U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eCONNECT
(Previously known as Betting, Inc.)
(Name of Small Business Issuer in its charter)
Nevada 454390 43-1239043
(State of jurisdiction of (Primary Standard (IRS Employer
incorporation or Industrial Identification No.)
organization) Classification Code Number)
31310 Eaglehaven Center
Suite 10
Rancho Palos Verdes, California 90275; (310) 541-4393
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Shawn F. Hackman, Esq.
3360 West Sahara Avenue, Suite 200
Las Vegas, Nevada 89102; (702) 732-2253
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is If this Form is post- If this Form is post-
register additional effective amendment effective amendment
securities for an filed pursuant to filed pursuant to
offering pursuant to Rule 462(c)under the Rule 462(d)under the
Rule 462(b) under Securities Act, Securities Act,
the Securities Act, check the following check the following
please check the box box and list the box and list the
and list the Securities Act Securities Act
Securities Act registration registration
registration number statement number of statement number of
of the earlier the earlier the earlier
effective effective effective
registration registration registration
statement for the statement for the statement for the
same offering. same offering. 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 Common shares
Amount to be
registered (1) 20,000,000
Proposed
maximum
offering price
per unit (2) $0.43
Proposed
maximum
aggregate
offering price $8,600,000
Amount of
registration
fee $2,390.80
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
(1) Pursuant to Rule 416, such additional amounts to prevent
dilution from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(g)(3): The average of
the bid and asked price as of June 25, 1999.
PART I. INFORMATION REQUIRED IN PROSPCTUS
PROSPECTUS
eCONNECT
(previously know as Betting, Inc.)
20,000,000 Shares (1) Common Stock
Offering Price $0.43 per Share
eConnect, a Nevada corporation ("Company"), is hereby offering up
to 20,000,000 shares of its $0.001 par value common stock
("Shares") at an offering price of $0.43 per Share on a delayed
basis under Rule 415 pursuant to the terms of this Prospectus for
the purpose of providing working capital for the Company.
The Shares offered hereby are highly speculative and involve
a high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 4).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL
OFFENSE.
Price to Public Underwriting Discounts Proceeds
and Commissions (2)
to Issuer (3)
Per Share $0.43 $0
$0.43
Total Minimum (1) $500,000 $0
$500,000
Total Maximum $8,600,000 $0
$8,600,000
Information contained herein is subject to completion or
amendment. The registration statement relating to the securities
has been filed with the Securities and Exchange Commission. The
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion, Dated ________________, 1999
(1) Pursuant to SEC Rule 416, there will be a change in the
amount of securities being issued to prevent dilution resulting
from stock splits, stock dividends, or similar transaction.
THE SHARES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL TO THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OPEN OFFER TO BUY INTO SECURITIES OFFERED HEREBY A
STATE IN WHICH, OR TO A PERSON TRUE, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONTAINED HEREIN SUBSEQUENT TO THE DATE THEREOF. HOWEVER, IF A
MATERIAL CHANGE OCCURS, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY FOR ALL EXISTING SHAREHOLDERS, AND FOR
ALL PROSPECTIVE INVESTORS WHO HAVE NOT YET BEEN ACCEPTED AS
SHAREHOLDERS IN THE COMPANY.
THIS PROSPECTUS DOES NOT INTENTIONALLY OMIT ANY MATERIAL FACT
OR CONTAIN ANY UNTRUE STATEMENT OF MATERIAL FACT. NO PERSON OR
ENTITY HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION
OR MAKE A REPRESENTATION, WARRANTY, COVENANT, OR AGREEMENT WHICH
IS NOT EXPRESSLY PROVIDED FOR OR CONTAINED IN THIS PROSPECTUS; IF
GIVEN OR MADE, SUCH INFORMATION, REPRESENTATION, WARRANTY,
COVENANT, OR AGREEMENT MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
THE COMPANY IS A REPORTING COMPANY. EACH PERSON WHO RECEIVES
A PROPSECTUS WILL HAVE AN OPPORTUNITY TO MEET WITH
REPRESENTATIVES OF THE COMPANY, DURING NORMAL BUSINESS HOURS UPON
WRITTEN OR ORAL REQUEST TO THE COMPANY, IN ORDER TO VERIFY ANY OF
THE INFORMATION INCLUDED IN THIS PROSPECTUS AND TO OBTAIN
ADDITIONAL INFORMATION REGARDING THE COMPANY. IN ADDITION, EACH
SUCH PERSON WILL BE PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST, A COPY OF ANY OF THE INFORMATION THAT IS INCORPORATED BY
REFERENCE IN THE PROSPECTUS AND THE ADDRESS (INCLUDING TITLE OR
DEPARTMENT) AND TELEPHONE NUMBER TO WHICH SUCH REQUEST IS TO BE
DIRECTED.
ALL OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN
WRITING THAT THEY HAVE READ THIS PROSPECTUS CAREFULLY AND
THOROUGHLY, AND UNDERSTOOD THE CONTENTS THEREOF, THEY WERE GIVEN
THE OPPORTUNITY TO OBTAIN ADDITIONAL INFORMATION; AND THEY DID SO
TO THEIR SATISFACTION.
(1) A maximum of 20,000,000 shares may be sold on a delayed basis
under Rule 415 under the Securities Act of 1933, as amended,
pursuant to the conversion of certain debentures into common
stock of the Company, and the exercise of certain warrants to
purchase the common stock. The offering will remain open until
the maturity date of the debentures on May 26, 2002 and the
expiration date of the warrants, also on May 26, 2002.
(2) No commissions will be paid in connection with the sale of
the Shares on this delayed basis.
(3) The Net Proceeds to the Company is before the payment of
certain expenses in connection with this offering. See
"Use of Proceeds."
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 2
USE OF PROCEEDS 3
DETERMINATION OF OFFERING PRICE 4
DILUTION
5
PLAN OF DISTRIBUTION 6
LEGAL PROCEEDINGS
7
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 9
DESCRIPTION OF SECURITIES
10
INTEREST OF NAMED EXPERTS AND COUNSEL 11
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 12
ORGANIZATION WITHIN LAST FIVE YEARS
13
DESCRIPTION OF BUSINESS
14
PLAN OF OPERATION
15
DESCRIPTION OF PROPERTY
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
18
EXECUTIVE COMPENSATION
19
FINANCIAL STATEMENTS
20
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 21
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus
("Prospectus"). Each prospective investor is urged to read this
Prospectus, and the attached Exhibits, in their entirety.
The Company.
(a) Background.
Betting, Inc. was originally organized under the laws of
the State of Missouri on September 1, 1981, as HANDY-TOP, INC.
On April 20, 1983, the Articles of Incorporation were amended to
change the name of the corporation to HTI Corporation. On May
28, 1993, the Articles of Incorporation were amended to change
the name of the corporation to Leggoons, Inc. In addition to
changing the company's name, the May 28,1993, amendment to the
Articles of Incorporation increased the number of authorized
shares of common stock from 40,000 to 10,000,000 and decreased
the par value of the common stock from $1.00 per share to $.01
per share. Also on May 28, 1993, Leggoons, Inc., declared a 14-
for-1 stock split.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the
brands Leggoons, CPO by Leggoons, John Lennon Artwork Apparel,
and Snooggel. On January 19, 1996, Leggoons, Inc., entered into
a Licensing Agreement with Robert Tamsky, a former director and
employee of the Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr. Tamsky
effective January 1, 1996, the right to use the LEGGOONS
trademark in connection with the design, production, marketing,
sales and sublicensing of all clothing, wearing apparel and
accessories bearing the "LEGGOONS" symbol. This right will
continue until December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration for the
license, Mr. Tamsky, according to the Licensing Agreement, shall
pay to the Leggoons, Inc. a royalty of five percent of the net
sales of "LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its
assets and liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors" (the "Assignment").
An Assignment is a business liquidation device available as an
alternative to bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the "Assignee"), will be
required to properly, timely, and orderly dispose of all
remaining assets for the benefit of creditors. Included in the
Assignment were the rights and obligations of the Licensing
Agreement. Leggoons, Inc. continued to maintain its status as a
shell corporation.
On February 18, 1997, Leggoons, Inc. entered into
an Agreement to License Assets from Home Point of Sales, Inc.(now
know as Electronic Transactions & Technology - "ET&T")) for the
purpose of licensing certain technology for the development of
Personal
Encrypted Remote Financial Electronic Card Transactions
("PERFECT").
ET&T is a privately held corporation 70% owned by Thomas S.
Hughes, President of the Company. This technology provides
consumers with the option to instantly pay bills or impulse
purchase from home with real time cash transactions. Management
believes the proprietary technology and the large demand for
wagering opportunities in today's marketplace will combine to
generate substantial sales for the Company over the medium term.
Thomas S. Hughes, Chairman of ET&T, became Chairman and
President of Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
On April 28, 1997, the Company entered into a Host Processing
Agreement with ET&T for the purpose of having ET&T act as the
bank
host processing for all Betting, Inc.'s transactions that are
sent by terminal s that read credit cards or ATM cards. On March
27, 1998, the Company entered into a License Agreement with ET&T
for the purpose of licensing additional technology for processing
electronic banking transactions. This licensing supplements the
technology licensed under the Agreement dated February 18, 1997.
On May 17, 1999, an Agreement and Plan of Merger between
Betting, Inc., a Missouri corporation, into Betting, Inc., a
Nevada corporation ("Company") was executed by an authorized
signatory of each company. At a duly called meeting of
shareholders on May 21, 1999, the merger of the two companies was
approved by a majority of the shareholders appearing in person or
by proxy. Effective on June 1, 1999, Articles of Merger were
filed with the Nevada Secretary of State, which formally resulted
in the redomicile to the State of Nevada. On June 4, 1999, a
Certificate of Amendment of Amendment
to Articles of Incorporation was filed with the Nevada Secretary
of State changing the name of the Company to "eConnect."
(b) Business.
The Company is positioning itself to facilitate same as
cash ATM card or smart card transactions that are originating
from bank host processing centers and are being sent to gaming
operators. These transactions are being effected with electronic
equipment that allows self service pay per play and no actual
communications between the player and the gaming operator. These
types of transactions will be originating from homes, offices,
and public walk in locations. The Company will act as the
interface that will communicate data to the gaming operators,
receive back their acknowledgment of the transaction and then
pass on this gaming acknowledgment to the bank host processing
center that has been standing by for this information and has
already completed the bank authorization of the pay per play
transaction. See "Description of Business."
The business model of the Company is to receive a fee per
transaction paid by the bank host processing center at the moment
of the transaction. In general, this fee will be from between 2%
to 6% of the wager placed on a pay per play or a $6 flat fee in
the case of an account being opened.
The internet gaming industry is an industry that has
developed significantly in recent years. The internet gaming
industry as a whole is under increasing governmental scrutiny as
the industry develops. It is possible that at some point in the
future there
could be legislation against gambling on the internet or other
similar methods. See "Risk Factors."
The Offering.
Shares of the Company will be offered as a shelf registration
under Securities and Exchange Commission Rule 415 at $0.43 per
Share. See "Plan of Distribution." Purchasers of certain
debentures of the Company will be permitted to convert the
debentures into common stock covered by this Prospectus. Also,
purchasers of certain warrants of the Company will be permitted
to exercise their warrants into common stock covered by this
Prospectus. See "Plan of Distribution." In addition, the shares
will be offered and sold in connection with acquisitions which
the Company may become involved with in the future. If all the
Shares
offered are transferred under the debentures and/or warrants, and
in connection with acquisitions, this will represent the net
proceeds of a maximum of $8,600,000, less certain costs
associated with this offering. See "Use of Proceeds." This
balance will be used as working capital for the Company.
Liquidity of Investment.
Although the Shares will be "free trading," and is an
established market for the Shares, there is not a large public
float in the Shares at this time (15,250,000 shares owned by
approximately 400 shareholders). Therefore, an investor may not
be able to sell is Shares when he or she wishes; therefore, an
investor may consider his or her investment to be long-term. See
"Risk Factors."
Risk Factors.
And investment in the company involved risks due in part to a
limited previous financial and operating history of Company, as
well as competition in the internet gaming industry. Also,
certain potential conflicts of interest arise due to the
relationship of the Company to management and others. See "Risk
Factors."
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE
AND INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY
BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE,
CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS AMONG OTHER
THINGS, AS WELL AS ALL OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS.
Limited Prior Operations and Experience.
The Company is newly reorganized, has only limited revenues from
its new internet operations, and has only limited assets. There
can be no assurance that the Company will generate significant
revenues in the future; and there can be no assurance that the
Company will operate at a profitable level. See "Description of
Business." If the Company is unable to obtain customers and
generate sufficient revenues so that it can profitably operate,
the Company's business will not succeed. In such event,
investors in the Shares may lose their entire cash investment.
Also the Company and its management do not have
significant experience in the internet business, and in
particular the on-line gaming business. See "Directors,
Officers, Promoters, and Control Persons."
Dependence on the Internet Industry
The Company's business is influenced by the rate of use and
expansion in the internet industry. Although this industry, and
in particular on-line gaming, have been expanding at a rapid
rate in recent years, there is no guarantee that it will continue
to do so in the future. Declines in these industries may
influence the Company's revenues adversely.
Influence of Other External Factors.
The internet industry, and internet gaming in particular, is a
speculative venture necessarily involving some substantial risk.
There is no certainty that the expenditures to be made by the
Company will result in commercially profitable business. The
marketability of internet gaming will be affected by numerous
factors beyond the control of the Company. These factors include
market fluctuations, and the general state of the economy
(including the rate of inflation, and local economic conditions),
which can affect peoples' discretionary spending. Factors which
leave less money in the hands of potential clients of the Company
will likely have an adverse effect on the Company. The exact
effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not
receiving an adequate return on invested capital.
Regulatory Factors.
Existing and possible future consumer legislation,
regulations and actions could cause additional expense, capital
expenditures, restrictions and delays in the activities
undertaken in connection with the party planning business, the
extent of which cannot be predicted. The U.S. Senate is
presenting discussing a proposed bill by Senator Jon Kyl of
Arizona which would ban internet gaming in the United States.
The passage of such a bill may adversely affect the operation of
the Company, including increased costs if certain of the Company
operations are then moved to a foreign jurisdiction. The exact
affect of such legislation cannot be predicted until it is in
final form. If, however, a federal statute was passed into
legislation making Internet gambling illegal, eSportsbet.com is
prepared to make the necessary adjustments to continue to operate
legally.
Competition.
The Company may experience substantial competition in its
efforts to locate and attract clients. Many competitors in the
internet industry, and in particular internet gaming, have
greater experience, resources, and managerial capabilities than
the Company and may be in a better position than the Company to
obtain access to attractive clientele. There are a number of
larger companies which will directly compete with the Company.
Such competition could have a material adverse effect on the
Company's profitability.
Success of Management.
Any potential investor is strongly cautioned that the purchase of
these securities should be evaluated on the basis of: (i) the
limited diversification of the venture capital opportunities
afforded to the Company, (ii) the high-risk nature and limited
liquidity of the Company, and (iii) the Company's ability to
utilize funds for the successful development and distribution of
revenues as derived by the revenues received by the Company's yet
undeveloped portfolio of clients, and any new potentially
profitable ventures, among other things. The Company can offer no
assurance that any particular client and/or property under its
management contract will become successful.
Reliance on Management.
The Company's success is dependent upon the hiring of key
administrative personnel. None of the officers or directors, or
any of the other key personnel, has any employment or non-
competition agreement with the Company. Therefore, there can be
no assurance
that these personnel will remain employed by the Company. Should
any of these individuals cease to be affiliated with the Company
for any reason before qualified replacements could be found,
there could be material adverse effects on the Company's business
and prospects.
In addition, management has no experience is managing companies
in the same business as the Company.
In addition, all decisions with respect to the management
of the Company will be made exclusively by the officers and
directors of the Company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the Company. The success of the Company,
to a large extent, will depend on the quality of the directors
and officers of the Company. Accordingly, no person should
invest in the Shares unless he is willing to entrust all aspects
of the management of the Company to the officers and directors.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only
generally. Proceeds from the offering have been allocated
generally to legal and accounting, and working capital.
Accordingly, investors will entrust their funds with management
in whose judgment investors may depend, with only limited
information about management's specific intentions with respect
to a significant amount of the proceeds of this offering. See
"Use of Proceeds."
Lack of Diversification.
The size of the Company makes it unlikely that the Company
will be able to commit its funds to diversify the business until
it has a proven track record, and the Company may not be able to
achieve the same level of diversification as larger entities
engaged in this type of business.
No Cumulative Voting
Holders of the Shares are not entitled to accumulate their
votes for the election of directors or otherwise. Accordingly,
the holders of a majority of the Shares present at a meeting of
shareholders will be able to elect all of the directors of the
Company, and the minority shareholders will not be able to elect
a representative to the Company's board of directors.
Absence of Cash Dividends
The Board of Directors does not anticipate paying cash
dividends on the Shares for the foreseeable future and intends to
retain any future earnings to finance the growth of the Company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the Company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Conflicts of Interest.
The officers and directors have other interests to which they
devote substantial time, either individually or through
partnerships and corporations in which they have an interest,
hold an office, or serve on boards of directors, and each will
continue to do so notwithstanding the fact that management time
may be necessary to the business of the Company. As a result,
certain conflicts of interest may exist between the Company and
its officers and/or directors which may not be susceptible to
resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Company. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
Board of Directors to the Company, any proposed investments for
its evaluation.
Investment Valuation Determined by the Board of Directors.
The Company's Board of Directors is responsible for valuation
of the Company's investments. There are a wide range of values
which are reasonable for an investment for the Company's
services. Although the Board of Directors can adopt several
methods for an accurate evaluation, ultimately the determination
of fair value involves subjective judgment not capable of
substantiation by auditing standards. Accordingly, in some
instances it may not be possible to substantiate by auditing
standards the value of the Company's investments. The Company's
Board of Directors will serve as the valuation committee,
responsible for valuing each of the Company's investments. In
connection with any future distributions which the Company may
make, the value of the securities received by investors as
determined by the Board may not be the actual value that the
investors would be able to obtain even if they sought to sell
such securities immediately after a distribution. In addition,
the value of the distribution may decrease or increase
significantly subsequent to the distributee shareholders' receipt
thereof, notwithstanding the accuracy of the Board's evaluation.
Additional Financing May Be Required.
Even if all of the 20,000,000 Shares offered hereby are sold,
the funds available to the Company may not be adequate for it to
be competitive in the areas in which it intends to operate. There
is no assurance that additional funds will be available from any
source when needed by the Company for expansion; and, if not
available, the Company may not be able to expand its operation as
rapidly as it could if such financing were available. The
proceeds from this offering are expected to be sufficient for the
Company to become develop and market it line of services.
Additional financing could possibly come in the form of
debt/preferred stock. If additional shares were issued to obtain
financing, investors in this offering would suffer a dilutive
effect on their percentage of stock ownership in the Company.
However, the book value of their shares would not be diluted,
provided additional shares are sold at a price greater than that
paid by investors in this offering. The Company does not
anticipate having within the next 12 months any cash flow or
liquidity problems
Purchases by Affiliates.
Certain officers, directors, principal shareholders and
affiliates may purchase, for investment purposes, a portion of
the Shares offered hereby, which could, upon conversion, increase
the percentage of the Shares owned by such persons. The purchases
by these control persons may make it possible for the Offering to
meet the escrow amount.
No Assurance Shares Will Be Sold.
The 20,000,00 Shares are to be offered directly by the
Company, and no individual, firm, or corporation has agreed to
purchase or take down any of the shares. No assurance can be
given
that any or all of the Shares will be sold.
Offering Price.
The offering price of the Shares bears no relation to book
value, assets, earnings, and was calculated in accordance with
SEC Rule 457(g)(3): The average of the bid and asked price as of
a date within five business days from the filing date of the
Registration Statement covering this offering June 25, 1999
($0.43). There can be no assurance that the Shares will maintain
market values commensurate with the offering price. See
"Determination of Offering Price."
"Shelf" Offering
The Shares are offered directly by the Company on a delayed
basis pursuant to certain exercise rights of warrants and
conversion rights of debentures. No individual, firm or
corporation has agreed to elect such exercise or conversion of
any of the offered Shares.
No assurance can be given that any or all of the Shares will be
issued. No broker-dealer has been retained as an underwriter and
no broker-dealer is under any obligation to purchase any of the
Shares. In addition, the officers and directors of the Company,
collectively, have limited experience in the offer and sale of
securities on behalf of the Company. See "Plan of Distribution."
Limited Public Market for Company's Securities.
Prior to the Offering, there has been only a limited public
market for the Shares being offered (a total of 15,250,000 as of
June 28, 1999). There can be no assurance that an active trading
market will develop or that purchasers of the Shares will be able
to resell their securities at prices equal to or greater than the
respective initial public offering prices. The market price of
the Shares may be affected significantly by factors such as
announcements by the Company or its competitors, variations in
the Company's results of operations, and market conditions in the
retail, electron commerce, and internet industries in general.
The market price may also be affected by movements in prices of
stock in general. As a result of these factors, purchasers of
the Shares offered hereby may not be able to liquidate an
investment in the Shares readily or at all.
Penny Stock Regulations.
The Company's Shares will be quoted on the "Electronic
Bulletin Board" maintained by the National Quotation Bureau,
Inc., which reports quotations by brokers or dealers making a
market in particular securities. In view of the fact that no
broker will be involved in the Offering, it is likely to be
difficult to find a broker who is willing to make an active
market in the stock. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define
"penny stock" to be any equity security that has a market price
less than $5.00 per share. The Company's shares will become
subject to rules that impose additional sales practice
requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, broker-dealers
must make a special suitability determination for the purpose of
such securities and must have received the purchaser's written
consent to the transaction prior to the purchase.
Additionally, for any transaction effected involving a penny
stock, unless exempt, the rules require the delivery, prior to
the
transaction, of a disclosure schedule prepared by the Commission
relating to the penny stock market. A broker-dealer also must
disclose the commissions payable to both the broker--dealer and
the registered representative, and current quotations for the
securities. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
Consequently, these rules may restrict the ability of broker-
dealers to sell the Company's Shares and may affect the ability
of purchasers in the Offering to sell the Company's securities in
the secondary market. There is no assurance that a market will
develop for the Company's Shares.
Shares Eligible For Future Sale
All of the 9,385,000 Shares which are currently held, directly
or indirectly, by management have been issued in reliance on the
private placement exemption under the Securities Act of 1933, as
amended ("Act"). Such Shares will not be available for sale in
the open market without separate registration except in reliance
upon Rule 144 under the Act. In general, under Rule 144 a person
(or persons whose shares are aggregated) who has beneficially
owned shares acquired in a non-public transaction for at least on
year, including persons who may be deemed affiliates of the
Company (as that term is defined under the Act) would be entitled
to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares
of common stock, or the average weekly reported trading volume on
all national securities exchanges and through NASDAQ during the
four calendar weeks preceding such sale, provided that certain
current public information is then available. If a substantial
number of the Shares owned by these shareholders were sold
pursuant to Rule 144 or a registered offering, the market price
of the Common Stock could be adversely affected.
Forward-Looking Statements.
This Prospectus contains "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Act of 1934, as
amended, and as contemplated under the Private Securities
Litigation Reform Act of 1995, including statements regarding,
among other items, the Company's business strategies, continued
growth in the Company's markets, projections, and anticipated
trends in the Company's business and the industry in which it
operates. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions
identify forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. The Company cautions that
these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward looking statements, including those factors described
under "Risk Factors" and elsewhere herein In light of these
risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Prospectus will in
fact transpire or prove to be accurate. All subsequent written
and oral forward-looking statements attributable to the Company
or persons acting on its behalf are expressly qualified in their
entirety by this section.
Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized
systems use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date,
resulting in errors when information using the year 2000 date is
processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something
other than a date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and if not
addressed, the impact on operations and financial reporting may
range from minor errors to significant system failure which could
affect the Company's ability to conduct normal business
operations. This creates potential risk for all companies, even
if their own computer systems are Year 2000 compliant. It is not
possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and
products may contain undetected errors or defects with Year 2000
date functions that may result in material costs. Although
management is not aware of any material operational issues or
costs associated
with preparing its internal systems for the Year 2000, the
Company may experience serious unanticipated negative
consequences (such as significant downtime for one or more of
its web site properties) or material costs caused by undetected
errors or defects in the technology used in its internal systems.
