001
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. Langstons 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 of
Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Percent of Class
Thomas S. Hughes
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
1,000,000
12.7%
All officers and
directors as a group
(1 individual)
1,000,000
12.7%
1Shares 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 years ended August 31, 1998 and 1997, the salient
details of 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.
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.
The Company issued 750,000 shares of restricted common stock to
James S. Clinton as full payment for an amount due to stockholder of
$35,135.
The Company issued 1,000,000 shares of restricted common stock to
Thomas S. Hughes during May 1997. 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.
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, 1997, the net result of
these
transactions is a receivable from HPOS of $38,071. At August 31,
1997,
the $38,071 has been expensed by the Company as licensing fees that
are
due to HPOS.
The Company issued 286,234 shares of common stock valued at
$41,864 to former associates of Thomas S. Hughes at a company called
Betts, Inc.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Index to Financial Statements and Schedules
See index to financial statements and supporting schedules on page
13
of this annual report on Form 10-KSB.
(b) Reports on Form 8-K
None
(c) Index to Exhibits
Any exhibits filed with the Securities and Exchange Commission will
be
supplied upon written request of Thomas S. Hughes, Betting, Inc.,
31310
Eaglehaven Circle, Rancho Palos Verdes, CA 90275. A charge will be
made to cover copying costs. See Exhibit Index below.
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. Leggoons, Inc. Agreement to License
Assets
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 Assignment for Benefit of Creditors, incorporated by reference
to
Exhibit 10.1 of Leggoons, Inc., Form 8-K filed on June 27, 1996.
10.2 Leggons, Inc. Agreement to License of Assets
BETTING, INC.
(Formerly Leggoons, Inc.)
Independent Auditors Report
Financial Statements
Balance Sheet
Statements of Operations
Statements of Stockholders Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
GEORGE BRENNER, C.P.A.
9300 WILSHIRE BOULEVARD, SUITE 490
BEVERLY HILLS CALIFORNIA 90212
AUDITORS 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 Companys 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
Companys 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. Managements 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
auditors report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended
August 31, 1998
Year Ended 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
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Number of
common
shares
Par
value
Preferred
stock
Additional
paid-in
capital
Accumulated
deficit
Stockhold
ers
equity
(deficit)
Balance
at August
31, 1996
2,787,000
27,870
0
3,522,792
(3,571,189)
(20,527)
Issuance
of
346,000
shares of
Common
stock at
$.25 per
share
(Cash
Transacti
on)
346,000
3,460
0
82,040
0
85,500
Issuance
of
2,999,734
shares of
Common
stock (1)
(Non-Cash
Transacti
ons)
2,999,734
29,997
0
925,708
0
955,705
Issuance
of
1,710,500
shares of
Common
stock at
$.20 per
share
(Non-Cash
Transacti
ons)
1,710,500
17,105
0
324,995
0
342,100
Net loss
0
0
0
0
(1,699,445)
(1,699,44
5)
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
Transacti
ons)
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
14,284,23
4
$142,84
2
$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
auditors report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended August
31, 1998
Year Ended 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
auditors 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 companys 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 todays 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 NASDs
Electronic Bulletin Board or NASDAQs 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.
See accompanying auditors report
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.
See accompanying auditors report
(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 Companys 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.
See accompanying auditors report
(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 Companys 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
Companys
ability to continue.
The Companys 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.
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 Las
Vegas,
State of Nevada, on April 5, 1999.
BETTING, INC.
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
attorney-in-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
April 5, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
April 5, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
April 5, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 10 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 1999
Commission file number: 33-68570
BETTING, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1239043
(State of incorporation) (IRS Employer Identification number)
31310 Eaglehaven Center, Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices and Zip Code)
(310) 541-4393
(Registrants telephone number, including area code)
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) has been subject to such filing requirements for the past 90
days.
Yes No X
Number of shares of common stock outstanding as of February 28,
1999:
14,354,798
Transitional Small Business Disclosure Format (Check one): Yes
No X
PART I-FINANCIAL INFORMATION
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 1,062,234 4,316,067
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 Companys 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 companys 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
Companys
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 Companys 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 Companys 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
Companys ability to continue.
THE COMPANYS 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. MANAGEMENTS 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 by the Company was $143,390 for the six month
period ended February 28, 1999 versus cash used in operating
activities
of $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 Companys 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 Companys Year
2000
plans are based on managements best estimates.
Forward Looking Statements.
The foregoing Managements 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 Companys business strategies,
continued growth in the Companys markets, projections, and
anticipated
trends in the Companys 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 Companys
expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Companys 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 Companys products,
competitive pricing pressures, changes in the market price of
ingredients used in the Companys products and the level of expenses
incurred in the Companys 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 Companys stockholders
during the first quarter of the fiscal year covered by this report.
ITEM 5. OTHER INFORMATION.
None.
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.
BETTING, INC.
Dated: May 25, 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 ET&T Host Processing Agreement (see below).
10.2 ET&T Licensing Agreement (see below).
27 Financial Data Schedule (see below).
ET&T HOST PROCESSING AGREEMENT
This Agreement states that Betting, Inc., a Missouri corporation,
does hereby
agree that Electronic Transactions & Technologies (ET&T) shall be
the sole
provider of bank host processing for all Betting, Inc. transactions
that are
sent by terminals that read credit cards, ATM cards, or smart cards.
That ET&T shall charge Betting, Inc. a fee of $0.25 per transaction
or 2.5%
of the wager being sent by Betting, Inc. to gaming operators.
That these transactions shall originate from globally placed
Betting, Inc.
equipment and/or Betting, Inc. licensed operators.
This exclusive ET&T host service contract for Betting, Inc. expires
on
January 1, 2006.
Electronic Transactions & Technologies
Dated: April 28, 1997 By:_/s/ Thomas S. Hughes__
Thomas S, Hughes, Chairman & CEO
Betting, Inc.
Dated: April 28, 1997 By:/s/_Thomas S. Hughes__
Thomas S. Hughes, Chairman & CEO
ET&T LICENSING AGREEMENT
This Agreement states that Electronic Transactions & Technologies
(ET&T) does
hereby license the following ET&T products to Betting, Inc., a
Missouri
corporation, 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.
The duration of the exclusive license is 20 years.
Electronic Transactions & Technologies
Dated: March 27, 1998 By:/s/ Thomas S. Hughes__
Thomas S, Hughes, Chairman & CEO
Betting, Inc.
Dated: March 27, 1998 By:/s/_Thomas S. Hughes__
Thomas S. Hughes, Chairman & CEO
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 COMPANYS FORM 10-Q 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.
1