Furthermore, the purchasing patterns of advertisers may be
affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000
compliance. The Company does not currently have any information
about the Year 2000 status of its advertising customers.
However, these expenditures may result in reduced funds available
for web advertising or sponsorship of web services, which could
have a material adverse effect on its business, results of
operations, and financial condition. The Company's Year 2000
plans are based on management's best estimates.
USE OF PROCEEDS
Following the transfer of the 20,000,000 Shares offered by the
Company pursuant to the debentures and warrants, this will
represent gross proceeds to the Company of approximately
$8,600,000 (less certain expenses of this offering). These
proceeds, less the expenses of the offering, will be used to
provide working capital for the Company.
The following table sets forth the use of proceeds from
this offering (based on the minimum and maximum offering
amounts):
Use of Proceeds Minimum Offering Maximum Offering
Amount Percent Amount Percent
Transfer
Agent Fee $1,000 0.20% $1,000
0.01%
Printing Costs $1,000 0.20% $1,000
0.01%
Legal Fees $50,000 10.00% $50,000
0.58%
Accounting Fees $1,500 0.30% $1,500
0.02%
Working Capital $446,500 89.30% $8,546,500
99.38%
Total $500,000 100.00%
$8,600,000 100.00%
Management anticipates expending these funds for the purposes
indicated above. To the extent that expenditures are less than
projected, the resulting balances will be retained and used for
general working capital purposes or allocated according to the
discretion of the Board of Directors. Conversely, to the extent
that such expenditures require the utilization of funds in excess
of the amounts anticipated, supplemental amounts may be drawn
from other sources, including, but not limited to, general
working capital and/or external financing. The net proceeds of
this offering that are not expended immediately may be deposited
in interest or non-
interest bearing accounts, or invested in government obligations,
certificates of deposit, commercial paper, money market mutual
funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The offering price is not based upon the Company's net worth,
total asset value, or any other objective measure of value based
upon accounting measurements. The offering price was determined
under Securities and Exchange Commission Rule 457(g), which
states that where the securities to be offered pursuant to
warrants or
other rights to purchase such securities the registration fee is
to be calculated upon the basis of the price at which the
warrants or rights or securities subject thereto are to be
offered to the public. If such offering price cannot be
determined at the time of filing the registration statement, the
registration fee is to be calculated upon the basis of the
highest of the following: (1) the price at which the warrants or
rights may be exercised, if known at the time of filing the
registration statement; (2) the offering price of securities of
the same class included in the registration statement; or (3) the
price of securities of the same class, as determined in
accordance with paragraph (c) of that Rule. Since the offering
price based on the warrants and debentures cannot be determined
based on (1) and (2), it was calculated under Rule 457(c) as the
average of the bid and asked price as of a date within five (5)
business days of the filing date (June 25, 1999): $0.43 per
Share.
DILUTION
"Net tangible book value" is the amount that results from
subtracting the total liabilities and intangible assets of an
entity from its total assets. "Dilution" is the difference
between the public offering price of a security and its net
tangible book value per Share immediately after the Offering,
giving effect to the receipt of net proceeds in the Offering. As
of February 28, 1999 (the date of the latest Form 10-QSB for the
Company, the net tangible book value of the Company was
$(350,775) or $(0.0245) per Share. Giving effect to the issue by
the Company of all offered Shares at the public offering price,
the pro forma net tangible book value of the Company would be
$8,249,225, or $0.2340 per Share, which would represent an
immediate increase of $0.2585 in net tangible book value per
Share and $0.1960 per Share dilution per share to new investors.
Dilution of the book value of the Shares may result from future
share offerings by the Company.
The following table illustrates the pro forma per Share dilution
(these are based on the outstanding shares of 15,250,000 as of
June 28, 1999 and do not include further issuances in connection
with the Form S-8's recently filed, which will be a maximum of
1,600,000 additional shares - see "Description of Securities"):
Assuming
Maximum
Shares
Sold
Offering Price (1) $0.4300
Net tangible book value per share
before Offering (2) $(0.0245)
Net tangible book value Share after
offering (3) $0.2340
Increase attributable to issue of
stock to new investors (4) $0.2585
Dilution to new investors (5) $0.1960 Percent
Dilution to new investors (6) 54.42%
(1) Offering price before deduction of offering expenses,
calculated on a "Common Share Equivalent" basis.
(2) The net tangible book value per share before the offering
($0.0245) is determined by dividing the number of Shares
outstanding prior to this offering into the net tangible book
value of the Company.
(3) The net tangible book value after the offering is
determined
by adding the net tangible book value before the offering to the
estimated proceeds to the Corporation from the current offering
(assuming all the Shares are issued), and dividing by the number
of common shares to be outstanding (15,250,000 as of June 28,
1999). The net tangible book value per share after the offering
($0.2340) is determined by dividing the number of Shares that
will be outstanding, assuming issue of all the Shares offered,
after the offering into the net tangible book value after the
offering.
(4) The increase attributable to purchase of stock by new
investors is derived by taking the net tangible book value per
share after the offering ($0.2340) and subtracting from it the
net tangible book value per share before the offering ($0.0245)
for an increase of $0.2585.
(5) The dilution to new investors is determined by
subtracting the
net tangible book value per share after the offering ($0.2340)
from the offering price of the Shares in this offering ($0.4300),
giving
a dilution value of $0.1960.
(6) The Percent Dilution to new investors is determined by
dividing the book value after the offering ($0.2340) by the
offering price per Share ($0.4300), giving a dilution to new
investors of 54.42%.
PLAN OF DISTRIBUTION
The Company will issue a maximum of 20,000,000 Shares of its
common stock, par value $0.001 per Share to the public in
accordance with a Registration Rights Agreement as explained
below, and in connection with acquisitions which the Company may
make during the term of the offering. There can be no assurance
that any of these Shares will be issued. The gross proceeds to
the Company represented by issue of all the Shares under this
offering will be approximately $8,600,000. No commissions or
other fees will be paid, directly or indirectly, by the Company,
or any of its principals, to any person or firm in connection
with solicitation of sales of the shares. The public offering
price of the Shares will be modified, from time to time, by
amendment to this Prospectus, in accordance with changes in the
market price of the Company's common stock. These securities are
offered by the Company subject to prior issue and to approval of
certain legal matters by counsel.
As set forth in a Registration Rights Agreement and based
upon the terms and subject to the conditions of a subscription
agreement between the investor and the Company, the Company
proposes to issue and sell to certain investors six percent (6%)
convertible
debentures of the Company, which will be convertible into shares
of the common stock, $0.001 par value (the "Common Stock"), of
the Company upon the terms and subject to the conditions of such
Debentures. In addition and pursuant to the terms of the same
Registration Rights Agreement and subscription agreement, the
Company proposes to issue to certain investors 150,000 Warrants
exercisable at a strike price equal to 105% of the five (5) day
average closing bid price for the Company's Shares for the five
trading days prior to the "Closing Date," as that term is defined
in the Registration Rights Agreement. The Registration Rights
Agreement, Form of Debenture, and Form of Warrant are
incorporated
herein by reference, and are set forth in their entirety as
Exhibits 4.2, 4.2, and 4.4 to this Form SB-2.
Under the terms of the Registration Rights Agreement, the
Company is required to prepare and file with the Securities and
Exchange Commission no later than ten days after the Closing
Date, a Registration Statement on Form SB-2, covering a
sufficient number of Shares for the investors into which the
$500,000 of Debentures and 150,000 Warrants would be
convertible. The Registration Statement shall cover 10,000,000
shares of the Company's Common Stock. Such Registration
Statement shall state that, in accordance
with the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable to
prevent dilution resulting from Stock splits, or stock dividends.
If at any time the number of shares of Common Stock into which
the Debenture and Warrants issued in this offering may be
converted exceeds the aggregate number of shares of Common Stock
then registered, the Company shall, within ten (10) business days
after receipt of written notice from any Investor, either (i)
amend the Registration Statement filed by the Company pursuant to
the preceding sentence, if such Registration Statement has not
been declared effective by the SEC at that time, to register all
shares of Common Stock into which the Debenture may be converted,
or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an
additional Registration Statement on Form SB-2 or any other
applicable registration statement, to register the shares of
Common Stock into which the Debenture may be converted that
exceed the aggregate number of shares of Common Stock already
registered.
Opportunity to Make Inquiries.
The Company will make available to each Offeree, prior to any
issue of the Shares, the opportunity to ask questions and receive
answers from the Company concerning any aspect of the investment
and to obtain any additional information contained in this
Prospectus, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or
expense.
Execution of Documents.
Each person desiring to be issued Shares, either as a
conversion of a debenture, or an exercise of a warrant, must
complete, execute, acknowledge, and delivered to the Company
certain documents, By executing these documents, the subscriber
is agreeing that such subscriber will be, a shareholder in the
Company and will be otherwise bound by the articles of
incorporation and the bylaws of the Company in the form attached
to this Prospectus.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The names, ages, and respective positions of the
directors, officers, and significant employees of the Company are
set forth below. There are no other persons which can be
classified as a promoter or controlling person of the Company.
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company
since
March 1997. From 1993 to the present, he has also served as the
President of Electronic Transactions & Technologies, a privately
held Nevada corporation which developed terminals for wireless
home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President of
Hall Developments, a real estate development company he founded
in 1991, which employs a staff of 10 people. Mr. Hall spends
approximately 20 hours per week searching out strategic alliances
for the Company. Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer since
1991.
Currently she owns and manages her own firm, D. Diane Hewitt
Designs. This firm's expertise is churches and employs a staff
of five people. Ms. Hewitt currently devotes approximately 25
hours
per week in working with the Company's image development and
consulting with the Company's advertising firm.
Anthony L. Hall, Vice President, Director of Technology.
Mr. Hall, age 34, has been Vice President and Director of
Technology of the Company since inception. Mr. Hall has been the
creative mind behind the state of the art advancements made by
the company. Mr. Hall is responsible for all technological
decisions including but not limited to telephone call center, web
site design and in- house software implementation and computer
systems engineering and support. Mr. Hall is a unique individual
within the technological community. A technological savante who
combines incomparable knowledge of the computer world with the
savvy of a
successful businessman. Mr. Hall learned his trade over the last
six years with such renowned institutions as the Kraft Group
(owners of International Forest Products and the New England
Patriots), Fidelity Investments, Partners Health Care and most
recently as Managing Director of the firm he founded, Isis
Technology Group.
Kevin J. Lewis, Vice President, Sports Book Operations.
Mr. Lewis, age 36, has been Vice President and Senior Manager
of Sports Book Operations of the Company since it was founded.
After a long and exhaustive process, Mr. Lewis was selected from
a select group of candidates to lead the operations and sports
handicapping management of the company. He has 19 years
experience as a sports book manager with several of the largest
and most profitable sports books in the world. He has worked in
Las Vegas, the Domincan Republic, Antigua, Costa Rica and Canada
with such respected sports books as Tradewinds, Grand Prix Sports
Book and WWTS. Mr. Lewis is known as a sage amongst his peers
and is, with little doubt, the best sports book and betting line
manager in the industry.
Over the next few months, James Wexler, will phase into the
position as CEO of the Company. Presently, Thomas S. Hughes is
fulfilling that role. Hughes will remain as the chairman of the
Company once James Wexler has taken the CEO position.
Mr. Wexler is a highly motivated professional with almost six
years experience in the investment banking industry primarily
with
the firms of Morgan Stanley Dean Witter and Bear Stearns & Co.,
Inc. In addition, Mr. Wexler has more than twelve years
experience in the gambling and sports handicapping fields and is
considered a knowledgeable expert within the industry. For many
years, he has served as a consultant to off shore sports books,
handicappers and sports bettors. Mr. Wexler's visionary
leadership creates the ideal union between fundamental business
theory, state of the art
technology and the necessary knowledge of sports gambling.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 28, 1999, the
outstanding Shares of common stock of the Company owned of record
or beneficially by each person who owned of record, or was known
by the Company to own beneficially, more than 5% of the Company's
Common Stock, and the name and share holdings of each officer and
director and all officers and directors as a group.
Title of Name of Amount and Nature Percent of
Class Beneficial of Beneficial Class
Owner (1) Owner (2)
Common James S. 1,700,000
Stock Clinton 11.15%
Common Thomas S. 750,000
Stock Hughes 4.92%
(1) Other than the Shares owned by Mr. Hughes, none of the
other officers or directors of the Company own any of the Shares.
(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 noncumulative vote per share on all
matters on which shareholders may vote at all meetings of
shareholders. These securities do not have any of the following
rights: (a) cumulative or special voting rights; (b) preemptive
rights to purchase in new issues of Shares; (c) preference as to
dividends or interest; (d) preference upon liquidation; or (e)
any other special rights or preferences. In addition, the Shares
are not convertible into any other security.
There are no restrictions on dividends under any loan other
financing arrangements or otherwise. See a copy of the Articles
of Incorporation, and amendments thereto, and Bylaws of the
Company, attached as Exhibit 3.1, Exhibit 3.2, and Exhibit 3.3,
respectively, to this Form SB-2. As of the date of this Form SB-
2, the Company has 15,250,000 Shares of common stock outstanding
(the Company filed a Form S-8 with the Securities and Exchange
Commission on May 14, 1999 for the registration of 900,000 shares
of common stock to be sold to certain consultants for the Company
in exchange for services rendered to the Company; in addition, on
June 9, 1999 the Company
filed a Form S-8 for the registration of 1,450,000 shares of
common stock to be sold to certain consultants for the Company in
exchange for services rendered to the Company; as of June 28,
1999, only 750,000 shares out of the total of 2,350,000 shares of
consultant stock have been issued).
Non-Cumulative Voting.
The holders of Shares of Common Stock of the Company do not
have cumulative voting rights, which means that the holders of
more than 50% of such outstanding Shares, voting for the election
of directors, can elect all of the directors to be elected, if
they so choose. In such event, the holders of the remaining
Shares will not be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends.
The Company's proposed dividend policy is to make distributions
of its revenues to its stockholders when the Company's Board of
Directors deems such distributions appropriate. Because the
Company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the Company.
A distribution of revenues will be made only when, in the
judgment of the Company's Board of Directors, it is in the best
interest of the Company's stockholders to do so. The Board of
Directors will review, among other things, the investment quality
and marketability of the securities considered for distribution;
the impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of
an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
Upon the completion of this Offering, assuming the
maximum offering of 20,000,000 is sold, and the issue of shares
to consultants of the Company pursuant to the Form S-8, the
Company's authorized but unissued capital stock will consist of
64,500,000 shares of common stock. One effect of the existence
of authorized but unissued capital stock may be to enable the
Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby to protect
the continuity of the Company's management. If, in the due
exercise of its fiduciary obligations, for example, the Board of
Directors were to determine that a takeover proposal was not in
the Company's best interests, such shares could be issued by the
Board of Directors without stockholder approval in one or more
private placements or other transactions that might prevent, or
render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder or stockholder group,
by creating a substantial voting block in institutional or other
hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Corporate Stock
Transfer, 370 17th Street, Denver, Colorado 80202, to act as
transfer
agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent
basis, will receive a direct or indirect interest in the small
business issuer, or was a promoter, underwriter, voting trustee,
director, officer, or employee of the small business issuer.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
No director of the Company will have personal liability to the
Company or any of its stockholders for monetary damages for
breach of fiduciary duty as a director involving any act or
omission of any such director since provisions have been made in
the Articles of Incorporation limiting such liability. The
foregoing provisions shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable
Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes or, (v) for any transaction from which the director
derived an improper personal benefit.
The By-laws provide for indemnification of the directors,
officers, and employees of the Company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the Company if they were
not engaged in willful misfeasance or malfeasance in the
performance of his or her duties; provided that in the event of a
settlement the indemnification will apply only when the Board of
Directors approves such settlement and reimbursement as being for
the best interests of the Corporation. The Bylaws, therefore,
limit the liability of directors to the maximum extent permitted
by Nevada law (Section 78.751).
The officers and directors of the Company are accountable to
the Company as fiduciaries, which means they are required to
exercise good faith and fairness in all dealings affecting the
Company. In the event that a shareholder believes the officers
and/or directors have violated their fiduciary duties to the
Company, the shareholder may, subject to applicable rules of
civil procedure, be able to bring a class action or derivative
suit to enforce the shareholder's rights, including rights under
certain federal and state securities laws and regulations to
recover damages from and require an accounting by management..
Shareholders who have suffered losses in connection with the
purchase or sale of their interest in the Company in connection
with such sale or purchase, including the misapplication by any
such officer or director of the proceeds from the sale of these
securities, may be able to recover such losses from the Company.
The registrant undertakes the following:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted
to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the registrant are the
officers and directors as disclosed elsewhere in this Form SB-2.
None of the promoters have received anything of value from the
registrant.
DESCRIPTION OF BUSINESS
The Business Vision of the Company.
The Company believes that by the year 2001, anyone with global
telephony will own or have access to different types of hardware
that can send ATM card with PIN or smart card payments to
merchants.
ATM card with PIN or smart card payments are the same-as-cash
(only the merchant can reverse the transaction). These devices
will enable the consumer to send in what the Company calls
transactions which are Personal Encrypted Remote Financial
Electronic Card Transactions ("PERFECT"). These PERFECT
transactions will originate from homes, offices, cars, hotel
rooms, and publicly placed PERFECT equipment.
The driving industries behind the placement of these PERFECT
devices into the home will be the telephone, utility, cable,
finance, insurance and direct response industries who: (a) want
their banked consumers to pay cash from the home rather than a
check; and (b) want their non-banked consumers to pay cash from
the home rather send in a money order or walk in to pay the
bills. The Company estimates that over $1 billion in advertising
and marketing will be willingly spent by these industries over
the next two years to educate their consumers to pay their bills
by same-as-cash hardware enabled PERFECT transactions.
The Human Nature Question: The Company then asks the basic
question: After these PERFECT devices have migrated into global
homes as a simple same-as-cash bill payment device, then how long
before the average consumer demands to use the same device for
PERFECT wagering?
The PERFECT wagering marketplace: Presently, the global
wagering marketplace is estimated at $800 billion dollars. By
2001, it is estimated at $1 trillion dollars.
The Company conservatively estimates that 30% of this or $300
billion dollars will be originating as PERFECT wagers from homes
and offices and cars. The long term goal of the Company is to
establish itself as the global leader in servicing PERFECT
wagers.
The Company has also recently acquired Rogel Technologies, an
Internet related software firm. Rogel Technologies has signed a
Licensing Agreement with JVC who will sell the "secure email" to
Pacific Rim companies. These companies will pay $5.95 US per
employee per month. JVC will pay Rogel Technologies 50% of the
monthly fees. JVC expects to launch this business in about 2
months. The purpose of the acquisition is three fold:
1. Rogel Technologies is developing the Merchant Response
Software which is supplied by the Company to the gaming companies
to respond back to the PERFECT bank host commands through eGate.
2. The development of the PERFECT Portal which is where
merchants will go to download their PERFECT Merchant Response
Software and the consumer will go to find out who are the PERFECT
merchants accepting PERFECT transactions.
3. To receive the projected 3 year $20 million in profits from
the JVC sale and servicing of "on line secure email".
The Mechanics of a PERFECT Wager.
A PERFECT wager is Jane Simms, effecting a $100 home Lottery
wager at 2 a.m. with her PERFECT hardware, which may have been
made by Panasonic and delivered to her by Bell Atlantic as a bill
payment device. After inserting her ATM card and inputting her
bank assigned PIN, she sends the transaction toll free by modem
to the Company bank host or to another bank host who is driving
the transaction. In seconds, her card is authorized and the cash
has been withdrawn from her bank account. Since real cash in
real time is now on the way to the Lottery, the Company bank host
needs to receive back an acknowledgment from the Lottery that the
wager has been accepted and that Jane Simms is the player.
The next step is the long-term revenue generator for the
Company. The bank host, which could be the Company, or X host or
Y Host then connects with eGate, the transaction division of the
Company, who then connects with the Lottery and basically says
computer to computer: "We have the cash completed, send back your
acknowledgment of the wager and we'll pass it on to the bank host
who is waiting for your reply." In about 6 seconds, Jane Simms
is receiving a printed receipt if she has a stand alone PERFECT
device or an email if she used a wireless mobile PERFECT device.
Her receipt will state the time and date of the transaction, the
numbers. She chose and her bank card authorization. Her receipt
will also state any instant taxation of any winnings which may
have already been sent to her bank account.
Jane could have just as easily played Bingo or Black Jack or
entered into a game of Bridge where she used her PERFECT
equipment and her interactive television to see her fellow 2 a.m.
Bridge players who all ante up real cash into a Pot to be held by
an Ante Up service, with the winner then receiving her cash less
Federal and State taxes and the 10% Ante Up service fee.
Business and Goals of the Company.
A portion of the Company business will be in electronic
("eGate")gate servicing hundreds of global bank hosts, who are
driving in millions of incoming second by second PERFECT wagers
which are originating from a variety of different PERFECT
hardware devices, such as the Company's patented stand alone
PayMaster or wireless PocketPay or Internet related SLICK or
patent pending TV Pin Pad Remote. eGate connects these bank
hosts to the gaming companies and sends back the gaming company
"pay per play same as cash acknowledgment" to the bank host.
One goal of the Company is to establish its presence in
Europe, Asia and Latin America as the prime source to service
PERFECT wagers. Management of the Company feels that the Company
is at least 2 years ahead of any other competition, which at the
present time is minimal.
The Business Structure of the Company.
The Company is composed of two principal divisions: eGaming
and eGate. The reader already understands that eGate is directly
dependent upon the emergence, marketing and distribution of
basically free PERFECT devices for home entry as same-as-cash
bill payment devices.
The Company is priming the pump by now distributing the
Company PayMaster in public locations. This PayMaster will enable
consumers to pay bills, shop from catalogs while waiting for the
car to be cleaned or the oil to be changed or a business meeting
to
start in a hotel lobby, and to use their ATM card to open or
replenish their gaming accounts with eSportsbet.com and
777WINS.com, two divisions of the Company with operations in
Costa Rica.
The business of eGate is a long term development. Today,
PERFECT wagers do not exist. Over the next few months, the
Company will effect PERFECT wagers with eSportsbet.com and
777WINS.com.
The immediate 12 month goal of the Company is to acquire
gaming companies in the market segments of bingo, lottery, slots,
and racing. We already have acquired the market segment of
internet casino which is 777WINS.com and the market segment of
sports bets which is eSportsbet.com.
The acquisitions serve three purposes:
1. They are driving in revenues and profits for the Company.
2. They will serve as test beds for PERFECT wagering.
3. They will act as Group Gates to connect the PERFECT wager with
competitors in their specific market segment and they will take
a fee for the service.
One PERFECT wager could be coming in from a SONY device, being
driven by X bank host and being paid to Y Internet casino, but
routed by X bank host to eGate, who then routes the command to
777WINS.com who then connects with Y to complete the PERFECT
wager.
For the connect service, 777WINS.com just generated a service
fee from a payment to a competitor Internet casino.
(a) eSportsbet.com.
The offshore gambling market is growing at a rapid rate. The
market for these products is estimated to be $49 Billion by year
end 1998. Research proves that the major trend is that the
potentials in profits that will be reaped from offshore gambling
have not scratched the surface of this market. The trend has
been toward the development of off shore phone operations, not
Internet capable betting sites.
Independent market research indicates that there are currently
only one licensed off shore gaming operation for every 500,000
customers. The market, as a whole, is looking towards the
additional sports books for use in the expansion of the gambling
market.
(1) Primer on Sports Book Operations.
Get a line. . .
The Company receives the most accurate starting line available
from Don Best Handicapping services in Las Vegas, Nevada. This
line is an average of lines from 5 individual Las Vegas Sports
Books and 2 off shore sports books including the Mirage, Hilton,
Stardust, the Carib and WWTS.
Open for business. . .
Telephone lines are answered to provide lines and accept
wagers from 10:00 a.m. until the start of the last game of the
day, approximately 10:00 p.m. Second half lines are available
for Monday Night Football and all major football games. Bets are
accepted until the start of the second half for these games.
Types of sports on which one can wager. . .
Anything you can find betting lines on; including, football,
baseball, basketball, hockey, college and pro. Additionally,
wagering will be available on major Boxing, Golf, Tennis, and
AutoRacing events.
Types of wagers accepted. . .
ESportsbet.com accepts all types of wagers including, straight
bets, over/unders, parlays, teasers, propositions, money-lines,
action-reverses, buying points, sports futures and a variety of
propositions bets.
Moving the line. . .
The Company's Handicapping Manager, Mr. Kevin Lewis, who has
over nineteen years experience in the sports gambling business,
moves the line accordingly as the bets flow into the book to
assure a "balance of bets" for the Company.
Balancing the books. . .
If the book cannot equally balance the action, it will "lay
off" the necessary amounts of bets with other sports books.
eSportsbet.com has established accounts at 12 different off shore
gambling companies for this purpose.
In essence, the Company is in the "banking business" and not
the gambling business. The Company balances all bets and simply
act as a bank for bettors. The goal of the Company is to let the
losing bettors pay the winners and the Company, the bank, keeps
the excess. Also, the Company is not in the collection business.
All players are required to "post up" money to their account
before they are able to wager. A new account must "post up"
money, by way of credit card, money gram, bank wire, or check, to
his or her account and then may bet only with their available
balance. Analogous to a bank, the Company keeps 10% available at
all times in case there is a demand for funds by customers.
Further, as soon as an established client base has been
developed, an attractive profit center will be available. For
example, when eSportsbet.com has 2000 clients, with an average
"post up" of $1,000, we will have $2 million at our disposal. The
Company can invest this money in laddered CD's, Treasuries or
money market instruments in order to earn interest on the
"float". A return of only 5% on $2 million is an extra $100,000
to the Company, as the client base grows and the assets under
management grow, so do the profits from our banking business.
Pay outs/Pay-ins
Absolutely no "credit" customers accepted; a customer must
pay to play. Accounts are open within 15 minutes of credit card
payment by customer, money gram, or bank wire. Pay outs to
customer upon request within 24 hours by any of the methods
above.
(2) Business Strategy.
There are currently less than 50 off shore sports books
servicing an average less than 1000 clients each. In fact, there
are less than 10 Internet sites that are fully operational for on
line wagering. In concise terms, less than 0.06 % of bettors are
wagering off shore. More significantly, less than 0.0125% of
bettors are wagering through the Internet. The off shore
gambling market is a virgin industry with over 80 million
potential customers and virtually no place for these people to
bet. We are in a position to exploit this opportunity and have
already begun the process.
eSportsbet.com was founded in early 1998 and has recently
emerged from its development stage. The sports book has been
fully operational since September 1, 1998. Development of on-
line sports wagering services is now complete. This division of
the company can best be described as being in the business of
providing a legal, reliable, and secure home or bank to place
wagers. Our key strengths include state-of-the-art-technology,
customer service and innovative marketing. Our management team is
in place. We have hired a sports book manager to complete our
team. We are currently hiring ten employees to answer phone calls
from prospective customers and current clients who wish to place
wagers.
The marketplace has been expanding rapidly. The Company is
now poised to capitalize on the convergence increased Internet
access, ease of web site operability and security with a
flourishing demand to place wagers in this form. Current
customers of offshore sports books are requesting that the
Company provide the ability to place wagers on-line much in the
same way that individual investors can enact stock transactions
on-line with companies such as Fidelity, Schwabb and E-Trade.
In addition to the core services outlined above,
eSportsbet.com plans to develop its client relationships through
other ancillary services to enhance repeat customers and to
provide more information than other gambling services companies.
The Company does not intend to re-invent the wheel. Gambling is
centuries old; the Company is simply making it easier, more
legitimate and more accessible to the customer.
Advertising and marketing will be the Company's largest
expense; the focus on attaining customers and keeping clients is
the Company's foremost goal. The idea is to keep customers
indefinitely by continually offering them a valuable service,
thereby diminishing our costs of continually reaching and
appealing to them. In order to separate the Company from others
in this field, wise selection of service offerings is therefore
critical to eSportsbet.com's success.
(3) Attaining Customers.
A Boston advertising and marketing firm has been retained to
lead a direct marketing and advertising campaign that will focus
on separating the Company from its competition with the
following: 10% sign up bonus; $100 referral bonus; accounts
insured by Barclays Bank; and the opinion of management, the
highest pay off odds in the industry.
(4) Servicing Clients.
To assure the best possible service decisions are made, the
Company has implemented the following criteria for servicing the
most important asset, the Company's clients: Service assistance
for customers with opening new accounts, reducing time, effort
and expense by delineating responsibilities by department.
Service will be implemented using six separate departments: new
accounts, accounts payable and receivable, customer service,
phone clerks to accept wagers and the executive office.
(5) Customer Profile and Strategy.
eSportsbet.com's target market includes males between the ages
of 18 and 45 who are active sports gamblers currently. The most
typical customer for the Company's product is someone who is in
either the white or blue-collar field, and who currently uses our
product for recreational purposes. The customer is a wholly
dependent product of marketing and advertising. It is likely
that potential customers are going to be familiar with similar
products,
and it anticipated that they will accept the Company's product
because of magazine and newspaper advertising, Internet
advertising, direct local marketing, referral and incentive based
marketing directed towards sports gamblers.
A demographic profile of eSportsbet.com customers:
Demographic Segment: Males
Title: Sports fans
Power: Decision-maker
Viewpoint: Gambling is and should be legal Position: Job
holders with some disposable income Emotional Influences: Money
and peer acceptance Practical Influences: Making quick money
Education: High school and college
Limitations: Access to gambling arenas (sports books, casinos)
Age: 18-38 years old
Income: $30,000 - $120,000
Geographic: Metropolitan with local favorite sports teams
Occupation: Both white and blue collar
Attitude: Hands off government, the government should not tell
me what to do in the privacy of my own home
Responses from current off shore bettors indicate that off
shore betting is enjoying an excellent reputation and we fully
intend to continue this trend. Inquiries from prospective
customers suggest that there is considerable and ever growing
demand for new sports books. eSportsbet.com is poised for
explosive growth and accomplishment in the industry of sports
gambling. eSportsbet.com's
strategy is to enhance, promote and support the fact that our
products are unique in terms of ease of operability, reliability,
and security. Furthermore, and most importantly, from a bettor's
perspective, our products offer the highest odds payoffs in the
entire industry.
(6) Sales Strategy.
Because of the special market characteristics (sports gambling
is a niche market), sales strategy includes a direct marketing
plan that pinpoints men between the ages of 18 and 45, who have
disposable income, and who currently wager. The determining
factors in choosing these channels are customer profile; (i.e.,
age, gender, sports enthusiast, etc.). Attracting new clients
will be determined by the benefits that we provide and other
betting services do not. If it's easier to bet with us, more fun,
more secure and potentially more profitable we will get more
customers.
(7) Marketing and Advertising Strategy.
eSportsbet.com's marketing strategy is to enhance, promote and
support the fact that the Company's product is unique in terms of
ease of operability, reliability, security. Most importantly,
from
a bettor's perspective it is the opinion of management that the
Company's product offer the highest odds pay outs in the entire
industry.
The Company's product should be treated as a niche product. As
such, the target market segments to focus on are men who gamble.
Because of the special market characteristics (sports gambling is
a niche market), the sales strategy includes a direct marketing
plan that pinpoints men.
eSportsbet.com's marketing strategy incorporates plans to sell
its product through several channels. These distribution channels
include: Friday, Saturday and Sunday sports sections of regional
newspapers; print media in direct market sports and male
dominated
periodicals; thirty and sixty second radio spots on popular
sports talk radio shows; printed flyers and brochures handed out
at major sporting events. The determining factors in choosing
these channels are customer profile; i.e., age, gender, sports
enthusiast, etc. Key competition uses only print media in
industry publications and word of mouth as distribution channels.
The Company's mix of distribution channels will give the
advantages of complete market saturation, not limiting the
Company to region or sports specific publications versus the
competition.
eSportsbet.com recognizes the key to success at this time
requires extensive promotion. This must be done aggressively on
a wide scale. To accomplish the Company's sales goals, an
extremely capable advertising agency and public relations firm is
required.
The Company will develop an advertising campaign built around
ease of operability, reliability, security, instant pay outs if
requested and most importantly from a bettor's perspective, and,
in the opinion of the Company, the highest pay out odds available
anywhere in the industry. Further, the Company will develop a
consistent reach and frequency with advertising throughout the
year.
In addition to standard advertising practices, eSportsbet.com
will gain considerable recognition through grass roots, guerrilla
marketing campaigns. This strategy will include flyers handed out
to spectators of the four major sporting events and boxing,
promotions made available to local sports bars in Boston and
other metropolitan areas, and hiring of age college students to
pass out flyers on campus and fraternity houses across the
country.
eSportsbet.com's overall advertising and promotional
objectives are to: Position eSportsbet.com as the leader in the
market; increase company awareness and brand name recognition;
generate qualified sales leads and potential new distributors;
create product-advertising programs supporting our market
dominant position; coordinate sales literature, materials,
telemarketing programs; and direct response promotions in order
to continually saturate the market with our name and logo.
Establish the proper image of eSportsbet.com which in our opinion
is the "bank" of the betting world and indicates that association
with security, safety and stability
eSportsbet.com's media strategy is to: Select primary sports
publications with high specific market penetration; frequent ads
to impact market with corporate image and product messages;
strategic positioning of ads around industry articles or
appropriate editorials; utilize U.S. editions of consumer, trade,
or specialty publications; take advantage of special high-
interest issues of major publications when possible, i.e.
Superbowl, College Bowl Season, NCAA Basketball "March Madness"
tournament and various other sports pre-season annuals; maximize
ad life with monthly and weekly publications. To get the most
out of our promotional budget, we will be selective and focus
acutely as possible in choosing media coverage which will focus
on a male dominated audience.
In addition to standard advertising practices, considerable
recognition can be gained through grass roots campaigns; these
include flyers handed out to spectators of the four major
sporting events, including boxing and promotions and brochures
made available at local sports bars in Boston and other
metropolitan areas. Further, on a grass roots level,
eSportsbet.com will be featured prominently in the form of
promotions offered by attractive women at sports bars. In
addition, these same women will be found prior to game time in
the parking lots of major sporting events handing out flyers,
brochures, etc.
If these grass roots campaigns work on a local level, there is
no reason to believe these ideas would not work in other
metropolitan areas such as New York, Dallas, Miami, Los Angeles,
and Chicago. If successful, the Company will quickly move to
exploit these fertile markets.
The Company is building its capabilities in database
marketing. Registration cards and periodic customer surveys will
help the Company understand the customer, and help to measure the
success of the marketing, sales and product activities. The
Company plans to develop a customer information system that will
help make sound decisions by providing historical answers to the
marketing questions that are posed.
The Company will use in house telemarketing service to perform
the following functions:
Address customer complaints
Respond to inquiries
Generate new business
(8) Direct Response Mail.
The Company will be exploring the benefits of incremental,
coordinated direct mail programs in the next several months. The
Company will be approaching this quantitatively, as customer
targeting ability is improved. The Company has purchased mailing
lists from sports gambling magazines and newsletters and sports
bettors from Las Vegas casinos. In addition, the direct mail
activities will be continually directed to the existing customer
base to ask for referrals. A $100 betting voucher will be
provided to these clients for every referral that signs up.
(9) Internal/External Newsletter.
The Company is currently planning to produce a newsletter to
serve as an informational piece for internal personnel, the sales
force, and customers. It will include sections covering each
major department or organization within eSportsbet.com, useful
trade information and the latest updates. Importantly, these
newsletters will provide incentives and promotions for clients
and new customers.
(10) The Competition.
Currently, the market is shared by less than 50 off shore
operations of which less than ten offer the capability for
interactive on-line Internet sports wagers. Users of the sports
book web sites are looking for such things as quality and
security improvements. Developments and increased traffic in the
sports book industry have resulted in the need to increase
security, reliability and simplicity of operability.
Over the past year, similar companies have proven that
meaningful features can be developed for this arena. These
companies have primarily focused on the use of 800 phone numbers
to improve the quality of use and access in these products.
These products have been successfully distributed in many areas
of the industry. WWTS, ABC Islands, Global Sports Network and
Carib Sports Book provide competitive products in this market.
In terms of product strength, eSportsbet.com has several
distinct advantages over the competition. First is its marked
advancement in web site technology. Other product strengths
include web site ease of operability and security. In marketing,
our most powerful assets are direct market research resulting in
a creative approach to reach new bettors.
Companies that compete in this market are homogenous in nature
in terms of products and services offered. All companies
mentioned above, the industry leaders, charge competitive prices
as follows:
Competition:
$110 - $100 pay out
6 point 2-team teasers
13-5 parlay pay out
(800) phone betting
next day pay out to customers no guarantee
no referral fee
no name bank insuring funds
eSportsbet.com:
$110 -$100 pay out
$105-$100 , bet by internet (800) phone betting internet betting
7 point 2-team teasers
14-5 parlay pay out
same day pay outs if requested 24 hour guarantee
$100 referral bonus
money held at Barclays Bank
The major strengths of our competitors are reputation only as a
result of length of service. The major weaknesses of our
competitors are an apparent unwillingness to offer a fair market
in terms of pricing and quality services.
The major competitors' most likely response to trends
affecting this industry will be inaction due stability in terms
of their own client base. The Company's product is positioned
relative to the major competitors by equal or higher odds for
equal wagers for our customers. The ability to interact by
telephone or on-line via the Internet with ease, simplicity,
reliability and security is unique to this product, and the
Company's research indicates its performance is superior to
anything else on the market today.
An important point regarding industry competition: Data has
shown that where new gambling operations open for business, the
number of dollars spent by gamblers on total gambling activities
doubles. Rather than diverting funds from other gaming
operations, it simply draws new players into the market. Based
on this important fact, the Company expects to draw new bettors
rather than compete with established sports books for their
current clientele who are satisfied with the antiquated method of
betting over the telephone.
eSportsbet.com is not yet an Internet presence and but is
presently accepting calls over the phone. The goal of the Company
is to establish the Internet presence of eSportsbet.com by July
1999.
Its base of operations is in Costa Rica..
April 1999: Wagering transactions: $1.1 million
Revenues: $60,000
Net Profits: $15,000
May: About $600,000 in wagering transactions
(b) 777WINS.com.
The same general points made in the discussion as to
eSportsbet.com, set forth above, also apply to 777WINNS.com, the
Company's division for interest casino type games. On May 27,
1999, the Company established a larger incoming bandwidth by MCI
Communications providing, at their cost, a satellite dish (the
previous bandwidth limited the speed of play and hence the number
of players at any one time).
The Revenue on a $100 wager is as follows:
If coming in from a Banner Ad at an Internet Merchants location,
the payment to the Merchant is 20% or $20. The present credit
card fees cost is 10% or $10. Therefore, the revenue from a $100
wager is $70. The revenue from a non banner ad contact is $90.
Net profits are about 15% of the Wager.
With increase band width, the Company is projecting a
$1,000,000 plus month in June as the Company will be heavily
promoting a 777WINS.com tournament where the winners are flown
all expenses paid to the Gran Isle Casino in Costa Rica.
(c) Projected Budget Expenditures.
$5,000,000 Budget:
$1,000,000 to upgrade eSportsbet as a premier web site and to
aggressively market the services while at the same time holding
on to the call in service for non Internet customers.
$1,000,000 to upgrade 777WINS.com into an expanded site and to
double again the incoming band width.
$1,000,000 to put on fast track the development of the Company
PocketPay, which is a terminal and phone for the pocket, and
which would be marketed into the Asian market as a pay per play
device and also a business transaction device. And for the
development of the SLICK, which is an Internet device to bypass
the Internet with sameas-cash transactions.
$1,000,000 for the establishment of the Company bank host and the
Company Gate in the United Kingdom, Hong Kong, Mexico, Australia
and South Africa by October 1999.
$1,000,000 in reserve to be used to buy back 20% of the Company's
stock in the public float.
Conclusion.
By accepting the premise of global PERFECT devices available
to anyone with telephony by 2001, then one readily sees that the
PERFECT wagering market is a natural evolution and will quickly
become an accepted and legitimate and regulated industry. The
instant taxation of consumers' PERFECT winnings is a given and
one need only ask how long the USA lotteries would remain silent
as they watched home consumers using PERFECT devices to place
same-as-cash bill payments. The only reason lottery is not
played from the home today is simply because you can non play
lottery on credit... it must be cash. To date, no one has the
ability to move real cash from home to the lotteries. The
PERFECT industry will change that.
Add in the fact that the Company is leading the way with
777WINS.com flying tournament winners to a real Costa Rican
casino and that the analogy of Internet casinos to land based
casinos are as to television is to the big screen cinemas, then
one can readily see that the global PERFECT wagering marketplace
of 2001 could easily be a $300 to $400 billion global
marketplace.
With over $500 Billion spent on gambling in the U.S. alone in
1993, where over 90% of adults participate in some form of
gambling, the market for in-home on-line gambling immeasurable.
In 1997, close to 80 million Americans placed bets on sports.
With less than one offshore sports book operating for every
1,000,000 gamblers the ground is truly untouched.
PLAN OF OPERATION
A discussion of the Company's plan of operation over the
next 12 months in incorporated into the discussion of the
Company's business. See "Description of Business."
DESCRIPTION OF PROPERTY
The Company currently owns the following property in
connection with its operations:
(a) Four servers for the operation of eSportsbet.com and
777WINNS.com, valued at $15,000 each.
(b) Approximately $50,000 of various office equipment,
including personal computers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, certain transactions which occurred
between the Company and its officers and directors are set forth
below. With respect to each such transaction, the Company
believes that the terms of each transaction were approximately as
favorable
to the Company as could have been obtained from an unrelated
third party:
(1) The Company utilized cash accounts maintained by ET&T to
fund day to day operations of the Company over the period of
March 1998 through September 1998. At August 31, 1998, the net
result of these transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997 in exchange for service
rendered to the Company. The Company did not receive any cash
consideration for this common stock issuance and has treated this
as an expense to the Company of $375,000.
(3) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales,
Inc.("HPOS") (now know as Electronic Transactions & Technology -
"ET&T")) (this agreement is incorporated by reference at Exhibit
10.1 to this Form SB-2). ET&T is a privately held corporation
70% owned by Thomas S. Hughes, President of the Company, which is
focused on the emergence of the Personal Encrypted Remote
Financial Electronic Card Transactions industry (although this
agreement was entered into prior to Mr. Hughes becoming
affiliated with the Company, it is included here since certain of
the conditions under that agreement have not been completely
fulfilled, as discussed below).
The assets included under this agreement are the following:
(a) The name "Betting, Inc.", as trademarked by HPOS; (b) The
Wagering Gate (receive incoming data transfer commands from the
Host Center and other competitive Host Centers who have received
ATM and SMART card wagering payment from off site home or office
locations and then who command the Wagering GATE to alert the
recipient gaming companies that they have been paid and to
respond back with an acknowledgement of such payment; and, the
general promotion and education of home ATM and SMART card
wagering over the Internet through the HPOS Secure Computer
Keyboard or over the telephone through the HPOS stand alone
Infinity unit); (c) the specific
application of Wagering with an ATM card or SMART card with the
Secure Computer Keyboard (any other uses of the Secure Computer
Keyboard, such as Bill Pay or Impulse Purchase that are not
Wagering transactions, are not included); (d) the HPOS developed
Merchant Response Software for the specific application only of
transacting Off Site ATM and Smart card Wagering through the
Wagering Gate; and (e) HPOS' interest in the use of and revenue
from the HPOS Personal Encrypted Remote Financial Electronic Card
transaction relating to the Wagering Business in all HPOS partner
countries.
Under terms of this licensing agreement, the Company is to
issue 2,900,000 shares of restricted common stock to HPOS in
exchange for licensing home ATM card and SMART card wagering
technology developed by HPOS. Of this amount, 2,755,000 shares
were placed in escrow subject to cancellation on February 10,
1998, in the event the bid price of the common stock of the
Company is not at least $3.00 per share for any twenty
consecutive day period as reported on the NASD's Electronic
Bulletin Board or NASDAQ's Small Cap Market from the date of the
agreement through February 10, 1998 (this escrow agreement is
incorporated by reference at Exhibit 10.2 to the Form SB-2).
As of the date of this Prospectus, the terms of the Licensing
Agreement have not been met by the Company. However, the Company
has entered into amendment(s) of the original agreement that
provide for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to certain
conditions specified in the agreement. All conditions set forth
in the original agreement need to be met on or before September
1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00
per share for any twenty consecutive day period, then HPOS shall
have the option to purchase up to 13,822,000 additional shares of
the Company common stock at an exercise price of $.30 per share.
(4) On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act
as the bank host processing for all Company transactions that are
sent by terminals that read credit cards or ATM cards (this
agreement is incorporated by reference at Exhibit 10.3 to this
Form SB-2). ET&T is to charge the Betting, Inc. a fee of $0.25
per transaction or 2.5% of the wager being sent by Betting, Inc.
to gaming operators. These transactions are to originate from
globally placed Betting, Inc. equipment and/or Betting, Inc.
licensed operators.
(5) On March 27, 1998, the Company entered into a
License Agreement with ET&T for the purpose of licensing
additional technology for processing electronic banking
transactions (this agreement is incorporated by reference at
Exhibit 10.4 to this Form SB-2). This licensing supplements the
technology licensed under the Agreement date February 18, 1997.
This agreement states that ET&T licenses the following ET&T
products to Betting, Inc. for the exclusive global usage of
wagering by PERFECT originated ATM cards, credit cards, and smart
cards:
The PayMaster, defined as a stand alone terminal that attaches to
phone lines and which calls the ET&T host processing center with
bank data.
The SLICK, defined as a stand alone keyboard terminal that
attaches to phone lines and call the ET&T host processing center
with bank data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone
that sends bank data by wireless transmission to the ET&T host
processing
center.
The TV Pin Pad Remote, defined as a set top box and TV remote
that sends bank data by landline dial up transmission to the ET&T
host processing center.
Each ET&T product is exclusively licensed to Betting, Inc. on a
global basis for the application of PERFECT wagering at a
licensing fee of $2,000,000 each. This fee is being paid by the
Company at the rate of $30,000 per month. The duration of the
exclusive license is 20 years.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The Company's Shares are traded in the over-the-counter market
and the range of closing bid prices shown below is as reported
by the OTC Bulletin Board. The quotations shown reflect inter-
dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 1999
High Low
First Quarter 1.0625 0.375
Per Share Common Stock Bid Prices by Quarter
For the Transition Period Ended on December 31, 1998 *
High Low
Transition Period 0.98 0.05
* Due to a change in the fiscal year end of the Company from
August 31 to December 31 as a result of the merger of the Company
with Betting, Inc. (Missouri).
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter ** 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
** The Shares did not trade from February 18, 1998 through
February 28, 1998
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter *** 8.125 7.625
Third Quarter *** 0.8125 0.0625
Fourth Quarter 0.5625 0.06
*** The Shares did not trade from December 13, 1996 through
April 24, 1997
(b) Holders of Common Equity.
As of June 25, 1999, the Company estimates there were
approximately 400 beneficial shareholders of the Company's Common
Stock.
(c) Dividends.
The Company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation on November 18,
1993. The Board of Directors presently intends to retain any
earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment
of cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
EXECUTIVE COMPENSATION
(a) No officer or director of the Company is receiving any
remuneration at this time.
(b) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
corporation in the event of retirement at normal retirement date
pursuant to any presently existing plan provided or contributed
to by the corporation or any of its subsidiaries.
(c) No remuneration is proposed to be in the future directly
or indirectly by the corporation to any officer or director under
any plan which is presently existing.
FINANCIAL STATEMENTS
The Financial Statements required by Item 310 of Regulation S-
B (in the form of the latest Annual Report on Form 10-KSB and
Quarterly Report on Form 10-QSB) are incorporated by reference in
this Prospectus, and are set forth in their entirety as Exhibits
13.1 and 13.2 to this Form SB-2.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On August 1, 1998, the Company engaged the services of George
Brenner, C.P.A. of Beverly Hills, California, to provide an audit
of the Company's financial statements for the fiscal years ended
August 31, 1997 and 1998. The former accountant for the Company,
BDO Seidman L.L.P. of St. Louis Missouri declined the stand for
reelection for the 1997 engagement. The independent auditor's
reports for August 31, 1996 and 1995, were modified as to the
uncertainties about the Company's ability to continue as a going
concern. The decision to change accountants was approved by the
Company's Board of Directors with the selection of the successor
accountant. The Company and its former accountants had no
disagreement during the fiscal years ended August 31, 1996 and
1995, and through the date they declined to stand for re-
election.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Propsectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the Prospectus
under the heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
None.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an
index thereto, are attached.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a
fundamental change in the information in the
registration statement; and Notwithstanding the forgoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation From the low or high end
of the estimated maximum offering range may be reflected in the
form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price
represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
(d) Provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer
or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of Rancho Palos Verdes, State of California, on June 28,
1999.
eCONNECT
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
posteffective amendments, to this Form SB-2 Registration
Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and
Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney0in-fact may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities and on the date indicated:
Signature Title
Date
/s/ Thomas S. Hughes
Thomas S. Hughes
President, Chief Executive Officer,
Director
June 28, 1999
/s/ Jack M. Hall
Jack M. Hall
Secretary, Director
June 28, 1999
/s/ Diane Hewitt
Diane Hewitt
Treasurer (Principal Financial and
Accounting Officer), Director
June 28, 1999
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
3.1 Articles of Incorporation See Below
3.2 Certificate of Amendment
of Amendment to Articles
of Incorporation See Below
3.3 Bylaws See Below
4.1 Class A Warrant Agreement
incorporated by reference
to Exhibit 4.2 of Leggoons, Inc.'s Registration
Statement on Form S-1 filed on
October 28, 1993). Incorporated by
Reference
4.2 Registration Rights Agreement See Below
4.3 Form of Debenture See Below
4.4 Form of Warrant See Below
5, 23.1 Opinion Re: Legality;
Consent of Counsel See Below
10.1 Agreement to License Assets
(incorporated by reference
to Exhibit 10.16 to the
Form 8-K filed on
February 25, 1997) Incorporated by
Reference
10.2 Escrow Agreement
(incorporated by
reference to Exhibit 10.17 to the
Form 8-K filed on
February 25, 1997) Incorporated by
Reference
10.3 Host Processing Agreement
(incorporated by reference
to Exhibit 10.3 of the Form 10-KSB/A for the
fiscal year
ended August 31, 1998) Incorporated by
Reference
10.4 Licensing Agreement
(incorporated by reference
to Exhibit 10.4 of the Form 10-KSB/A for the
fiscal year
ended August 31, 1998) Incorporated by
Reference
13.1 Latest Annual Report to
Security Holders on Form
10-KSB/A See Below
13.2 Latest Quarterly Report
to Security Holders on
Form 10-QSB/A See Below
23.2 Consent of Accountant See Below
24 Special Power of Attorney See Signature
Page
ARTICLES OF INCORPORATION
OF
BETTING, INC.
Know all men by these presents:
That we, the undersigned, for the purpose of association to
establish a corporation for the transaction of business and the
promotion and conduct of the objects and purposes hereinafter
stated, under the provisions of and subject to the requirements
of the laws of the State of Nevada, do make, record and file
these Articles of Incorporation in writing.
And we do hereby certify:
The name of this Corporation is: Error! Reference source not
found.
The principal office in the State of Nevada is to be located at:
3360 W. Sahara Ave., Suite 200, Las Vegas, NV 89102
The Resident agent for this Corporation shall be: Daniel G.
Chapman, 3360 W. Sahara Ave., Las Vegas, NV 89102.
This Corporation may also maintain an office or offices at such
other places within or outside the State of Nevada, as it may
from time to time determine. Corporate business of every kind and
nature may be conducted, and meetings of directors and
stockholders held outside the State of Nevada, the same as in the
State of Nevada.
This Corporation may engage in any lawful activity.
This Corporation is authorized to issue only one class of shares
of stock, the total number of which is 25,000,000 shares, each
with par value of $0.001. Such stock may be issued by this
Corporation from time to time by the Board of Directors thereof.
The shares of stock shall be designated "Common Stock" and the
holders thereof shall be entitled to one (1) vote for each share
held by them.
No Director or Officer of this Corporation shall be liable to
this Corporation or its stockholders for any breach of fiduciary
duty as Officer or Director of this Corporation. This provision
shall not affect liability for acts or omissions which involve
intentional misconduct, fraud, a knowing violation or law, or the
payment of dividends in violation of NRS 78.300.
All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this Corporation as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of a Director or Officer to repay the
amount if it is ultimately determined by a court of competent
jurisdiction, that he or she did not act in good faith, and in
the manner he or she reasonably believed to be or not opposed to
the best interests of this Corporation.
The members of the governing Board shall be styled Directors, and
the number of Directors shall not be less than one (1) pursuant
to the terms of NRS 78.115. The name and address of the first
Board of Directors, which shall consist of one (1) member is:
Tom Hughes
3360 W. Sahara Ave., Suite
200,
Las Vegas, NV 89102
The number of Directors of this Corporation may from time to time
be increased or decreased as set forth hereinabove by an
amendment to the By-Laws in that regard, and without the
necessity of amending these Articles of Incorporation.
The name and address of the incorporator is:
Daniel G. Chapman
3360 W. Sahara Ave., Suite 200
Las Vegas, NV 89102
The capital stock of this Corporation, after the amount of the
subscription price has been paid in cash or in kind, shall be and
remain non-assessable and shall not be subject to assessment to
pay debts of this Corporation.
This Corporation shall have perpetual existence.
No holder of any shares of this Corporation shall have any
preemptive right to purchase, subscribe for, or otherwise acquire
any shares of this Corporation of any class now or hereafter
authorized, or any securities exchangeable for or convertible
into such shares, or warrants or other instruments evidencing
rights or options to subscribe for, purchase or otherwise acquire
such shares.
This Corporation shall not be governed by the provisions of NRS
78.411 to 78.444, inclusive.
Executed this 8th day of March, 1999.
/s/ Daniel G. Chapman
Daniel G. Chapman, Esq.
Verification
State of Nevada
SS
County of Clark
On this 8th day of March, 1999, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Daniel G. Chapman, Esq. personally known to me (or
proved to me on the basis
of satisfactory evidence) to be the person who subscribed her
name to the Articles of Incorporation and acknowledged to me that
she executed the same freely and voluntarily and for the use and
purposes therein mentioned.
By: _/s/____________________________
Notary Public in and for said
County and State
CERTIFICATE OF ACCEPTANCE OF
APPOINTMENT AS RESIDENT AGENT
In the matter of Betting, Inc., I hereby certify that on the 8th
day of March, 1999, I accepted the appointment as Resident Agent
of the above-entitled corporation in accordance with NRS 78.090.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of
March, 1999.
/s/ Daniel G.
Chapman Daniel G.
Chapman, Esq.
CERTIFICATE OF AMENDMENT OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
BETTING, INC.
I, Thomas S. Hughes, certify that:
1. The original articles were filed with the Office of the
Secretary of State on March 8, 1999.
2. As of this date, there is no issued or outstanding
stock.
3. Pursuant to a Board of Directors meeting at which in
excess of two-thirds voted in favor of the following amendment,
the company hereby adopts the following amendments to the
Articles of Incorporation of this Corporation:
Article One: The name of this Corporation is:
eCONNECT
Article Two: The Resident Agent for this Corporation
shall be:
Shawn F. Hackman, Esq., 3360 West Sahara Avenue, Suite 200, Las
Vegas, Nevada 89102
Article Four: This Corporation is authorized to
issue only one class of shares of stock, the total number of
which is 100,000,000 shares, each with a par value of $0.001.
_/s/ Thomas S. Hughes_____________
Thomas S. Hughes,
President/Director
Verification
State of California
SS
County of Los Angeles
On this 25th day of May, 1999, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Thomas S. Hughes personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person who
subscribed his name to the Certificate of Amendment of Amendment
to Articles of Incorporation and acknowledged to me that he
executed the same freely and voluntarily and for the use and
purposes therein mentioned.
By: _/s/_______________________
Notary Public in and for said
County and State
BYLAWS
OF
BETTING, INC.
Article I: Offices
The principal office of Betting, Inc. ("Corporation") in
the Sate of Nevada shall be located in Las Vegas, County of
Clark. The Corporation may have such other offices, either
within or without the State of Nevada, as the Board of Directors
my designate or as the business of the Corporation my require
from time to time.
Article II: Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held during the first ten (10) days in the
month of June in each year, or on such other date during the
calendar year as may be designated by the Board of Directors. If
the day fixed for the annual meeting shall be a legal holiday in
the Sate of Nevada, such meeting shall be held on the next
succeeding business day. If the election of Directors shall be
held on the day designated herein for any annual meeting of the
shareholders or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as conveniently
may be.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the President at the
request of the holders of not less than ten percent (10%) of all
the outstanding shares of the Corporation entitled to vote at the
meeting.
Section 3. Place of Meeting. The Board of Directors my
designate any place, either within our without the State of
Nevada, unless otherwise prescribed by statute, as the place of
meeting for any annual meeting or for any special meeting. A
waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within our without the
State of Nevada, unless otherwise prescribed by statute, as the
place for the holding of such meeting. If no designation is
made, the place of meeting shall be the principal office of the
Corporation.
Section 4. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called,
shall unless otherwise prescribed by statute, be delivered not
less than ten (10) nor more than sixty (60) days before the date
of the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States Mail, addressed to
the shareholder at his address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record.
For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment
thereof,
or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may
provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case fifty (50) days. If
the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least
fifteen (15) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix
in advance a date as the record date for any such determination
of shareholders, such date in any case to be not more than thirty
(30) days and, in case of a meeting of shareholders, not less
than ten (10) days, prior to the date on which the particular
action requiring such determination of shareholders is to be
taken. If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date
on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has
been made as provided in this section, such determination shall
apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge
of the stock transfer books for shares of the Corporation shall
make a complete list of shareholders entitled to vote at each
meeting of
shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each.
Such lists shall be produced and kept open at the time and
place
of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes
thereof.
Section 7. Quorum. A majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders.
If less than a majority of the outstanding shares are represented
at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The
shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by
the shareholder or by his or duly authorized attorney-in-fact.
Such proxy shall be filed with the secretary of the Corporation
before or at the time of the meeting. A meeting of the Board of
Directors my be had by means of telephone conference or similar
communications equipment by which all persons participating in
the meeting can hear each other, and participation in a meeting
under such circumstances shall constitute presence at the
meeting.
Section 10. Voting of Shares by Certain Holders. Shares
standing in the name of another Corporation may be voted by such
officer, agent or proxy as the Bylaws of such Corporation may
prescribe or, in the absence of such provision, as the Board of
Directors of such Corporation may determine.
Shares held by an administrator, executor, guardian or
conservator my be voted by him either in person or by proxy,
without a transfer of such shares into his name. Shares standing
in the name of a trustee may be voted by him, either in person or
by proxy, but no trustee shall be entitled to vote shares held by
him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into
his name, if authority to do so be contained in an appropriate
order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled
to vote the shares so transferred.
Shares of its own stock belonging to the Corporation shall not
be voted directly or indirectly, at any meeting, and shall not
be counted in determining the total number of outstanding shares
at any given time.
Section 11. Informal Action by Shareholders. Unless
otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a
meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to
vote with respect to the subject matter thereof.
Article III: Board of Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of
Directors of the Corporation shall be fixed by the Board of
Directors, but in no event shall be less than one ( 1 ). Each
Director shall hold office until the next annual meeting of
shareholder and until his successor shall have been elected and
qualified.
Section 3. Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this Bylaw
immediately after, and at the same place as, the annual meeting
of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional
regular meetings without notice other than such resolution.
Section 4. Special Meetings. Special meetings of the Board
of Directors may be called by or at the request of the President
or any two Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place for
holding any special meeting of the Board of Directors called by
them.
Section 5. Notice. Notice of any special meeting shall be
given at least one (1) day previous thereto by written notice
delivered personally or mailed to each Director at his business
address, or by telegram. If mailed, such notice shall be deemed
to be delivered when deposited in the United Sates mail so
addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Any Directors
may waive notice of any meeting. The attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose
of objecting to
the transaction of any business because the meeting is not
lawfully called or convened.
Section 6. Quorum. A majority of the number of Directors
fixed by Section 2 of the Article III shall constitute a quorum
for the transaction of business at any meeting of the Board of
Directors, but if less than such majority is present at a
meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
Section 8. Action Without a Meeting. Any action that may be
taken by the Board of Directors at a meeting may be taken without
a meeting if a consent in writing, setting forth the action so to
be taken, shall be signed before such action by all of the
Directors.
Section 9. Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of
the remaining Directors though less than a quorum of the Board of
Directors, unless otherwise provided by law. A Director elected
to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any Directorship to be filled by reason
of an increase in the number of Directors may be filled by
election by the Board of Directors for a term of office
continuing only until the next election of Directors by the
shareholders.
Section 10. Compensation. By resolution of the Board of
Directors, each Director may be paid his expenses, if any, of
attendance at each meeting of the Board of Directors, and may be
paid a stated salary as a Director or a fixed sum for attendance
at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the Corporation
in any other capacity and receiving compensation thereof.
Section 11. Presumption of Assent. A Director of the
Corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as
the Secretary of the meeting before the adjournment thereof, or
shall forward such dissent by registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in
favor of such action.
Article IV: Officers
Section 1. Number. The officers of the Corporation shall be
a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of
Directors.
Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors,
including a Chairman of the Board. In its discretion, the Board
of Directors may leave unfilled for any such period as it may
determine any office except those of President and Secretary.
Any two or more offices may be held by the same person. Officers
may be Directors or shareholders of the Corporation.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be
elected annually by the Board of Directors at the first meeting
of the Board of Directors held after each annual meeting of the
shareholders. If
the election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as conveniently may be.
Each officer shall hold office until his successor shall have
been duly elected and shall have qualified, or until his death,
or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3. Removal. Any officer or agent may be removed by
the Board of Directors whenever, in its judgement, the best
interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights, and
such appointment shall be terminable at will.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may
be filled by the Board of Directors for the unexpired portion of
the term.
Section 5. President. The President shall be the principal
executive officer of the Corporation and, subject to the control
of the Board of Directors, shall in general supervise and control
all of the business and affairs of the Corporation. He shall,
when present, preside at all meetings of the shareholders and of
the Board of Directors, unless there is a Chairman of the Board,
in which case the Chairman shall preside. He may sign, with the
Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, any deed, mortgages, bonds, contract,
or other instruments which the Board of Directors has authorized
to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or
by there Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed
or executed; and in general shall perform all duties incident to
the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. Vice President. In the absence of the President
or in the event of his death, inability or refusal to act, the
Vice President shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice President
shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors,
If there is more than one Vice President, each Vice President
shall succeed to the duties of the President in order of rank as
determined by the Board of Directors. If no such rank has been
determined, then each Vice President shall succeed to the duties
of the President in order of date of election, the earliest date
having the first rank.
Section 7. Secretary. The Secretary shall: (a) keep the
minutes of the Board of Directors in one or more minute books
provided for the purpose; (b) see that all notices are duly
given in accordance with the provisions of the Bylaws or as
required by law; (c) be custodian of the corporate records and
of the seal of the Corporation and see that the seal of the
Corporation is affixed to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized;
(d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such
shareholder; (e) sign with the President certificates for share
of the Corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the Corporation,
and (g) in general perform all duties incident to
the office of the Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of
the Corporation; (b) receive and give receipts for moneys due
and payable to the Corporation in such banks, trust companies or
other depositories as shall be selected in accordance with the
provisions of Article VI of these Bylaws; and (c) in general
perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by
the President or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such
sureties as the Board of Directors shall determine.
Section 9. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors, and no officer
shall be prevented from receiving such salary by reason of the
fact that he is also a Director of the Corporation.
Article V: Indemnity
Section 1. Definitions. For purposes of this Article,
"Indemnitee" shall mean each Director or Officer who was or is a
party to, or is threatened to be made a party to, or is otherwise
involved in, any Proceeding (as hereinafter defined), by reason
of the fact that he or she is or was a Director or Officer of
this Corporation or is or was serving in any capacity at the
request of this Corporation as a Director, Officer, employee,
agent, partner, or fiduciary of, or in any other capacity for,
another corporation, partnership, joint venture, trust, or other
enterprise. The term "Proceeding" shall mean any threatened,
pending or completed action or suit (including, without
limitation, an action, suit or proceeding by or in the right of
this Corporation), whether civil, criminal, administrative or
investigative.
Section 2. Indemnification. Each Indemnitee shall be
indemnified and held harmless by this Corporation for all actions
taken by him or her, and for all omissions (regardless of the
date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss
(including, without limitation, attorney fees, judgments, fines,
taxes, penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by the Indemnitee in connection
with any Proceeding. Indemnification pursuant to this Section
shall continue as to an Indemnitee who has ceased to be a
Director or Officer and shall inure to the benefit of his or her
heirs, executors and administrators. This Corporation may, by
action of its Board of Directors, and to the extent provided in
such action, indemnify employees and other persons as though they
were Indemnitees. The rights to indemnification as provided in
this Article shall be nonexclusive of any other rights that any
person may have or hereafter acquire under an statute, provision
of this Corporation's Articles of Incorporation or Bylaws,
agreement, vote of stockholders or Directors, or otherwise.
Section 3. Financial Arrangements. This Corporation may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a Director,
Officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in such capacity,
whether or not this
Corporation has the authority to indemnify him or her against
such liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating a
trust fund; (b) establishing a program of self-insurance; (c)
securing its obligation of indemnification by granting a security
interest or other lien on any of this Corporation's assets, and
(d) establishing a letter of credit, guarantee or surety. No
financial arrangement made pursuant to this section may provide
protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud, or a knowing violation
of law, except with respect to advancing expenses or
indemnification ordered by a court. Any insurance or other
financial arrangement made on behalf of a person pursuant to this
section may be provided by this Corporation or any other person
approved by the Board of Directors, even if all or part of the
other person's stock or other securities is owned by this
Corporation. In the absence of fraud:
(a) the decision of the Board of Directors as to the
propriety of the terms and conditions of any insurance or other
financial arrangement made pursuant to this section, and the
choice of the person to provide the insurance or other financial
arrangement is conclusive; and
(b) the insurance or other financial arrangement is not void or
voidable; does not subject any Director approving it to personal
liability for his action; and even if a Director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
Section 4. Contract of Indemnification. The provisions of
this Article relating to indemnification shall constitute a
contract between this Corporation and each of its Directors and
Officers, which may be modified as to any Director or Officer
only with that person's consent or as specifically provided in
this section. Notwithstanding any other provision of the Bylaws
relating to their amendment generally, any repeal or amendment of
this Article which is adverse to any Director or Officer shall
apply to such Director or Officer only on a prospective basis and
shall not limit the rights of an Indemnitee to indemnification
with respect to any action or failure to act occurring prior to
the time of such repeal or amendment. Notwithstanding any other
provision of these Bylaws, no repeal or amendment of these Bylaws
shall affect any or all of this Article so as to limit or reduce
the indemnification in any manner unless adopted by (a) the
unanimous vote of the Directors of this Corporation then serving,
or (b) the stockholders as set forth in Article XII hereof;
provided that no such amendment shall have retroactive effect
inconsistent with the preceding sentence.
Section 5. Nevada Law. References in this Article to Nevada
law or to any provision thereof shall be to such law as it
existed on the date these Bylaws were adopted or as such law
thereafter may be changed; provided that (a) in the case of any
change which expands the liability of an Indemnitee or limits the
indemnification rights or the rights to advancement of expenses
which this Corporation may provide, the rights to limited
liability, to indemnification and to the advancement of expenses
provided in this Corporation's Articles of Incorporation, these
Bylaws, or both shall continue as theretofore to the extent
permitted by law; and (b) if such change permits this
Corporation, without the requirement of any further action by
stockholders or Directors, to limit further the liability of
Indemnitees or to provide broader indemnification rights or
rights to the advancement of expenses than this Corporation was
permitted to provide prior to such change, liability
thereupon shall be so limited and the rights to indemnification
and advancement of expenses shall be so broadened to the extent
permitted by law. The Corporation shall indemnify its Directors,
officers and employees as follows:
Article VI: Contracts, Loans, Checks, and Deposits
Section 1. Contracts. The Board of Directors may authorize
any office or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued
in its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
Article VII: Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates
representing shares of the Corporation shall be in such form as
shall be determined by the Board of Directors. Such certificates
shall be signed by the President and by the Secretary or by such
other officers authorized by law and by the Board of Directors so
to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation.
All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until
the former certificate for a like number of shares shall have
been surrendered and cancelled, expect that in case of a lost,
destroyed or mutilated certificate a new one may be issued
therefore upon such terms and indemnity to the Corporation as the
Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate
for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed by the Corporation to be
the owner thereof for all purposes, Provided, however, that upon
any action undertaken by the shareholder to elect S Corporation
status pursuant to Section 1362 of the Internal Revenue Code and
upon any shareholders agreement thereto restricting the transfer
of said shares so as to disqualify said S Corporation status,
said restriction on transfer shall be made a part of the Bylaws
so long
as said agreements is in force and effect.
Article VIII: Fiscal Year
The fiscal year of the Corporation shall begin on the 1st day of
January and end on the 31st day of December of each year.
Article IX: Dividends
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and condition provided by law and its
Articles of Incorporation.
Article X: Corporate Seal
The Board of Directors shall provide a corporate seal which
shall be circular in form and shall have inscribed thereon the
name of the Corporation and the state of incorporation and the
words "Corporate Seal."
Article XI: Waiver of Notice
Unless otherwise provided by law, whenever any notice is
required to be given to any shareholder or Director of the
Corporation under the provision of the Articles of Incorporation
or under the provisions of the applicable Business Corporation
Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Article XII: Amendments
These Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Board of Directors at any regular or
special meeting of the Board of Directors, or by the shareholders
at any regular or special meeting of the shareholders.
The above Bylaws are certified to have been adopted by the
Board of Directors of the Corporation on the 14th day of May,
1999.
/s/ Thomas S. Hughes
Thomas S. Hughes, Director
/s/ Jack M. Hall
Jack M. Hall, Director
/s/ Diane Hewitt
Diane Hewitt, Director
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of May ___,
1999, ("this Agreement"), is made by and between eConnect, a
Nevada corporation (the "Company"), and the person named on the
signature page hereto (the "Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of
the Subscription Agreement, between the Investor and the Company
(the "Subscription Agreement"), the Company has agreed to issue
and sell to the Investor six percent (6%) Convertible Debentures
of the Company (the "Debentures"), which will be convertible into
shares of the common stock, one tenth of one cent ($0.001) par
value (the "Common Stock"), of the Company (the "Conversion
Shares") upon the terms and subject to the conditions of such
Debentures; and
WHEREAS, pursuant to the terms of the Subscription
Agreement the Company has issued the Investor one hundred fifty
thousand (150,000) Warrants exercisable at a strike price equal
to one hundred five percent (105%) of the five (5) day average
closing bid price for the Company's Common Stock for the five
trading days prior to the "Closing Date" as that term is defined
below.
WHEREAS, to induce the Investor to execute and deliver
the Subscription Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the "Securities Act"), and
applicable state securities laws with respect to the Conversion
Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as
follows:
1. Definitions.
(a) As used in this Agreement, the following terms
shall
have the following meaning:
(i) "Closing Date" means the date funds are received
by the
Company pursuant to the Subscription Agreement.
(ii) "Investor" means the Investor and any transferee
or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(iii) "Register", "registered" and "registration" refer
to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor
rule providing for offering securities on a continuous basis
("Rule 415"), and the declaration or ordering of effectiveness of
such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares and
Warrants.
(iv) "Registration Statement" means a registration
statement
of the Company under the Securities Act.
(b) As used in this Agreement, the term Investor
includes
(i) each Investor (as defined above) and (ii) each person who is
a permitted transferee or assignee of the Registrable Securities
pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not otherwise
defined
herein shall have the respective meanings set forth in the
Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare
and file with the SEC, no later than ten (10) days after the
Closing Date, a Registration Statement on Form SB-2, covering a
sufficient number of shares of Common Stock for the Investors
into which the Five Hundred Thousand Dollars ($500,000) of
Debentures and one hundred fifty thousand (150,000) Warrants
would be convertible. The Registration Statement shall cover ten
million (10,000,000) shares
of the Company's Common Stock. Such Registration Statement shall
state that, in accordance with the Securities Act, it also covers
such indeterminate number of additional shares of Common Stock as
may become issuable to prevent dilution resulting from Stock
splits, or stock dividends). If at any time the number of shares
of Common Stock into which the Debenture and Warrants issued in
this offering may be converted exceeds the aggregate number of
shares of Common Stock then registered, the Company shall, within
ten (10) business days after receipt of written notice from any
Investor, either (i) amend the Registration Statement filed by
the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC
at that time, to register all shares of Common Stock into which
the Debenture may be converted, or (ii) if such Registration
Statement has been declared effective by the SEC at that time,
file with the SEC an additional Registration Statement on Form SB-
2 or any other applicable registration statement, to register the
shares of Common Stock into which the Debenture may be converted
that exceed the aggregate number of shares of Common Stock
already registered.
(b) Underwritten Offering. If any offering pursuant
to a Registration Statement pursuant to Section 2(a) hereof
involves an underwritten offering, the Investors acting by
majority in interest of the Registrable Securities subject to
such underwritten offering shall have the right to select one
legal counsel to represent their interests, and an investment
banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to
be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such
investment banker or bankers and manager or managers so selected
in accordance with this Section 2(b) (other than fees and
expenses relating to registration of Registrable Securities under
federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their
Registrable Securities and the fees and expenses of such legal
counsel so selected by the Investors.
(c) Payment by the Company. If the Registration
Statement covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not
declared effective within thirty (30) days from the Closing Date,
then the Company
shall pay investor as liquidated damages three percent (3%) of
the principal amount of the Debentures issued at that time for
every thirty (30) day period or portion thereof until the
Registration Statement is declared effective.
The Company acknowledges that its failure to have the
Registration Statement declared effective within thirty (30) days
from the Closing Date will cause the Investor to suffer damages
in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this
Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set
forth in this section
represents the parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from
its obligations to register the Common Stock and deliver the
Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
3. Obligation of the Company. In connection
with the registration of the Registrable Securities, the Company
shall do
each of the following:
(a) Prepare promptly, and file with the SEC within
ten (10) days of the Closing Date, a Registration Statement with
respect to
not less than the number of Registrable Securities provided in
Section 2(a), above, and thereafter use its best efforts to cause
each Registration Statement relating to Registrable Securities to
become effective the earlier of (i) five (5) business days after
notice from the Securities and Exchange Commission that the
Registration Statement may be declared effective, or (b) thirty
(30) days after the Closing Date, and keep the Registration
Statement effective at all times until the earliest of (i) the
date that is two years after the Closing Date (ii) the date when
the Investors may sell all Registrable Securities under Rule 144
without volume limitations or (iii) the date the Investors no
longer own any of the Registrable Securities (the "Registration
Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they were made, not misleading;
(b) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the
Registration effective at all times during the Registration
Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its
legal counsel identified to the Company, (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration
Statement, each
preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents, as
such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
(d) Use its best efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statement
under such other securities or blue sky laws of such
jurisdictions as the Investors who hold a majority in interest of
the Registrable Securities being offered reasonably request and
in which significant volumes of shares of Common Stock are
traded, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements
to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and
qualification in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such
jurisdictions: provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (A)
qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (B)
subject itself to general taxation in any such jurisdiction, (C)
file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than
nominal expense or burden to the Company or (E) make any change
in its articles of incorporation or by-laws or any then existing
contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) As promptly as practicable after becoming aware
of such event, notify each Investor of the happening of any event
of which
the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect,
includes any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading, and uses its best
efforts promptly to prepare a supplement or amendment to the
Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware
of such event, notify each Investor who holds Registrable
Securities being
sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any notice of
effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest
possible time;
(g) Use its commercially reasonable efforts, if
eligible, either to (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on a national
securities
exchange and on each additional national securities exchange on
which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure designation of all the Registrable
Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System
("NASDAQ") "Small Capitalization" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the quotation of the
Registrable Securities on the NASDAQ Small Cap Market; or if,
despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in
doing so, to secure NASD authorization and quotation for such
Registrable Securities on the over-thecounter bulletin board and,
without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with
respect to such registrable securities;
(h) Provide a transfer agent for the Registrable
Securities not later than the effective date of the Registration
Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may
reasonably request and registration in such names as the
Investors may request; and, within five (5) business days after a
Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such
Registration /statement) an appropriate instruction and opinion
of such counsel, if so required by the Company's transfer agent;
and
(j) Take all other reasonable actions necessary to
expedite and facilitate distribution to the Investor of the
Registrable Securities pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations;
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall timely furnish to
the Company such
information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect
the registration of such Registrable Securities and shall timely
execute such documents in connection with such registration as
the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of
such Investor's Registrable Securities included in the
Registration Statement. If at least two (2) business days prior
to the filing date the Company has not received the Requested
Information from an Investor (a "NonResponsive Investor"), then
the Company may file the Registration Statement without including
Registrable Securities of such NonResponsive Investor;
(b) Each Investor by such Investor's acceptance of
the Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(e) or 3(f), above, such Investor will
immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e)
or 3(f) and, if so directed by the Company, such investor shall
deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all
copies in such Investor's
possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable
expenses,
other than underwriting discounts and commissions incurred in
connection with registrations, filing or qualifications pursuant
to Section 3, but including, without limitations, all
registration, listing, and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the
Company shall be borne by the Company.
6. Indemnification. In the event any
Registrable Securities are included in a Registration Statement
under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds such
Registrable Securities, the directors, if any, of such Investor,
the officers, if any, of such Investor, each person, if any, who
controls any Investor within the meaning of the Securities Act or
the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or
several) incurred (collectively, "Claims") to which any of them
may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations of the Registration Statement or any post-effective
amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective
amendment thereof or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through
(iii) being collectively referred to as "Violations"). The
Company shall reimburse the Investors, promptly as such expenses
are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection
with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall
not (i) apply to any Claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf
of any Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(b)
hereof; (ii) with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus
was timely made available by the Company pursuant to Section 3(b)
hereof; (iii) be available to the
extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by
the Company; or (iv) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written
consent of the
Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company, its officers, directors and
agents (including Counsel) against any claims arising out of or
based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company,
by or on behalf of such Investor, expressly for use in connection
with the preparation of the Registration Statement, subject to
such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person or
Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its
own counsel with the reasonable fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel
in such proceeding. In such event, the Company shall pay for
only one separate legal counsel for the Investors; such legal
counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the
Registration Statement to which the Claim relates.
The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required
by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification
by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6;
(b) no seller of Registrable Securities guilty or fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of
Registrable Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale
of such Registrable Securities.
8. Reports under Exchange Act. With a view to
making available to the Investors the benefits of Rule 144
promulgated
under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best
efforts to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The
rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the
Investors to any transferee of in excess of fifty (50%) percent
or more of the Registrable Securities (or all or any portion of
any Debenture of
the Company which is convertible into such securities) only if:
(a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (i)
the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are
being transferred or assigned, (c) immediately following such
transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before
the time the Company received the written notice contemplated by
clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such
assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section
2(c) hereof.
10. Amendment of Registration Rights. Any
provision of this Agreement may be amended and the observance
thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and investors who hold a majority in interest of the
Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Interest. Nothing contained herein shall be deemed
to
establish or require the payment of interest to the Investor at a
rate in excess of the maximum rate permitted by governing law.
In the event that the rate of interest required to be paid
hereunder exceeds the maximum rate permitted by governing law,
the rate of interest
required to be paid thereunder shall be automatically reduced to
the maximum rate permitted under the governing and any amounts
collected in excess of the permissible amount shall be deemed a
payment of principal. To the extent that such excess amount
exceeds the aggregate principal amount of the Debenture, such
excess shall be returned with reasonable promptness by the
Investor to the Company.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company received
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given
hereunder
shall be in writing and shall be deemed to be sufficiently given
when personally delivered (by hand, by courier, by telephone line
facsimile transmission, receipt confirmed, or other means) or
sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company,
at its executive office (ii) if to the Investor, at the address
set forth under its name in the Subscription Agreement, with a
copy to its designated attorney and (iii) if to any other
Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section
12(b), and shall be effective, when personally delivered, upon
receipt and, when so sent by certified mail, four (4) business
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or
remedy
under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
(d) This Agreement shall be governed by the
interpreted in
accordance with the laws of the State of California without
reference to its conflicts of laws rules or principles. Each of
the parties consents to the exclusive jurisdiction of the federal
courts of the State of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. The headings of this Agreement
are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement. If any provision
of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not
effect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in
any other jurisdiction. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with
enforcement.
(e) This Agreement constitutes the entire agreement
among
the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings,
other
than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof,
this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context
may require.
(h) The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the
other party hereto by telephone line facsimile transmission of a
copy of this Agreement bearing the signature of the party so
delivering this Agreement. A facsimile transmission of this
signed Agreement shall be legal and binding on all parties
hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
eConnect
By:______________________________
______
Name:____________________________
______
Title:___________________________
________
_________________________________
______ (Name of Investor)
By:
_________________________________
___
Name:____________________________
______
Title:___________________________
________
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS
PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON
OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
ISSUANCE DATE May __,
1999
DUE DATE
May __, 2002
AMOUNT $500,000
NUMBER MAY-1999-
101
FOR VALUE RECEIVED, eConnect, a Nevada corporation (the
"Company"), hereby promises to pay to
_______________________________ or registered assigns (the
"Holder") on May __, 2002, (the "Maturity Date"), the principal
amount of Five Hundred Thousand Dollars ($500,000) U.S., and to
pay interest on the principal amount hereof, in such amounts, at
such times and on such terms and conditions as are specified
herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal
amount of this Debenture (the "Debenture") at the rate of six
percent
(6.0%) per annum, payable at the time of each conversion, with
respect to the principal amount of the Debenture being converted,
until the principal amount hereof is paid in full or has been
converted. Interest shall be computed on the basis of a three
hundred sixty (360) day year of twelve (12), thirty (30) day
months.
Each payment shall be paid in cash or in freely trading Common
Stock of the Company, at the Company's option. If the interest is
to be paid in cash, the Company shall make such payment within
five (5) business days of the of "Conversion Date" as that term
is defined in Section 3.2(b). If the interest is to be paid in
Common Stock, said Common Stock shall be delivered to the Holder,
or per Holder's instructions, within five (5) business days of
the date of conversion. The Debentures are subject to automatic
conversion at the end of three years from the date of issuance at
which time all Debentures outstanding will be automatically
converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds
are received by the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in
order for the Holder to receive payment of the principal amount
hereof. The Company shall have the option of paying the interest
on this
Debenture in United States dollars or in common stock upon
conversion pursuant to Article 1 hereof. The Company may draw a
check for the payment of interest to the order of the Holder of
this Debenture and mail it to the Holder's address as shown on
the Register (as defined in Section 7.2 below). Interest and
principal payments shall be subject to withholding under
applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right,
at its option, to convert it into shares of common stock, par
value of one tenth of one cent ($0.001) per share, of the Company
("Common
Stock") at any time which is before the close of business on the
Maturity Date, except as set forth in Section 3.1(c) below. The
number of shares of Common Stock issuable upon the conversion of
this Debenture is determined pursuant to Section 3.2 and rounding
the result to the nearest whole share.
(b) Less than all of the principal amount of this
Debenture may be converted into Common Stock if the portion
converted is five thousand dollars ($5,000) or a whole multiple
of five thousand dollars ($5,000) and the provisions of this
Article 3 that apply to the conversion of all of the Debenture
shall also apply to the conversion of a portion of it. This
Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture
remains outstanding on the third anniversary of the date hereof,
the unconverted portion of such Debenture will automatically be
converted into shares of Common Stock on such date in the manner
set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon the Company's receipt of a
facsimile or original of Holder's signed Notice of Conversion and
the original Debenture to be converted, the Company shall
instruct its transfer
agent to issue one or more Certificates representing that number
of shares of Common Stock into which the Debenture, or portion
thereof is convertible in accordance with the provisions
regarding conversion set forth in the conversion notice. The
Company or its counsel shall act as Registrar and shall maintain
an appropriate ledger containing the necessary information with
respect to each Debenture.
(b) Conversion Date. The face amount of the
Debentures, plus accrued interest, may be converted anytime after
the Closing Date. Such conversion shall be effectuated by
surrendering to the Company,
or its attorney, this Debenture to be converted together with a
facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated.
The date on which the Notice of Conversion is effective
("Conversion Date") shall be deemed to be the date on which the
Holder has delivered to the Company a facsimile or original of
the signed Notice of Conversion, as long as the original
Debentures to be converted are received by the Company or its
designated attorney within five (5) business days thereafter. As
long as the Debentures to be converted are received by the
Company or its designated attorney within five (5) business days
after it receives a facsimile or original of the signed Notice of
Conversion, the Company shall deliver to the Holder, or per the
Holder's instructions, the shares of Common Stock, without
restrictive legend or stop transfer instructions, within four (4)
business days of receipt of the facsimile Conversion Notice.
(c) Issuance of Common Stock. Upon the conversion of
any Debentures and upon receipt by the Company or its attorney of
a facsimile or original of Holder's signed conversion notice
Company shall instruct Company's transfer agent to issue Stock
Certificates with restrictive legend or stop transfer
instructions, as may be required pursuant to the terms of the
Subscription Agreement entered into by the Company and Holder in
the name of Holder (or its nominee) and in such denominations to
be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable.
Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer
agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Company.
(d) Conversion Rate. Anytime after the Closing Date,
Holder is entitled to convert the face amount of this Debenture,
plus accrued interest, into Common Stock at the lesser of (a)
$0.72 or (b) seventy percent (70%) of the average of the lowest
three (3) day bid prices as reported by Bloomberg, LP for the
twenty day period prior to the Conversion Date (each being
referred to as the "Conversion Price"). No fractional shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up
or down, as the case may be, to the nearest whole share.
The Debentures are subject to a mandatory, thirty-six
(36) month conversion feature at the end of which all Debentures
outstanding will be automatically converted, upon the terms set
forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Debenture shall be deemed
to establish or require the payment of interest to the Company at
a rate in excess of the maximum rate permitted by governing law.
In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the
Holder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
Certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the conversion date. Upon
surrender of any Debentures that are to be converted in part, the
Company shall issue to the Holder a new Debenture equal to the
unconverted amount, if so requested in writing by Holder.
(g) In the event the Common Stock is not delivered per
the written instructions of the Holder, within four (4) business
days after the Conversion Date, then in such event the Company
shall pay to Holder one percent (1%) in cash, of the dollar value
of the Debentures being converted per each day after the fourth
(4th) business day following the Conversion Date that the Common
Stock is not delivered.
The Company acknowledges that its failure to deliver the
Common Stock within four (4) business days after the Conversion
Date will cause the Holder to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in this Agreement a provision
for liquidated damages. The parties acknowledge and agree that
the liquidated damages provision set forth in this section
represents the parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms
of this Agreement.
To the extent that the failure of the Company to issue
the Common Stock pursuant to this Section 4 is due to the
unavailability of authorized but unissued shares of Common Stock,
the provisions of this Section 4(g) shall not apply but instead
the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this
Section 4(g) in immediately available funds within three (3)
business days from the date of issuance of the applicable Common
Stock. Nothing herein shall limit a Holder's right to pursue
actual damages or cancel the conversion for the Company's failure
to issue and deliver Common Stock to the Holder within six (6)
business days after the Conversion Date.
(h) The Company shall at all times reserve and have
available all Common Stock necessary to meet conversion of the
Debentures by
all Holders of the entire amount of Debentures then outstanding.
If, at any time Holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares
of Common Stock available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Holder all of the shares of Common
Stock which are available, and the Notice of Conversion as to any
Debentures requested to be converted but not converted (the
"Unconverted
Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Holders
of outstanding Debentures, by facsimile, within three (3)
business day of such default (with the original delivered by
overnight or two day courier), and the Holder shall give notice
to the Company by facsimile within five (5) business days of
receipt of the original Notice of Conversion Default (with the
original delivered by overnight or two day courier) of its
election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding
Debentures payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial
issuance price of the outstanding and/or tendered but not
converted Debentures held by each Holder where N = the number of
days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect conversion of all
remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures
that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default shall be paid
in cash or shall be convertible into Common Stock at the
Conversion Rate, at the Holder's option, payable as follows: (i)
in the event Holder elects to take such payment in cash, cash
payments shall be made to such Holder of outstanding Debentures
by the fifth (5th) day of the following calendar month, or (ii)
in the event Holder elects to take such payment in stock, the
Holder may convert such payment amount into Common Stock at the
conversion rate set forth in Section 3.2(d) at anytime after the
fifth (5th) day of the calendar month following the month in
which the Authorization Notice was received, until the expiration
of the mandatory twenty-four (24) month conversion period. The
Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to
effect in full a conversion of the Debentures will cause the
Holder to suffer damages in an amount that will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate
to include in this Debenture a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages
provision set forth in this section represents the parties' good
faith effort to quantify such damages and, as such, agree that
the form and amount of such liquidated damages are reasonable and
will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the
Common Stock pursuant to the terms of this Debenture. Nothing
herein shall limit the Holder's right to pursue actual damages or
cancel the conversion for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
(i) The Company shall furnish to Holder such number
of prospectuses and other documents incidental to the
registration of the shares of Common Stock underlying the
Debentures, including any amendment of or supplements thereto.
Holder shall acknowledge in writing the receipt, the careful
reading, and the understanding thereof, prior to any conversion
under Article 3 hereof.
(j) The Holder is limited in the amount of this
Debenture it may convert and own. Other than the Mandatory
Conversion provisions contained in this Debenture which are not
limited by the following,
in no other event shall the Holder be entitled to convert, and
the Company must not permit conversion of, any amount of
Debentures in excess of that amount upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates (other than shares of
Common Stock which may be
deemed beneficially owned through the ownership of the
unconverted portion of the Debenture, and (2) the number of
shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this
provision is being made, would result in beneficial ownership by
the Holder and its affiliates of more than four and 99/100
percent (4.99%) of the outstanding shares of Common Stock of the
Company. (after taking into account the shares to be issued to
the Holder upon such conversion). For purposes of this provision
to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (1) of such
provision.
(k) Nothing contained in the Debenture shall be deemed
to establish or require the payment of interest to the Purchaser
at a
rate in excess of the maximum rate permitted by governing law.
In the event that the rate of interest required to be paid under
the Debenture exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the
governing and any amounts collected in excess of the permissible
amount shall be deemed a payment of principal. To the extent
that such excess amount exceeds the aggregate principal amount of
the Debenture, such excess shall be returned with reasonable
promptness by the Holder to the Company.
(l) Redemption: The Company reserves the right, at
its sole option, to call a mandatory redemption of any percentage
of the
balance on the Debentures as follows: In the event the Company
exercises such right of redemption anytime following the Closing
Date, it shall pay the Holder, in U.S. currency the benefit of
the bargain (intrinsic value), that is, the principal amount of
the Debenture being redeemed, plus accrued interest and the
profit the Holder would have received upon conversion of that
portion of the Debenture being redeemed and sale of the Common
Stock. The date by which the Debentures must be delivered to the
Escrow Agent shall not be later than five (5) business days
following the date the Company notifies the Holder by facsimile
of the redemption. The Company shall give the Holder at least
twenty (20) business days advance written notice of its intent to
redeem.
(m) Investment Intent. The Holder of this Debenture by
acceptance hereof, agrees that this Debenture is being acquired
for investment and that such Holder will not offer, sell or
otherwise dispose of this Debenture or the shares of Common Stock
issuable upon
conversion thereof except under circumstances which will not
result in violation of the 1933 Act or any applicable state Blue
Sky law or similar laws relating to the sale of securities.
(n) Adjustment. In case any provision of this Debenture
is held by a court of competent jurisdiction to be excessive in
scope or otherwise invalid or unenforceable, such provision shall
be adjusted rather than voided, if possible, and the validity and
enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
Section 3.3. Fractional Shares. The Company shall not
issue fractional shares of Common Stock, or scrip representing
fractions
of such shares, upon the conversion of this Debenture. Instead,
the Company shall round up or down, as the case may be, to the
nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay
any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion of this
Debenture. However, the Holder shall pay any such tax which is
due because the
shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company
shall reserve the number of shares of Common Stock required
pursuant to and upon the terms set forth in Section 3(a) of the
Subscription Agreement entered into by the Company and Holder, to
permit the conversion of this Debenture. All shares of Common
Stock which may be issued upon the conversion hereof shall upon
issuance be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture
has not been registered under the Securities Act of 1933, as
amended, (the "Act") and is being issued under Section 4(2) of
the Act and Rule 506 of Regulation D promulgated under the Act.
This Debenture and the Common Stock issuable upon the conversion
thereof may only be offered or sold pursuant to registration
under or an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or
consolidates with another corporation or sells or transfers all
or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or
transfer, the Company and any such successor, purchaser or
transferee shall amend this Debenture to provide that it may
thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of
shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable to adjustments provided for in
this Article 3. Article 4. Mergers and Adjustments
Section 4.1 Mergers. The Company shall not consolidate
or merge into, or transfer all or substantially all of its assets
to, any person, unless such person assume in writing the
obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference
herein to the Company shall refer to such surviving or transferee
corporation and the obligations of the Company shall terminate
upon such written assumption.
Section 4.2 Adjustments. The number of shares of Common
Stock purchasable upon the conversion of this Debenture shall be
subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on
Common Stock in Common Stock or securities convertible into,
exchangeable
for or otherwise entitling a holder thereof to receive Common
Stock, (ii) declare a dividend payable in cash on its Common
Stock and at substantially the same time offer its shareholders a
right to purchase new Common Stock (or securities convertible
into, exchangeable for or other entitling a holder thereof to
receive Common Stock) from the proceeds of such dividend (all
Common Stock so issued shall be deemed to have been issued as a
stock dividend), (iii) subdivide its outstanding shares of Common
Stock into a greater number of shares of Common Stock, (iv)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (v) issue by
reclassification, reorganization or recapitalization of its
Common Stock any shares of Common Stock or other securities of
the Company, the number of shares of Common Stock issuable upon
conversion of this Debenture immediately prior thereto shall be
adjusted so that the Holder of this Debenture shall
be entitled to receive after the happening of any of the events
described above that number and kind of shares as the Holder
would have received had this Debenture been converted immediately
prior to the happening of such event or any record date with
respect thereto.
Any adjustment made pursuant to this subdivision shall become
effective immediately after the close of business on the record
date in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in
the case of a stock split, subdivision, combination or
reclassification.
(b) In case the Company shall distribute, without
receiving consideration therefor, to all holders of its Common
Stock evidences
of its indebtedness or assets (excluding cash dividends other
than as described in Section 4.2(a)), or rights, options or
warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, then
in such case, the number of shares of Common Stock thereafter
issuable upon conversion of this Debenture shall be determined by
multiplying the number of shares of Common Stock theretofore
issuable upon conversion of this Debenture, by a fraction, of
which the numerator shall be the closing bid price per share of
Common Stock on the record date for such distribution, and of
which the denominator shall be the closing bid price of the
Common Stock less the then fair value (as determined by the Board
of Directors of the Company, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights,
options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
distribution.
(c) Any adjustment in the number of shares of Common
Stock issuable hereunder otherwise required to be made by this
Section 4.2 will not have to be adjusted if such adjustment would
not require an increase or decrease in one percent (1%) or more
in the number of shares of Common Stock issuable upon conversion
of this Debenture.
No adjustment in the number of shares of Common Stock issuable
upon
conversion of this Debenture will be made for the issuance of
shares of capital stock to directors, employees or independent
contractors pursuant to the Company's or any of its subsidiaries'
stock option, for the purpose of the Company's Common Stock
warrants issued, issuable or to be issued for services rendered
by others to the Company, stock ownership or other benefit plans
or arrangements or trusts related thereto or for issuance of any
shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional amounts in
shares of Common Stock under such plan.
Article 5. Reports
The Company will mail to the Holder hereof at its address
as shown on the Register a copy of any annual, quarterly or
current report that it files with the Securities and Exchange
Commission promptly after the filing thereof and a copy of any
annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or
statement is sent to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default"
occurs if (a) the Company does not make the payment of the
principal of
this Debenture when the same becomes due and payable at maturity,
upon redemption or otherwise, (b) the Company does not make a
payment, other than a payment of principal, for a period of five
(5) business days thereafter, (c) the Company fails to comply
with any of its other agreements in this Debenture and such
failure continues for the period and after the notice specified
below, (d) the Company pursuant to or within the meaning of any
Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as hereinafter defined) of it or for
all or substantially all of its property or (iv) makes a general
assignment for the benefit of its creditors or (v) a court of
competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company or for
all or substantially all of its property or (C) orders the
liquidation of the Company, and the order or decree remains
unstayed and in effect for sixty (60) days, (e) the Company's
Common Stock is no longer listed on any recognized exchange
including electronic over-the-counter bulletin board. As used in
this Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the
relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event
of Default until the holders of at least twenty-five percent
(25%) of the aggregate principal amount of the Debentures
outstanding notify the Company of such default and the Company
does not cure it within five (5) business days after the receipt
of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default
occurs and is continuing, the Holder hereof by notice to the
Company, may
declare the remaining principal amount of this Debenture to be
due
and payable. Upon such declaration, the remaining principal
amount shall be due and payable immediately
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a
numbered series of Debentures which are identical except as to
the principal amount and date of issuance thereof and as to any
restriction on the transfer thereof in order to comply with the
Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are
referred to herein collectively as the "Debentures". The
Debentures shall be issued in whole multiples of five thousand
dollars ($5,000).
Section 7.2. Record Ownership. The Company, or its
attorney, shall maintain a register of the holders of the
Debentures (the "Register") showing their names and addresses and
the serial numbers and principal amounts of Debentures issued to
or transferred of
record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company
may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of
this Debenture is the person exclusively entitled to receive
payments of interest on this Debenture, receive notifications
with respect to this Debenture, convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of
this Debenture may be registered on the books of the Company
maintained for such purpose pursuant to Section 7.2 above (i.e.,
the Register).
Transfers shall be registered when this Debenture is presented
to the Company with a request to register the transfer hereof and
the Debenture is duly endorsed by the appropriate person,
reasonable
assurances are given that the endorsements are genuine and
effective, and the Company has received evidence satisfactory to
it that such transfer is rightful and in compliance with all
applicable laws, including tax laws and state and federal
securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new
Debenture showing the name of the transferee as the record holder
thereof shall be issued in lieu hereof. When this Debenture is
presented to the Company with
a reasonable request to exchange it for an equal principal amount
of Debentures of other denominations, the Company shall make such
exchange and shall cancel this Debenture and issue in lieu
thereof Debentures having a total principal amount equal to this
Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture
becomes worn, defaced or mutilated but is still substantially
intact and recognizable, the Company or its agent may issue a new
Debenture in lieu hereof upon its surrender. Where the Holder of
this Debenture claims that the Debenture has been lost, destroyed
or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by
written notice to the Company actually received by the Company
before it is notified that the Debenture has been acquired by a
bona fide purchaser and the Holder has delivered to the Company
an indemnity bond in such amount and issued by such surety as the
Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction
or wrongful taking and such other information in such form with
such proof or verification as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the
terms of this Debenture shall be duly given if it is in writing
and delivered in person or mailed by first class mail, postage
prepaid and
directed to the Holder of the Debenture at its address as it
appears on the Register or if to the Company to its principal
executive offices. The time when such notice is sent shall be
the time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment
of money or the performance of a condition or obligation on a
Saturday or Sunday or a public holiday, or authorizes or requires
the payment of money or the performance of a condition or
obligation within, before or after a period of time computed from
a certain date, and such period of time ends on a Saturday or a
Sunday or a public holiday, such payment may be made or condition
or obligation performed on the next succeeding business day, and
if the period ends at a specified hour, such payment may be made
or condition performed, at or before the same hour of such next
succeeding business day, with the same force and effect as if
made or performed in accordance with the terms of this Debenture.
A "business day" shall mean a day on which the banks in New York
are not required or allowed to be closed.
Article 10. Waivers
The holders of a majority in principal amount of the
Debentures may waive a default or rescind the declaration of an
Event of Default and its consequences except for a default in the
payment of principal or conversion into Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires,
words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender
include the feminine and the neuter, and when the sense so
indicates, words of the neuter gender may refer to any gender.
The numbers and titles of sections contained in the Debenture are
inserted for convenience of reference only, and they neither form
a part of this Debenture nor are they to be used in the
construction or interpretation hereof. Wherever, in this
Debenture, a determination of the Company is required or allowed,
such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it
shall be conclusive and binding upon the Company and the Holder
of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this
Debenture shall be governed and construed by the provisions
hereof and in accordance with the laws of the State of California
applicable to agreements that are negotiated, executed, delivered
and performed solely in the State of California.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction.
Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course
of dealing, statements (whether oral or written) or actions of
the Company or Holder shall be brought and maintained exclusively
in the federal courts of the State of California without
reference to its conflicts of laws rules or principles. The
Company hereby expressly and irrevocably submits to jurisdiction
exclusively with the federal Courts of the State of California
for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered
thereby in connection with such litigation. The Company further
irrevocably consents to the service of process by registered
mail, postage prepaid, or by personal service within or without
the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any
objection which it may have or hereafter may have to the laying
of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been
brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to
itself or its property. The Company hereby irrevocably waives
such immunity in respect of its obligations under this agreement
and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the
Company hereby knowingly, voluntarily and intentionally waive any
rights they may have to a trial by jury in respect of any
litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course
of dealing, statements (whether oral or written) or actions of
the Holder or the Company.
The Company acknowledges and agrees that it has received full
and sufficient consideration for this provision and that this
provision is a material inducement for the Holder entering into
this agreement.
(c) Submission To Jurisdiction . Any legal
action or proceeding in connection with this Agreement or the
performance
hereof shall be brought exclusively in the federal courts located
in the California and the parties hereby irrevocably submit to
the
exclusive jurisdiction of such courts for the purpose of any such
action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this
Debenture as of the date first written above.
eConnect
By
Name:____________________
_______
Title:___________________
_________
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of
______________, 199_ to convert $_________________ of the
Debentures into Shares of Common Stock (the "Shares") of eConnect
(the "Company") according to the conditions set forth in the
Subscription Agreement dated May ____, 1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($
) (principal amount of Debenture, $10,000 or integral
multiples of
$10,000) of principal amount of this Debenture together with all
accrued and unpaid interest hereon.
Date: Signed:
(Signature must conform
in all
respects to name
of Holder shown
of face of
Debenture)
Signature Guaranteed:
FORM OF WARRANT TO PURCHASE 150,000 SHARES OF
COMMON STOCK OF eCONNECT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
Exercisable Commencing May __, 1999;
Void after May __, 2002
THIS CERTIFIES that, for value received,
_________________________ or its registered assigns (the
"Warrantholder") is entitled, subject to the terms and conditions
set forth in this Warrant, to purchase from eConnect, a Nevada
corporation (the "Company"), one hundred fifty thousand (150,000)
fully paid, duly authorized and nonassessable shares (the
"Shares"), of Common Stock, one-tenth of one cent ($0.001) par
value per share, of the Company (the "Common Stock"), at any time
commencing May __, 1999 and continuing up to 5:00 p.m. New York
City time on May __, 2002 (the "Exercise Period") at an exercise
price of one hundred five percent (105%) of the five (5) day
average closing bid price of the Company's Common Stock as
reported by Bloomberg, LP for the five (5) trading days prior to
the "Closing Date" as that term is defined in the Subscription
Agreement entered into by the Company and Warrantholder, subject
to adjustment pursuant to Section 8 hereof.
This Warrant is subject to the following provisions,
terms and conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued only
in registered form.
1.2 Transfer. This Warrant shall be transferable
only on the books of the Company maintained at its principal
executive
offices upon surrender thereof for registration of transfer duly
endorsed by the Warrantholder or by its duly authorized attorney
or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver a
new Warrant or Warrants in appropriate denominations to the
person or persons entitled thereto.
1.3 Common Stock to be Issued. Upon the exercise
of any Warrants and upon receipt by the Company of a facsimile or
original of Warrantholder's signed Election to Exercise (See
Exhibit A), Company shall instruct its transfer agent to issue
stock certificates, subject to the restrictive legend set forth
below, in the name of
Warrantholder (or its nominee) and in such denominations to be
specified by Warrantholder representing the number of shares of
Common Stock issuable upon such exercise, as applicable. Company
warrants that no instructions, other than these instructions,
have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the
books and records of the
Company. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the exercise date. Upon
surrender of any Warrant that is to be converted in part, the
Company shall issue to the Warrantholder a new Warrant equal to
the unconverted amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
Section 2. Exchange of Warrant Certificate. Any
Warrant certificate may be exchanged for another certificate or
certificates of like tenor entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitle such Warrantholder to
purchase. Any Warrantholder desiring to exchange a warrant
certificate shall make such request in writing delivered to the
Company, and shall surrender, properly endorsed, the certificate
evidencing the Warrant to be so exchanged. Thereupon, the
Company shall execute and
deliver to the person entitled thereto a new Warrant certificate
as so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) (i)Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time after May __,
1999, but before 5:00 p.m., New York City time on May __, 2002,
(the "Expiration Time"), to purchase from the Company up to the
number of Shares which the Warrantholder may at the time be
entitled to purchase pursuant to the terms of this Warrant, upon
surrender to the Company at its principal executive office, of
the certificate evidencing this Warrant to be exercised, together
with the attached Election to Exercise form duly filled in and
signed, and upon payment to the Company of the Warrant Price (as
defined in and determined in accordance with the provisions of
Section 7 and 8 hereof) or as provided in Section 3(a)(i) hereof,
for the number of Shares with respect to which such Warrant is
then exercised. Payment of the aggregate Warrant Price shall be
made in cash, wire transfer or by cashier's check or any
combination thereof.
(b) Subject to the terms of this Warrant, upon such
surrender of this Warrant and payment of such Warrant Price as
aforesaid, the Company shall promptly issue and cause to be
delivered to the Warrantholder or to such person or persons as
the Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may
designate in writing) for the number of duly authorized, fully
paid and non-assessable whole Shares to be purchased upon the
exercise of this Warrant, and shall deliver to the Warrantholder
Common Stock or cash, to the extent provided in Section 9 hereof,
with respect to any fractional Shares otherwise issuable upon
such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of such Shares as
of the close of business on the date of the surrender of this
Warrant and payment of the Warrant Price, notwithstanding that
the certificates representing such Shares shall not actually have
been delivered or that the Share and
Warrant transfer books of the Company shall then be closed. This
Warrant shall be exercisable, at the sole election of the
Warrantholder, either in full or from time to time in part and,
in the event that any certificate evidencing this Warrant (or any
portion thereof) is exercised prior to the Termination Date with
respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate of like
tenor evidencing the remaining portion of this Warrant shall be
issued by the Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or
original of Warrantholder's signed Election to Exercise, the
Company shall
instruct its transfer agent to issue one or more stock
Certificates representing that number of shares of Common Stock
which the Warrantholder is entitled to purchase in accordance
with the terms and conditions of this Warrant and the Election to
Exercise attached hereto. The Company shall act as Registrar and
shall maintain an appropriate ledger containing the necessary
information with respect to each Warrant.
(d) Such exercise shall be effectuated by
surrendering to the Company, or its attorney, the Warrants to be
converted together with
a facsimile or original of the signed Election to Exercise which
evidences Warrantholder's intention to exercise those Warrants
indicated. The date on which the Election to Exercise is
effective ("Exercise Date") shall be deemed to be the date on
which the Warrantholder has delivered to the Company a facsimile
or original of the signed Election to Exercise, as long as the
original Warrants to be exercised are received by the Company or
its designated attorney within five (5) business days thereafter.
As long as the Warrants to be exercised are received by the
Company within five (5) business days after it receives a
facsimile or original of the signed Election to Exercise, the
Company shall deliver to the Warrantholder, or per the
Warrantholder's instructions, the shares of Common Stock within
three (3) business days of receipt of the Warrants to be
converted.
(e) Nothing contained in this Warrant shall be deemed to
establish or require the payment of interest to the Warrantholder
at
a rate in excess of the maximum rate permitted by governing law.
In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the
Warrantholder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
Certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the exercise date. Upon
surrender of any Warrants that are to be converted in part, the
Company shall issue to the Warrantholder new Warrants equal to
the unconverted amount, if so requested by Warrantholder.
(g) In the event the Common Stock is not delivered
per the written instructions of the Warrantholder, within the
time set forth in Section 3(d) above, then in such event the
Company shall pay to Warrantholder one percent (1%) in cash of
the dollar value of the Warrants being converted per each day
after the fifth (5th) business day following the Exercise Date
that the Common Stock is not delivered. The Company acknowledges
that its failure to deliver the Common Stock within five (5)
business days after the Exercise Date will cause the
Warrantholder to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in this Warrant a provision for
liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents
the parties' good faith effort to qualify such damages and, as
such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its
obligations to deliver the Common Stock pursuant to the terms of
this Warrant.
To the extent that the failure of the Company to issue
the Common Stock pursuant to this Section 3 is due to the
unavailability of authorized but unissued shares of Common Stock,
the provisions of this Section 3(g) shall not apply but instead
the provisions of Section 3(h) shall apply.
The Company shall make any payments incurred under this
Section 3(g) in immediately available funds within three (3)
business days from the date of issuance of the applicable Common
Stock. Nothing herein shall limit a Warrantholder's right to
pursue actual damages for the Company's failure to issue and
deliver Common Stock to the Warrantholder within the time set
forth in Section 3(d) above
(h) The Company shall at all times reserve and have
available all Common Stock necessary to meet exercise of the
Warrants by all Warrantholders of the entire amount of Warrants
then outstanding.
If, at any time Warrantholder submits an Election to Exercise and
the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect, in full, a exercise
of the Warrants (a "Exercise Default", the date of such default
being referred to herein as the "Exercise Default Date"), the
Company shall issue to the Warrantholder all of the shares of
Common Stock which are available, and the Election to Exercise as
to any Warrants requested to be converted but not converted (the
"Unconverted Warrants"), upon Warrantholder's sole option, may be
deemed null and void. The Company shall provide notice of such
Exercise Default ("Notice of Exercise Default") to all existing
Warrantholders of outstanding Warrants, by facsimile, within one
(1) business day of such default (with the original delivered by
overnight or two day courier), and the Warrantholder shall give
notice to the Company by facsimile within five (5) business days
of receipt of the original Notice of Exercise Default (with the
original delivered by overnight or two day courier) of its
election to either nullify or confirm the Election to Exercise.
The Company agrees to pay to all Warrantholders of
outstanding Warrants payments for a Exercise Default ("Exercise
Default
Payments") in the amount of (N/365) x (.24) x the initial
exercise price of the outstanding and/or tendered but not
converted Warrants held by each Warrantholder where N = the
number of days from the Exercise Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect exercise of all
remaining Warrants. The Company shall send notice
("Authorization Notice") to each Warrantholder of outstanding
Warrants that additional shares of Common Stock have been
authorized, the Authorization Date and the amount of
Warrantholder's accrued Exercise Default Payments. The accrued
Exercise Default shall be paid in cash or shall be convertible
into Common Stock at the Exercise Rate, at the Warrantholder's
option, payable as follows: (i) in the event Warrantholder
elects to take such payment in cash, cash payments shall be made
to such Warrantholder of outstanding Warrants by the fifth day of
the following calendar month, or (ii) in the event Warrantholder
elects to take such payment in stock, the Warrantholder may
convert such
payment amount into Common Stock at the exercise rate set forth
in Section 7 at anytime after the fifth (5th) day of the
calendar month following the month in which the Authorization
Notice was received, until the expiration of the Warrant.
The Company acknowledges that its failure to maintain a
sufficient number of authorized but unissued shares of Common
Stock to effect in full an exercise of all the Warrants will
cause the Warrantholder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Warrant a provision for
liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents
the parties' good faith effort to quantify such damages and, as
such, agree that the form and
amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall
not relieve the Company from its obligations to deliver the
Common Stock pursuant to the terms of this Warrant.
Nothing herein shall limit the Warrantholder's right to
pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
(i) The Company shall furnish to Warrantholder such
number of prospectuses and other documents incidental to the
registration
of the shares of Common Stock underlying the Warrants, including
any amendment of or supplements thereto. Warrantholder shall
acknowledge in writing the receipt, the careful reading, and the
understanding thereof, prior to any exercise under this Section
3.
(j) Each person in whose name any certificate for
shares of Common Stock shall be issued shall for all purposes be
deemed to
have become the holder of record of the Common Stock represented
thereby on the date on which the Warrant was surrendered and
payment of the purchase price and any applicable taxes was made,
irrespective of date of issue or delivery of such certificate,
except that if the date of such surrender and payment is a date
when the Shares transfer books of the Company are closed, such
person shall be deemed to have become the holder of such Shares
on the next succeeding date on which such Share transfer books
are open. The Company shall not close such Share transfer books
at any one time for a period longer than seven (7) days.
Section 4. Payment of Taxes. The Company shall pay all
documentary stamp taxes, if any, attributable to the initial
issuance of the Shares; provided, however, that the Company shall
not be required to pay any tax or taxes which may be payable, (i)
with respect to any secondary transfer of this Warrant or the
Shares or (ii) as a result of the issuance of the Shares to any
person other than the Warrantholder, and the Company shall not be
required to issue or deliver any certificate for any Shares
unless and until the person requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have
produced evidence that such tax has been paid to the appropriate
taxing authority.
Section 5. Mutilated or Missing Warrant. In case
the certificate or certificates evidencing this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new
Warrant certificate or certificates of like tenor and
representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and of a bond of indemnity,
if requested, also satisfactory to the Company in
form and amount, and issued at the applicant's cost. Applicants
for such substitute Warrant certificate shall also comply with
such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
Section 6. Reservation of Shares. The issuance, sale
and delivery of the Warrants have been duly authorized by all
required corporate action on the part of the Company and when
issued, sold
and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and
validly issued, fully paid, and non-assessable and enforceable in
accordance with their terms, subject to the laws of bankruptcy
and creditors' rights generally. The Company shall pay all taxes
in respect of the issue thereof. As a condition precedent to the
taking of any action that would result in the effective purchase
price per share of Common Stock upon the exercise of this Warrant
being less than the par value per share (if such shares of Common
Stock then have a par value), the Company will take such
corporate action as may, in the opinion of its counsel, be
necessary in order that the Company may comply with all its
obligations under this Agreement with regard to the exercise of
this Warrant.
Prior to exercise of all the Warrants, if at anytime
exercise of all the Warrants outstanding results in an
insufficient number of shares of Common Stock being available to
cover exercise of this Warrant in full, then in such event, the
Company will move to call and hold a shareholder's meeting within
forty-five (45) days of such event for the purpose of authorizing
additional Shares to cover exercise of this Warrant in full. in
such an event the Company shall: (1) recommend its current or
future officers, directors and other control people to vote their
shares in favor of increasing the authorized number of shares of
Common Stock and (2) recommend to all shareholders to vote their
shares in favor of increasing the authorized number of shares of
Common Stock to the extent permitted by law. As for any
shareholders who do not vote on the issue of increasing the
authorized number of shares of Common Stock, such failure to vote
shall automatically be taken as a vote in favor of increasing the
authorized number of shares of Common Stock. The proxy sent out
by the Company to all shareholders shall provide that if no vote
is received a consent to action will be executed on behalf of
those shares of Common Stock for which no vote was received, in
favor of increasing the authorized number of shares of Common
Stock of the Company to the extent permitted by law. Company
represents and warrants that under no circumstances will it deny
or prevent Warrantholder from exercising the Warrants as
permitted under the terms of the Warrants.
Section 7. Warrant Price. From May __, 1999 through
5:00 p.m. New York City time on May __, 2002, the price per Share
(the "Warrant price") at which Shares shall be purchasable upon
the exercise of this Warrant shall be one hundred five percent
(105%) of the five (5) day average closing bid price of the
Company's Common Stock as reported by Bloomberg, LP for the five
(5) trading days prior to the "Closing Date" as that term is
described in the Subscription Agreement entered into by the
Company and
Warrantholder, subject to adjustment pursuant to Section 8
hereof.
Section 8. Adjustment of Warrant Price and Number of
Shares.
The number and kind of securities purchasable upon the exercise
of
this Warrant and the Warrant Price shall be subject to adjustment
from time to time after the date hereof upon the happening of
certain events, as follows:
8.1 Adjustments. The number of Shares purchasable
upon the exercise of this Warrant shall be subject to adjustments
as follows:
(a) In case the Company shall (i) pay a dividend on
Common
Stock in Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to
receive Common Stock, (ii) declare a dividend payable in cash on
its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities
convertible into, exchangeable for or other entitling a holder
thereof to receive Common Stock) from the proceeds of such
dividend (all Common Stock so issued shall be deemed to have been
issued as a stock dividend), (iii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common
Stock, (iv) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (v) issue by
reclassification of its Common Stock any shares of Common Stock
of the Company, the number of shares of Common Stock issuable
upon exercise of the Warrants immediately prior thereto shall be
adjusted so that the holders of the Warrants shall be entitled to
receive after the happening of any of the events described above
that number and kind of shares as the holders would have received
had such Warrants been converted immediately prior to the
happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this subdivision shall become
effective immediately after the close of business on the record
date in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in
the case of a stock split, subdivision, combination or
reclassification.
(b) In case the Company shall distribute, without
receiving consideration therefor, to all holders of its Common
Stock evidences
of its indebtedness or assets (excluding cash dividends other
than as described in Section (8)(a)(ii)), then in such case, the
number of shares of Common Stock thereafter issuable upon
exercise of the Warrants shall be determined by multiplying the
number of shares of Common Stock theretofore issuable upon
exercise of the Warrants, by a fraction, of which the numerator
shall be the closing bid price per share of Common Stock on the
record date for such distribution, and of which the denominator
shall be the closing bid price of the Common Stock less the then
fair value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion
of the assets or evidences of indebtedness so distributed per
share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common
Stock issuable hereunder otherwise required to be made by this
Section 8 will not have to be adjusted if such adjustment would
not require an increase or decrease in one percent (1%) or more
in the number of shares of Common Stock issuable upon exercise of
the Warrant. No adjustment in the number of Shares purchasable
upon exercise of this Warrant will be made for the issuance of
shares of capital stock to directors, employees or independent
contractors pursuant to the Company's or any of its subsidiaries'
stock option, stock ownership
or other benefit plans or arrangements or trusts related thereto
or for issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest
payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under such
plan.
(d) Whenever the number of shares of Common Stock
issuable upon the exercise of the Warrants is adjusted, as herein
provided
the Warrant Price shall be adjusted (to the nearest cent) by
multiplying such Warrant Price immediately prior to such
adjustment
by a fraction, of which the numerator shall be the number of
shares of Common Stock issuable upon the exercise of each share
of the Warrants immediately prior to such adjustment, and of
which the
denominator shall be the number of shares of Common Stock
issuable immediately thereafter.
(e) The Company from time to time by action of its
Board of Directors may decrease the Warrant Price by any amount
for any
period of time if the period is at least twenty (20) days, the
decrease is irrevocable during the period and the Board of
Directors of the Company in its sole discretion shall have made a
determination that such decrease would be in the best interest of
the Company, which determination shall be conclusive. Whenever
the Warrant Price is decreased pursuant to the preceding
sentence, the Company shall mail to holders of record of the
Warrants a notice of the decrease at least fifteen (15) days
prior to the date the decreased Warrant Price takes effect, and
such notice shall state the decreased Warrant Price and the
period it will be in effect.
8.2 Mergers. Etc. In the case of any (i)
consolidation or merger of the Company into any entity (other
than a consolidation or merger that does not result in any
reclassification, exercise, exchange or cancellation of
outstanding shares of Common Stock of
the Company), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company as an entirety or
substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a
change in par value, or from par value to no par value), in each
case as a result of which shares of Common Stock shall be
converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each holder
of Warrants then outstanding shall have the right thereafter to
exercise such Warrant only into the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common
Stock of the Company into which such Warrants would have been
converted immediately prior to such consolidation, merger, sale,
transfer, capital reorganization or reclassification, assuming
such holder of Common Stock of the Company (A) is not an entity
with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or
an affiliate of a constituent entity, and (B) failed to exercise
his or her rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the
kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same
for each share of Common Stock of the Company held immediately
prior to such consolidation, merger, sale or transfer by other
than a constituent entity or an affiliate thereof and in respect
of which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section 8.2
the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by
each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing
shares). If necessary, appropriate adjustment shall be made in
the application of the provision set forth herein with respect to
the rights and interests thereafter of the holder of Warrants, to
the end that the provisions set forth herein shall thereafter
correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of the Warrants.
The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The Company shall not
effect any such consolidation, merger, sale or transfer unless
prior to or simultaneously with the consummation thereof the
successor company or entity (if other than the Company) resulting
from such
consolidation, merger, sale or transfer assumes, by written
instrument, the obligation to deliver to the holder of Warrants
such shares of stock, securities or assets as, in accordance with
the foregoing provision, such holder may be entitled to receive
under this Section 8.2.
8.3 Statement of Warrants. Irrespective of any
adjustments in the Warrant Price of the number or kind of shares
purchasable
upon the exercise of this Warrant, this Warrant certificate or
certificates hereafter issued may continue to express the same
price and number and kind of shares as are stated in this
Warrant.
Section 9. Fractional Shares. Any fractional shares
of Common Stock issuable upon exercise of the Warrants shall be
rounded to the nearest whole share or, at the election of the
Company, the Company shall pay the holder thereof an amount in
cash equal to the closing bid price thereof. Whether or not
fractional shares are issuable upon exercise shall be determined
on the basis of the total number of Warrants the holder is at the
time exercising and the number of shares of Common Stock issuable
upon such exercise.
Section 10. No Rights as Stockholders: Notices to
Warrantholders. Nothing contained in this Warrant shall be
construed as conferring upon the Warrantholder or its transferees
any rights as a stockholder of the Company, including the right
to vote, receive dividends, consent or receive notices as a
stockholder with respect to any meeting of stockholders for the
election of directors of the Company or any other matter. If,
however, at any time prior to 5:00 p.m., New York City time, on
May __, 2002, (the "Expiration Time") and prior to the exercise
of this Warrant, any of the following events shall occur:
(a) any action which would require an adjustment
pursuant to Section 8.1; or
(b) a dissolution, liquidation or winding up of the
Company or any consolidation, merger or sale of its property,
assets and business as an entirety; then in any one or more of
said events, the Company shall give notice in writing of such
event to the
Warrantholder at least ten (10) days prior to the date fixed as a
record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant
dividend, distribution, subscription rights, or other rights or
for the effective date of any dissolution, liquidation of winding
up or any merger, consolidation, or sale of substantially all
assets, but failure to mail or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity
of any such action taken. Such notice shall specify such record
date or the effective date, as the case may be.
Section 11. Successors. All the covenants and
provisions of this Warrant by or for the benefit of the Company
or the
Warrantholder shall bind and inure to the benefit of their
respective successors and permitted assigns hereunder.
Section 12. Applicable Law. This Warrant shall be
construed and enforced in accordance with and the rights of the
parties shall
be governed by the laws of the State of California.
Section 13. Benefits of this Agreement. Nothing in
this Warrant shall be construed to give to any person or
corporation
other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Warrant, and this
Warrant shall be for the sole and exclusive benefit of the
Company and the Warrantholder.
Section 14. Piggy-back Registration Rights. If at
any time the Company shall propose to prepare on its own behalf
or on behalf
of any of its stockholders (other than Warrantholder) a
registration statement in connection with an underwritten public
offering of any equity securities of the Company, the Company
shall give Warrantholder written notice at least twenty (20) days
before the anticipated filing date of such registration
statement. Should Warrantholder desire to have any of the Shares
included in such registration statement Warrantholder shall so
advise the Company in writing no later than fifteen (15) days
after the Company's notice is given, setting forth the number or
amount of Shares which Warrantholder requests to be included in
the registration statement, and the Company shall include the
securities specified in such request in such registration
statement and keep such registration statement in effect and
maintain compliance with each federal and state law and
regulation as set forth herein. The Company may, at its option,
require that the amount of Shares offered for sale by
Warrantholder pursuant to this Section 14 be decreased if, in the
opinion of the Company's investment banking firm, such reduction
is necessary in order to permit the orderly distribution and sale
of the securities being offered. If the Company shall require
such a reduction, Warrantholder shall have the right to withdraw
from the offering.
Section 15. Definitions.
"Common Stock" shall mean (i) Common Stock, one-tenth of
one cent ($0.001) par value per share, of the Company and (ii)
any other security purchasable upon the exercise of this Warrant
upon the happening of certain events.
IN WITNESS WHEREOF, the parties have caused this Warrant to be
duly executed, all as of the day and year first above written.
eConnect
By
Name:____________________
_______
Title:___________________
_________
EXHIBIT A
eCONNECT
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise the right
of
purchase represented by the within Warrant for, and to purchase
thereunder, _______shares of Common Stock (the "Share") provided
for therein, and requests that certificates for the Shares be
issued in the name of:*
Name:___________________________________________________________
Address:_________________________________________________________
Social Security
No.________________________________________________ or Tax ID
Number:_________________________________________________
and, if such number of Shares shall not be all of the Shares
purchasable under the Warrant, that a new Warrant certificate for
the balance of the Shares purchasable under the within Warrant be
registered in the name of the undersigned Warrantholder or his
Assignee* as indicated below and delivered to the address stated
below:
Dated:________, 19___
Name of Warrantholder of
Assignee (Please
Print)_____________________________________________
Address:_________________________________________________________
Signature:_______________________________________________________
_
Signature Guaranteed:____________________________________________
__ Signature of Guarantor
____________________
* The Warrant contains restrictions on sale, assignment or
transfer.
** Note: The above signature must correspond with the name
as written on the face of this Warrant certificate in every
particular, without alteration or enlargement or any change
whatever, unless this warrant has been assigned.
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________
________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
the within Warrant, hereby irrevocably constituting and
appointing _________Attorney to transfer said Warrant on the
books of the Company, with full power of substitution in the
premises.
Dated:______________, 19____
_________________________
_______** Signature of
Registered Holder
Signature Guaranteed: ________________________________
Signature of Guarantor
____________________
* The Warrant contains restrictions on sale, assignment or
transfer.
** Note: The signature of this assignment must correspond
with
the name as it appears upon the face of the Warrant certificate
in every particular, without alteration or enlargement or any
change whatever.
Shawn F. Hackman, a P.C.
3360 West Sahara Avenue, Suite 200
Las Vegas, Nevada 89102
June 28, 1999
U.S. Securities and Exchange Commission 450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect (formerly known as Betting, Inc.) - Form SB-2
Dear Sir/Madame:
We have acted as counsel to eConnect, a Nevada corporation
("Company"), in connection with its Registration Statement on
Form SB-2 relating to the registration of 20,000,000 shares of
its common stock ("Shares"), $0.001 par value per Share, at an
offering price of $0.43 per Share.
In our representation we have examined such documents,
corporate records, and other instruments as we have deemed
necessary or appropriate for purposes of this opinion, including,
but not limited to, the Articles of Incorporation and Bylaws of
the Company.
Based upon the foregoing, it is our opinion that the Company
is duly organized and validly existing as a corporation under the
laws of the State of Nevada, and that the Shares, when issued and
sold, will be validly issued, fully paid, and non-assessable.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement.
Sincerely,
/s/
Shawn F.
Hackman
Shawn F.
Hackman,
Esq.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST
31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its charter)
Missouri (2)
43-1239043
(State or jurisdiction of incorporation (I.R.S. Employer
or organization)
Identification No.)
31310 Eaglehaven Center
Suite 10, Rancho Palos Verdes, California 90275
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value; Class A Warrants
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) been subject to such filing
requirements for the past 90 days. Yes No X .
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The aggregate market value of the voting stock held by non
affiliates of the registrant as of August 31, 1998: Common Stock,
par value $0.01 per share -- $1,785,000. As of August 31, 1998,
the registrant had 14,284,234 shares of common stock issued and
outstanding.
(1) Effective on June 4, 1999, the name was changed to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of organization
was changed to Nevada.
TABLE OF CONTENTS
PART I
PAGE
MEMORANDUM SUMMARY 7
RISK FACTORS 9
USEOFPROCEEDS 16
DILUTION 16
PLAN OF DISTRIBUTION 18 LITIGATION 19
MEMORANDUM SUMMARY 7 RISK FACTORS 9
USEOFPROCEEDS 16
DILUTION 16
PLAN OF DISTRIBUTION 18 LITIGATION 19
PART I.
ITEM 1. BUSINESS.
(a) Business Development
Betting, Inc., was organized under the laws of the State of
Missouri on September 1, 1981, as HANDY-TOP, INC. On April 20,
1983, the Articles of Incorporation were amended to change the
name of the corporation to HTI Corporation. On May 28, 1993, the
Articles of Incorporation were amended to change the name of the
corporation to Leggoons, Inc. In addition to changing the
company's name, the May 28,1993, amendment to the Articles of
Incorporation increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the par value of
the common stock from $1.00 per share to $.01 per share. Also on
May 28, 1993, Leggoons, Inc., declared a 14-for-1 stock split.
Unless otherwise indicated, all share and per share data are
reflected on a post split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of its
assets and liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors" (the "Assignment").
An Assignment is a business liquidation device available as an
alternative to bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the "Assignee"), will be
required to properly, timely, and orderly dispose of all
remaining assets for the benefit of creditors. Leggoons, Inc.,
continued to maintain its' status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an Agreement
to License Assets from Home Point of Sales, Inc.(HPOS). HPOS is
a privately held corporation focused on the emergence of the
Personal Encrypted Remote Financial Electronic Card Transactions
industry.
This industry provides consumers with the option to instantly
pay bills or impulse purchase from home with real time cash
transactions. Management believes the proprietary technology and
the large demand for wagering opportunities in today's
marketplace will combine to generate substantial sales for
Leggoons, Inc., over the medium term.
Thomas S. Hughes, Chairman of HPOS, became Chairman and
President of Leggoons, Inc., on March 1, 1997. He will focus on
procedures, policies and state approvals to begin home lottery,
off track betting, casino and sports ATM card and SMART card
wagering. A search is presently being conducted to locate a
CEO/COO for the Company. The CEO/COO will assemble a team of
professionals to develop the procedures and policies of home ATM
card and SMART card wagering. This development process will
include a close focus on the political and the instant taxation
of home winnings issues associated with home ATM card and SMART
card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as Chairman
and President of the Leggoons, Inc. Leggoons, Inc., intends to
seek shareholder ratification of its name change from Leggoons,
Inc. to Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the "Company") is positioning itself to
facilitate same as cash ATM card or smart card transactions that
are originating from bank host processing centers and are being
sent to gaming operators. These transactions are being effected
with electronic equipment that allows self service pay per play
and no actual communications between the player and the gaming
operator.
These types of transactions will be originating from homes,
offices, and public walk in locations. The Company will act as
the interface that will communicate data to the gaming operators,
receive back their acknowledgment of the transaction and then
pass on this gaming acknowledgment to the bank host processing
center that has been standing by for this information and has
already completed the bank authorization of the pay per play
transaction.
The business model of the Company is to receive a fee per
transaction paid to Betting, Inc. by the bank host processing
center at the moment of the transaction. In general, this fee
will be from between 2% to 6% of the wager placed on a pay per
play or a $6 flat fee in the case of an account being opened.
The internet gaming industry is an industry that has developed
significantly in recent years. The internet gaming industry as a
whole is under increasing governmental scrutiny as the industry
develops. It is possible that at some point in the future there
could be legislation against gambling on the internet or other
similar methods.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the
brands: Leggoons, CPO by Leggoons, John Lennon Artwork Apparel
and Snooggel. On January 19, 1996, Leggoons, Inc., entered into a
Licensing Agreement with Robert Tamsky, a former director and
employee of the Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr. Tamsky
effective January 1, 1996, the right to use the LEGGOONS
trademark in connection with the design, production, marketing,
sales and sublicensing of all clothing, wearing apparel and
accessories bearing the "LEGGOONS" symbol. This right will
continue until December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration for the
license, Mr. Tamsky, according to the Licensing Agreement, shall
pay to the Leggoons, Inc. a royalty of five percent of the net
sales of "LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date. On June 12, 1996, Leggoons, Inc.,
transferred all of its assets and liabilities to a third party
assignee, under an "Assignment for the Benefit of Creditors."
Included in the Assignment were the rights and obligations of the
Licensing Agreement.
Item 2. Description of Property.
Not Applicable
Item 3. Legal Proceedings.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II.
Item 5. Market for Common Equity and Related Stockholder
Matters. (a) Market Information
The Common Stock is traded in the over-the-counter market and
the range of closing bid prices shown below is as reported by
the OTC Bulletin Board. The quotations shown reflect inter-
dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
Per Share Common Stock Bid Prices by Quarter For the Fiscal Year
Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter 8.125 7.625 Third Quarter
0.8125 0.0625 Fourth Quarter 0.5625
0.06
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there were 400
beneficial shareholders of the Company's Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation on November 18,
1993. The Board of Directors presently intends to retain any
earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment
of cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was $196,968.
The Company recognized $0 in revenue while preparing the setup of
the Company to commence operations as a facilitator of same as
cash ATM card or smart card transactions that are originating
from bank host processing centers and are being sent to gaming
operators. The loss was due to consulting fees of $122,020 and
general and administrative expenses of $74,948.
During the period September 1, 1996, through February 28,
1997, the Company was operating as Leggoons, Inc. (a public shell
available for merger or acquisition). During this six month
period the net loss from continuing operations was $35,912. This
loss was due to general and administrative expenses of $35,912.
The primary general and administrative expenses incurred during
the six month period ended February 28, 1997, were legal expenses
related to the HPOS license agreement, accounting fees for the
audit of Leggoons, Inc., financial statements as of and for the
year ended August 31, 1996, and stock expenses required to
maintain Leggoons, Inc., public shell status. During the period
March 1, 1997, through August 31, 1997, the Company was
maintaining operations as Betting, Inc. During this six month
period the net loss from continuing operations was $1,663,533.
This loss was due to operating expenses of $1,663,533. The
operating expenses were consulting fees of $565,740, research and
development expenses of $450,331, software development costs of
$507,600 and general and administrative
expense of $139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August 31, 1998, the
Company issued 6,441,000 shares of common stock for services
rendered and payments on accounts payable and due to stockholder.
For the shares of common stock issued for services rendered and
payments on accounts payable during the period September 1, 1997,
through August 31, 1998, the following valuation policies were
used so that a financial value could be assigned to the stock
issuance transactions: the closing "market" stock price on the
day of each common stock issuance was used to determine "fair
market value" of the 1,369,000 unrestricted common shares issued;
the closing "market" stock price on the day of each common stock
issuance less a 50% discount was used to determine "fair market
value" of the 2,322,000 restricted common shares issued. Common
shares that were issued and for which no performance was
received, 2,750,000 shares, were valued at par value, $.01 per
share. For the 2,750,000 shares of common stock issued for which
no performance was received a stop has been placed on the stock
certificates with the Company's stock transfer agent.
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The
"fair market value" of such common stock issued, $153,160, has
primarily been expensed as $122,020 in consulting fees and
$31,140 in general and administrative expenses during the year
ended August 31, 1998.
Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
During the six month period from September 1, 1996, through
February 28, 1997, Leggoons, Inc., principal stockholder, James
S. Clinton, provided the operating capital needed to fund
operations.
During the six month period from March 1, 1997, through August
31, 1997, operations were funded via advances from HPOS and by
issuing common stock for funds and services rendered. During the
period
March 1, 1997, through August 31, 1997, the Company issued
4,710,234 shares of common stock for services rendered. For the
2,999,734 shares of common stock issued for services rendered
during the period March 1, 1997, through May 31, 1997, the
following valuation policies were used so that a financial value
could be assigned to the stock issuance transactions: the closing
"market" stock price on the day of each common stock issuance was
used to determine "fair market value" of the 520,000 unrestricted
common shares issued; the closing "market" stock price on the day
of each common stock issuance less a 50% discount was used to
determine "fair market value" of the 1,725,734 restricted common
shares issued. Common shares that were issued and for which no
performance was received, 754,000 shares, were valued at par
value, $.01 per share. For the 1,710,500 shares of common stock
issued for services rendered during the period June 1, 1997,
through August 31, 1997, an average closing stock price of $.20
was used to determine "fair market value" of each share issued so
that a financial value could be assigned to the stock issuance
transactions..
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The
"fair market value" of such common stock issued, $1,297,805, has
primarily been expensed as $304,240 in consulting fees, $445,128
in research and development costs, $500,000 in software
development costs and $48,437 in general and administrative
expenses during the year ended August 31, 1997. Some of the
common stock shares issued were registered with the Securities
and Exchange Commission using Form S8 Registration Statements.
The common shares of stock issued for noncash consideration
were, in some cases, given for past services rendered to HPOS in
developing its' product.
The management of the Company is continuing its search for
additional private investors to provide the funds needed to fund
day to day operations. It is also the goal of management to
register and complete additional public stock offerings of its
common stock.
The Company has an accumulated deficit of $5,467,602. The
Company's losses from operations and inability to generate
sufficient cash flow from normal operations to meet its
obligations as they come due raise substantial doubt about the
Company's ability to continue as a going concern. The Company's
ability to continue in existence is dependent upon future
developments, including obtaining financing and achieving a level
of profitable operations sufficient to enable it to meet its
obligations as they become due.
Plan of Operations
The plan of the Company is to establish partners in countries
including, but not limited to, the United Kingdom, China, Mexico,
Australia and South Africa with the stated goal being the
establishment of the wagering gate between the bank hosts in that
country and the gaming operators. The second phase will be the
connection between the various countries Company wagering gates
so that same day per play between countries will be possible.
Establishing the wagering gate presence involves the linking
of Betting, Inc. to both the gaming operators and the bank hosts.
In effect, the Company will be a data host processing center
whose business is the passing of messages back and forth between
the bank hosts and the gaming operators.
The Company is currently satisfying its cash requirements by
issuing Betting, Inc. common stock for services rendered. The
Company intends to issue Betting, Inc. common stock at some point
in the future to satisfy a $237,000 obligation to the designer
and developer of the Merchant Response Software used with the
Company's hardware products. The $237,000 obligation is included
in accounts payable at August 31, 1998.
On May 22, 1996, Leggoons, Inc., entered into an Addendum to
the Stock Purchase Agreement it initially entered into on
September 5, 1995, with Infinitron Investments International,
Inc. of Vancouver B.C. ("Infinitron"). Pursuant thereto 100% of
the shares of common stock of Infinitron would be exchanged for
approximately 4,797,500 shares of common stock of Leggoons, Inc.,
which would represent approximately 95% of the post-split
Leggoons, Inc., outstanding common stock. The Addendum provided,
among other things, that Leggoons, Inc., would use its best
efforts to obtain SEC clearance of its proxy statement by July
22, 1996, and Infinitron will use its best efforts to fully
cooperate with Leggoons, Inc., in obtaining such clearance.
On July 3, 1996, counsel for Infinitron informed Leggoons,
Inc., that Infinitron does not intend to proceed with the
transactions contemplated by the Stock Acquisition Agreement.
Counsel for Infinitron stated that the basis for that action was
that he noted "a number of irregularities in the relationships
and dealings among the principals of Leggoons and Infinitron, "
however he did not provide any specifics relating to that
allegation. Leggoons, Inc., believes these claims to be baseless
and without merit.
Settlement negotiations have been completed, including verbal
approval by Infinitron and Leggoons, Inc., of the settlement
documents. Generally, under the terms of the settlement,
Leggoons, Inc. shareholders are to receive 186,721 shares of
Infinitron common stock, which represents approximately 3% of
Infinitron's outstanding shares of common stock on August 5,
1996. The 186,721 shares of common stock of Infinitron will be
held for the benefit of the Leggoons, Inc., stockholders as their
"loss of the bargain" under the proposed merger.
As of March 31, 1999, the settlement agreement has not been
executed by all parties. If, and when, this settlement agreement
is executed the Company will be able to determine how any
proceeds of the settlement agreement affect its plan of
operations for the next twelve months. There can be no assurance
that a settlement agreement will be executed and the shareholders
will receive any proceeds.
Year 2000 Issue
Most companies have computer systems that use two digits to
identify a year in the date field (e.g. "99" for 1999). These
systems must be modified to handle turn-of-the century
calculations.
If not corrected, systems failures or miscalculations could
occur, potentially causing disruptions of operations, including,
among other things, the inability to process transactions or
engage in other normal business activities. This creates
potential risk for all companies, even if their own computer
systems are Year 2000 compliant.
The Company is in the process of developing an ongoing program
of communication with suppliers and vendors to determine the
extent to which those companies are addressing Year 2000
compliance issues.
There can be no assurance that the Company will be able to
develop a contingency plan that will adequately address issues
that may arise in the Year 2000.
In 1999, a contingency plan will be developed in the event key or
critical suppliers or vendors are unable to meet the Year 2000
compliance. The timeframe for completing or documenting
contingency plans has not been finalized.
The Company's Year 2000 plans are based on management's best
estimates. Based on currently available information, management
does not believe that the Year 2000 issues will have a material
adverse impact on the Company's financial condition or results of
operations; however, because of the uncertainties in this area,
no assurances can be given in this regard.
Item 7. Financial Statements.
Financial statements as of and for the year ended August
31, 1998, and for the year ended
August 31, 1997 are presented in a separate section of this
report following Part IV.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable
PART III.
Item 9. Directors, Executive Officers and Compliance With
Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company since March
1997. From 1993 to the present, he has also served as the
President of Electronic Transactions & Technologies, a privately
held Nevada corporation which developed terminals for wireless
home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President of Hall
Developments, a real estate development company he founded in
1991, which employs a staff of 10 people. Mr. Hall spends
approximately 20 hours per week searching out strategic alliances
for the Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer since 1991.
Currently she owns and manages her own firm, D. Diane Hewitt
Designs. This firm's expertise is churches and employs a staff
of five people. Ms. Hewitt currently devotes approximately 25
hours per week in working with the Company's image development
and consulting with the Company's advertising firm.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors, certain officers and persons holding
10% or more of the Company's common stock to file reports
regarding their ownership and regarding their acquisitions and
dispositions of the Company's common stock with the Securities
and Exchange Commission. The Company is unaware that any
required reports were not timely filed.
Item 10. Executive Compensation.
The following table sets forth information concerning
compensation paid by BETTING, INC. for services rendered during
fiscal year 1998, 1997, and 1996 for the Chief Executive Officer
and for each of the Company's other executive officers whose
annual salary and bonus exceeds $100,000.
Summary Compensation Table
Name and
Principal
Position
Year Salary Bonus Other Stock SARs Option
Compensation
($) ($) ($) ($) (#)($) ($)
Thomas Hughes
1998 -0- -0- -0- -0- -0- -0-
- -0-
Thomas Hughes
1997 -0- -0- -0- 375,000 -0- -0-
- -0-
James S. Clinton, President and Chief Executive Officer
1996 -0- -0- -0- -0- -0- -0-
- -0-
Perquisites and other personal benefits are omitted because they
do not exceed either $50,000 or 10% of the total of annual salary
and bonus for the named executive officer.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of August 31, 1998, the
beneficial ownership of the Company's Common Stock by each person
who is known by the Company to own beneficially more than 5% of
the issued and outstanding shares of the Company's Common Stock.
Name and Address Amount and Nature
Percent of Class of Beneficial Owner of Beneficial Ownership1
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064 1,417,000
18.0%
Thomas S. Hughes
31310 Eaglehaven Circle
Rancho Palos Verdes, CA 90275 1,000,000 12.7%
1On January 24, 1996, Mr. Larry Langston entered into an Option
Agreement with Steven Walters, a former officer and director of
Leggoons, Inc., which grants Mr. Walters an option to purchase
261,500 of Mr. Langston's common stock shares. The option price
is $100,000, the option may not be exercised prior to November
23, 1996, and expires on July 24, 1997. Mr. Walters, in turn,
has assigned the right to purchase 130,750 of such shares to the
Claude E. Clinton Family Trust for which Mr. Clinton, an officer
and director of Leggoons, Inc., acts as Trustee (Mr. Clinton is
not the beneficiary of the trust but has the right to vote the
shares) in consideration of $50,000 cash and a loan to Mr.
Walters in the amount of $50,000. The option was exercised by
Mr. Walters. However, the shares are not included in the total
shares for James S. Clinton due to the additional shares being
issued after August 31, 1998.
The following table shows, as of August 31, 1998, certain
information with respect to BETTING, INC. Common Stock
beneficially owned by directors and executive officers of the
Company. Unless otherwise noted, all shares are owned directly
or indirectly with sole voting and investment power.
Name and Address Amount and Nature
Percent of Class of Beneficial Owner of Beneficial Ownership1
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064 1,417,000
18.0%
Thomas S. Hughes
31310 Eaglehaven Circle
Rancho Palos Verdes, CA 90275 1,000,000 12.7%
1 Shares reported include shares owned by spouses of officers
and
directors. No options to acquire any BETTING, INC. common stock
are owned by any officer or director.
Item 12. Certain Relationships and Related Transactions.
During the past two fiscal years, certain transactions which
occurred between the Company and its officers and directors are
set forth below. With respect to each such transaction, the
Company believes that the terms of each transaction were
approximately as favorable to the Company as could have been
obtained from an unrelated third party:
(1) The Company utilized cash accounts maintained by ET&T to
fund day to day operations of the Company over the period of
March 1998 through September 1998. At August 31, 1998, the net
result of these transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997 in exchange for service
rendered to the Company. The Company did not receive any cash
consideration for this common stock issuance and has treated this
as an expense to the Company of $375,000.
(3) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales,
Inc.("HPOS") (now know as Electronic Transactions & Technology -
"ET&T")) (this agreement is incorporated by reference at Exhibit
10.1 to this Form SB-2). ET&T is a privately held corporation
70% owned by Thomas S. Hughes, President of the Company, which is
focused on the emergence of the Personal Encrypted Remote
Financial Electronic Card Transactions industry (although this
agreement was entered into prior to Mr. Hughes becoming
affiliated with the Company, it is included here since certain of
the conditions under that agreement have not been completely
fulfilled, as discussed below).
The assets included under this agreement are the following:
(a) The name "Betting, Inc.", as trademarked by HPOS; (b) The
Wagering Gate (receive incoming data transfer commands from the
Host Center and other competitive Host Centers who have received
ATM and SMART card wagering payment from off site home or office
locations and then who command the Wagering GATE to alert the
recipient gaming companies that they have been paid and to
respond back with an acknowledgement of such payment; and, the
general promotion and education of home ATM and SMART card
wagering over the Internet through the HPOS Secure Computer
Keyboard or over the telephone through the HPOS stand alone
Infinity unit); (c) the specific application of Wagering with an
ATM card or SMART card with the Secure Computer Keyboard (any
other uses of the Secure Computer Keyboard, such as Bill Pay or
Impulse Purchase that are not Wagering transactions, are not
included); (d) the HPOS developed Merchant Response Software for
the specific application only of transacting Off Site ATM and
Smart card Wagering through the Wagering Gate; and (e) HPOS'
interest in the use of and revenue from the HPOS Personal
Encrypted Remote Financial Electronic Card transaction relating
to the Wagering Business in all HPOS partner countries.
Under terms of this licensing agreement, the Company is to
issue 2,900,000 shares of restricted common stock to HPOS in
exchange for licensing home ATM card and SMART card wagering
technology developed by HPOS. Of this amount, 2,755,000 shares
were placed in escrow subject to cancellation on February 10,
1998, in the event the bid price of the common stock of the
Company is not at least $3.00 per share for any twenty
consecutive day period as reported on the NASD's Electronic
Bulletin Board or NASDAQ's Small Cap Market from the date of the
agreement through February 10, 1998 (this escrow agreement is
incorporated by reference at Exhibit 10.2 to the Form SB-2).
As of the date of this Form 10-KSB, the terms of the Licensing
Agreement have not been met by the Company. However, the Company
has entered into amendment(s) of the original agreement that
provide for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to certain
conditions specified in the agreement. All conditions set forth
in the original agreement need to be met on or before September
1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00
per share for any twenty consecutive day period, then HPOS shall
have
the option to purchase up to 13,822,000 additional shares of the
Company common stock at an exercise price of $.30 per share.
(4) On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act
as the bank host processing for all Company transactions that are
sent by terminals that read credit cards or ATM cards (this
agreement is incorporated by reference at Exhibit 10.3 to this
Form SB-2). ET&T is to charge the Betting, Inc. a fee of $0.25
per transaction or 2.5% of the wager being sent by Betting, Inc.
to gaming operators.
These transactions are to originate from globally placed
Betting, Inc. equipment and/or Betting, Inc. licensed operators.
(5) On March 27, 1998, the Company entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions (this
agreement is incorporated by reference at Exhibit 10.4 to this
Form SB-2). This licensing supplements the technology licensed
under the Agreement date February 18, 1997. This agreement states
that ET&T licenses the following ET&T products to Betting, Inc.
for the exclusive global usage of wagering by PERFECT originated
ATM cards, credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that attaches to
phone lines and which calls the ET&T host processing center with
bank data.
The SLICK, defined as a stand alone keyboard terminal that
attaches to phone lines and call the ET&T host processing center
with bank data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone
that sends bank data by wireless transmission to the ET&T host
processing center.
The TV Pin Pad Remote, defined as a set top box and TV remote
that sends bank data by landline dial up transmission to the ET&T
host processing center.
Each ET&T product is exclusively licensed to Betting, Inc. on a
global basis for the application of PERFECT wagering at a
licensing fee of $2,000,000 each. This fee is being paid by the
Company at the rate of $30,000 per month. The duration of the
exclusive license is 20 years.
PART IV.
ITEM 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants . . . . . . . . . . .
16
Balance Sheets of the Company as
of August 31, 1998 and August 31, 1997 . . . . . . . . . . 17
Statements of Operations for the year
ended August 31, 1998, the year ended
August 31, 1997, and the year ended August 31, 1996 . . . . . 18
Statement of Shareholders' Equity (Deficiency)
for the year ended June 30, 1998, the year ended
June 30, 1997, and the year ended June 30, 1996 . . . . . .
19
Statements of Cash Flows for the year
ended June 30, 1998, the year ended
June 30, 1997, and the year ended June 30, 1996 . . . . .
20
Notes to Financial Statements . . . . . . . . . . . . . .
21
(b) Reports on Form 8-K. There are no reports on Form 8-K filed
during the last quarter of the fiscal year covered by this
report.
(c) Exhibits included or incorporated by reference herein: See
Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly
authorized.
eConnect (formerly known as
Betting, Inc.)
Dated: June 18, 1999 By: /s/ Thomas S, Hughes
Thomas S. Hughes, President
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Thomas S. Hughes
Thomas S. Hughes
President, Chief Executive Officer,
Director
June 18, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
June 18, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
June 18, 1999
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 490
BEVERLY HILLS CALIFORNIA 90212 AUDITOR'S REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of Betting, Inc. as
of August 31, 1998 and the related statements of operations,
changes in
stockholders' equity, (deficit), and cash flows for the years
ended August 31, 1998 and 1997. These financial statements are
the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Betting, Inc. as of August 31, 1998, and the results of its
operations and its cash flows for the years ended August 31, 1998
and 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note 8A ("Continued Existence") to the financial
statements, the Company's recurring losses from operations and
inability to generate sufficient cash flow from normal operations
raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 8A. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
As discussed in Note 8B ("Common Stock Issued in Excess of
Authorized Shares") the Company is attempting to convert excess
shares of common shares issued to preferred shares. The effect,
if any, of this uncertainty on the future operations of the
Company cannot presently be determined.
Very truly yours,
/s/ George Brenner George Brenner, CPA April 7, 1999
Beverly Hills, California
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEET
August
31, 1998 ASSETS
Current Assets:
Cash $0
Total current assets 0
Total Assets $0
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $283,971
Due to related party 18,969
Commissions payable 21,400
Total current liabilities 324,340
Contingencies (Note 8) Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding,
14,284,234 (Note 8b) 142,842
Preferred stock, $.01 par value,
authorized 5,000,000 shares; issued and outstanding - none (Note
8b)
Additional paid-in capital 5,000,420
Accumulated deficit (5,467,602)
Total stockholders' equity (deficit) (324,340)
Total Liabilities and Stockholders'
Equity (Deficit) $0
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended Year
Ended
August 31, 1998 August 31, 1997
Revenue $0 $0
Operating Expenses
(Note 4)
Consulting Fees 122,020 565,740
General and
Administrative Expenses 74,948 175,774
Research and Development
Expenses 0
450,331
Software Development
Costs 0
507,600
Total Operating
Expenses (196,968)
(1,699,445)
Net Loss (Note 1) $(196,968)
$(1,699,445)
Net Loss per
Common Share $(.02) $(.41)
Weighted Average Common
Shares Outstanding 10,994,465 4,106,620
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Number of Par value Preferred Additional
Accumulated Stockholders'
Common Stock Paid-In Deficit Equity
Shares Capital (Deficit)
Balance at
August 31, 1997
7,843,234 $78,432 $0 $4,855,535 ($5,270,634)
($336,667)
Issuance of 6,441,000 shares of Common
stock at various $ per share [1] (Non-Cash Transactions)
6,441,000 64,410 0 144,885 0
209,295
Net loss
0 0 0 0
(196,968) (196,968)
Balance at August 31, 1998
14,284,24 $142,842 $0 $5,000,420
($5,467,602)($324,340)
(1) S-8 common shares valued at market value on day of issuance;
Restricted common shares valued at market value on day of
issuance less 50% discount; Common shares for which no
performance was received valued at par value of $.01 per common
share.
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended
Year Ended August 31,
1998 August 31, 1997
Operating Activities
Continuing operations:
Net loss (Note 7) $(43,808)
$(401,640)
Changes in assets and
liabilities:
Accounts payable 21,793
270,839
Commissions payable 3,001 18,399
Cash Used in Operating
Activities (19,014)
(112,402)
Financing Activities
Continuing operations:
Proceeds from
additional borrowings
from stockholder 18,969
26,947
Proceeds from issuance
of common stock 0
85,500
Cash Provided by
Financing Activities 18,969 112,447
Net Increase (Decrease)
in Cash (45) 45
Cash at Beginning of
Year 45 0
Cash at End of Year $0 $45
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the years ended
August 31, 1998 and 1997, respectively. The following summarizes
noncash investing and financing transactions:
Year Ended August 31,
1998
Issuance of 5,341,000 shares of common
stock for services rendered
$153,160
Issuance of 750,000 shares of common stock for
payment on due to stockholder
35,135
Issuance of 350,000 shares of common stock for
payment on accounts payable
21,000
Year Ended August 31,
1997
Issuance of 4,710,234 shares of common stock for
services rendered
$1,297,805
See accompanying notes to financial statements
and accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Betting, Inc. (the "Company") is positioning itself to
facilitate same as cash ATM card or smart card transactions that
are originating from bank host processing centers and are being
sent to gaming operators. These transactions are being effected
with electronic equipment that allows self service pay per play
and no actual communications between the player and the gaming
operator.
These type of transactions will be originating from homes,
offices, and public walk in locations. The Company will act as
the interface that will communicate data to the gaming operators,
receive back their acknowledgment of the transaction and then
pass on this gaming acknowledgment to the bank host processing
center that has been standing by for this information and has
already completed the bank authorization of the pay per play
transaction. The business model of the Company is to receive a
fee per transaction paid to Betting, Inc. by the bank host
processing center at the moment of the transaction. In general,
this fee will be from between 2% to 6% of the wager placed on a
pay per play or a $6 flat fee in the case of an account being
opened. The Company has many characteristics commonly associated
with a development stage company. A development stage company
devotes substantially all of its efforts to establishing a new
business and its planned principal operations either (a) have not
commenced or (b) have commenced, but have not produced any
significant revenue. However, due to the company's previously
established operation as a public shell, a development stage
company presentation is not appropriate for these financial
statements.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which were sold
to better specialty and department stores nationwide under the
brands: Leggoons, CPO by Leggoons, John Lennon Artwork Apparel
and Snooggel. On January 19, 1996, Leggoons, Inc., adopted a
formal plan to discontinue the designing, selling, manufacturing
and distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its assets
and liabilities to a third party assignee, under an "Assignment
for Benefit of Creditors." An Assignment is a business
liquidation device available as an alternative to bankruptcy.
The third party assignee, a Nebraska corporation named Leggoons,
Inc. II, is required to properly, timely and orderly dispose of
all remaining
assets for the benefit of creditors. Leggoons, Inc., continued
to maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc., entered into an
Agreement to License Assets from Home Point of Sales, Inc.(HPOS).
HPOS is a privately held corporation focused on the emergence of
the Personal Encrypted Remote Financial Electronic Card
Transactions industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase from home with
real time cash transactions. Management believes the proprietary
technology and the large demand for wagering opportunities in
today's marketplace will combine to generate substantial sales
for Leggoons, Inc., over the medium term.
Under terms of the Licensing Agreement, the Company will issue
2,900,000 shares of restricted common stock to HPOS in exchange
for licensing home ATM card and SMART card wagering technology
developed by HPOS. Of this amount, 2,755,000 shares will be
placed in escrow and are subject to cancellation on February 10,
1998, in the event the bid price of the common stock of the
Company is not at least $3.00 per share for any twenty
consecutive day period as reported on the NASD's Electronic
Bulletin Board or NASDAQ's Small Cap Market from the date of the
agreement through February 10, 1998.
As of the date of these financial statements the terms of the
Licensing Agreement have not been met by the Company. However,
the Company has entered into amendment(s) of the original
agreement that provide for an extension of the cancellation
deadline from February 10, 1998, to September 1, 1999, subject to
certain conditions specified in the agreement. As of the date of
these financial statements, none of the conditions have been met.
All conditions set forth in the original agreement need to be met
on or before September 1, 1999.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00
per share for any twenty consecutive day period, then HPOS shall
have the option to purchase up to 13,822,000 additional shares of
the Company common stock at an exercise price of $.30 per share.
Thomas S. Hughes, Chairman of HPOS, became Chairman and
President of Leggoons on March 1, 1997. He will focus on
procedures, policies and State approvals to begin home lottery,
off track betting, casino and sports ATM card and SMART card
wagering.
The Company intends to seek shareholder approval of its name
change from Leggoons, Inc. to Betting, Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon consummation of
a transaction
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand
deposits, and short-term investments with original maturities of
three months or less.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense when
incurred. Costs incurred to internally develop software,
including costs incurred during all phases of development, are
charged to expense as incurred.
STOCKHOLDERS' EQUITY
The following valuation policies were used so that a financial
value can be assigned to stock issuance transactions: the closing
"market" stock price on the day of each common stock issuance was
used to determine "fair market value" of unrestricted common
shares issued; the closing "market" stock price on the day of
each common stock issuance less a 50% discount was used to
determine "fair market value" of restricted common shares issued.
Common shares that were issued and for which no performance was
received were valued at par value, $.01 per share.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the
weighted average number of common and common equivalent shares
outstanding during the period. Shares issuable pursuant to
outstanding stock warrants have been excluded from the
computation as the effect is antidilutive. Fully diluted net
loss per share for all periods presented is not materially
different from primary loss per share.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for temporary differences
between the bases of assets and liabilities for financial
statement and income tax purposes. If it is more likely than not
that all or some portion of a deferred tax asset will not be
realized, a valuation allowance is recorded. (See Note 2)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(2) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August 31, 1998,
that were generated by Leggoons, Inc. The unused net operating
losses expire in various amounts from 2009 to 2012. However, due
to change of ownership rules of section 382 of the Internal
Revenue Code some or all of these NOL carryforwards may be
unavailable to offset any future income of Betting, Inc. The
Company generated losses of approximately $1,658,000 during the
six month period ended August 31, 1997, and losses of
approximately $197,000 during the year ended August 31, 1998.
These losses, totaling $4,655,000 may not qualify as federal and
state NOL carryforwards due to the possible nondeductibility of
the noncash service costs incurred and the change of ownership
rules of section 382 of the Internal Revenue Code. The Company
provides an allowance for the entire amount of any deferred tax
assets that are applicable to the NOL.
(3) COMMON STOCK WARRANTS
The Company had outstanding warrants to purchase approximately
900,000 shares of common stock. The warrants were exercisable at
$3.75 per share and expired on November 18, 1997.
(4) STOCKHOLDERS' EQUITY (DEFICIT)
During the period September 1, 1997, through August 31, 1998, the
Company issued 6,441,000 shares of common stock for services
rendered and payments on accounts payable. For the shares of
common stock issued for services rendered during the period
September 1, 1997, through August 31, 1998, the following
valuation policies were used so that a financial value could be
assigned to the stock issuance transactions: the closing "market"
stock price on the day of each common stock issuance was used to
determine "fair market value" of the 1,369,000 unrestricted
common shares issued; the closing "market" stock price on the day
of each common stock issuance less a 50% discount was used to
determine "fair market value" of the 2,322,000 restricted common
shares issued. Common shares that were issued and for which no
performance was received, 2,750,000 shares, were valued at par
value, $.01 per share. For the 2,750,000 shares of common stock
issued for which no performance was received a stop has been
placed on the stock certificates with the Company's stock
transfer agent.
For the period September 1, 1997, through August 31, 1998, the
financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The
"fair market value" of such common stock issued, $153,160, has
primarily been expensed as $122,020 in consulting fees and
$31,140 in general and administrative expenses during the year
ended August 31, 1998. Some of the common stock shares issued
were registered with the Securities and Exchange Commission using
Form S-8 Registration Statements.
During the period March 1, 1997, through August 31, 1997, the
Company issued 4,710,234 shares of common stock for services
rendered. For the 2,999,734 shares of common stock issued for
services rendered during the period March 1, 1997, through May
31, 1997, the following valuation policies were used so that a
financial value could be assigned to the stock issuance
transactions: the closing "market" stock price on the day of each
common stock issuance was used to determine "fair market value"
of the 520,000 unrestricted common shares issued; the closing
"market" stock price on the day of each common stock issuance
less a 50% discount was used to determine "fair market value" of
the 1,725,734 restricted common shares issued. Common shares that
were issued and for which no performance was received, 754,000
shares, were valued at par value, $.01 per share. For the
1,710,500 shares of common stock issued for services rendered
during the period June 1, 1997, through August 31, 1997, an
average closing stock price of $.20 was used to determine "fair
market value" of each share issued so that a financial value
could be assigned to the stock issuance transactions.
For the period September 1, 1996, through August 31, 1997, the
financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The
"fair market value" of such common stock issued, $1,297,805, has
primarily been expensed as $304,240 in consulting fees, $445,128
in research and development costs, $500,000 in software
development costs and $48,437 in general and administrative
expenses during the year ended August 31, 1997.
Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
(5) RELATED PARTY TRANSACTIONS
COMMON STOCK ISSUED
The Company issued 1,000,000 shares of restricted common stock
to Thomas S. Hughes during the year ended August 31, 1997. The
Company did not receive any cash consideration for this common
stock
issuance and was valued at $375,000. See Note (4).
The Company issued 286,234 shares of restricted common stock
to former associates of Thomas S. Hughes at a company called
Betts, Inc. The restricted common shares were valued at $41,864.
TRANSACTIONS WITH HPOS
The Company utilized cash accounts maintained by HPOS to fund
day to day operations of the Company. Thomas S. Hughes is the
Chairman of both the Company and HPOS. At August 31, 1998, the
net result of these transactions is a payable to HPOS of $18,969.
DUE TO STOCKHOLDER
The Company had a due to stockholder payable to James S.
Clinton, former Chairman of Leggoons, Inc., in the amount of
$35,135 for advances made to Leggoons, Inc., prior to March 1,
1997. This was paid in full by the issuance of 750,000 shares of
restricted common stock during the year ended August 31, 1998.
(6) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1998 and 1997, the Company recorded
adjustments that increased its net loss by approximately $27,500
and$1,558,000, respectively. These adjustments were primarily
related to the issuance of common stock for no cash
consideration.
(7) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing transactions for
the years ended August 31, 1998 and August 31, 1997:
1998
1997
Net loss from Continuing Operations $ 43,808
401,640 Issuance of common stock for
Consulting Fees and General and
Administrative Expenses 153,160
1,297,805 Income Statement Net Loss
$196,968 $1,699,445
(8) CONTINGENCIES
(A) CONTINUED EXISTENCE
The Company's financial statements are presented on the going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the accompanying financial statements, the Company has
shown a significant loss from operations and has negative working
capital and a stockholders' deficit. This raises substantial
doubt about the Company's ability to continue.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems, principally by
obtaining additional debt financing and equity capital and
ultimately upon achieving profitability. While pursuing
additional debt and equity funding, the Company must continue to
operate on limited cash flow. Management is committed to
developing the product and continues to receive small amounts of
funding from private investors. It is the goal of management to
receive additional funding from an additional public offering of
its common stock within twelve months.
There is no assurance that the Company can achieve the
profitability and positive liquidity discussed above. The
financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result
from the possible inability of the Company to continue as a going
concern.
(B) COMMON STOCK ISSUED IN EXCESS OF AUTHORIZED SHARES
During the year ended August 31, 1998, the Company issued a
total of 6,441,000 shares of common stock. This has resulted in
the total issued common shares exceeding the 10,000,000 common
shares authorized by 4,284,234 common shares. Most of these
shares were to have been preferred stock. Due to an error that
was discovered after the close of the year, however, all of the
shares were issued as common shares, resulting in the Company
issuing more common shares than its articles of incorporation
authorize. The Company is in the process of "recalling" these
certificates totaling 4,550,000 shares and replacing them with
preferred certificates. The net result will not be significantly
different. Holders of preferred shares will have a priority over
common stockholders with respect to dividends and liquidation
rights, but no dividends are required or anticipated. The
preferred stockholders will have voting rights equal to those of
the common stockholders. The stockholders' equity (deficit)
section of the balance sheet then would be restated as follows to
take into account the preferred stock:
August 31, 1998 Proforma Adjustment Restated
August 31,1998
Stockholders' Equity (Deficit):
Common stock, $.01
par value, authorized 10,000,000 shares; issued and
outstanding,9,734,234
$142,842 $(45,500) $97,342
Preferred stock, $.01
par value, authorized 5,000,000 shares; issued and
outstanding - 4,550,000
0 45,500 45,500
Additional paid-in
capital
5,000,420 0
5,000,420 Accumulated deficit
(5,467,602) 0
(5,467,602) Total stockholders'
equity (deficit)
$(324,340) $0
$(324,340)
(9) SUBSEQUENT EVENTS (UNAUDITED)
CONSENT DECREE ENTERED WITH SECURITIES AND EXCHANGE COMMISSION
The Company has not, to the date of this report, filed
necessary quarterly or annual reports with the United States
Securities and Exchange Commission (the "SEC") since May 31,
1998.
This constitutes a violation by the Company of a provision of
the Securities Exchange Act of 1934, as amended. The Company
entered into a consent decree with the SEC by which the Company
agreed to file all necessary reports by April 9, 1999, and agreed
to file all required reports with the SEC on a timely basis in
the future.
EXHIBIT INDEX
Number Exhibit Description
3.1 Leggoons, Inc. Articles of Incorporation and Amendments,
incorporated by reference to Exhibit 3.1 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by reference
to
Exhibit 3.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
4 Class A Warrant Agreement, incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
10.1 Agreement to License Assets (incorporated by reference to
Exhibit 10.16 to the Form 8-K filed on February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to Exhibit
10.17
to the Form 8-K filed on February 25, 1997).
10.3 ET&T Host Processing Agreement (see below).
10.4 ET&T Licensing Agreement (see below).
27 Financial Data Schedule
/TEXT>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its charter)
Missouri (2) 43-1239043
(State or jurisdiction of incorporation I.R.S. Employer
or organization)
Identification No.)
31310 Eaglehaven Center
Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.01 Par Value; Class A Warrants
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) been subject to such filing
requirements for the past 90 days. Yes No X .
As of February 28, 1999, the registrant had 14,354,798
shares of common stock issued and outstanding.
Transitional Small Business Dislcosure Format (check
one): Yes No X .
(1) Effective on June 4, 1999, the name was changed to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of organization
was changed to Nevada.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS AS OF FEBRUARY 28, 1999
AND AUGUST 31, 1998
3
STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED FEBRUARY 28, 1999
AND FEBRUARY 28, 1998
4
STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED FEBRUARY 28, 1999 AND
FEBRUARY 28, 1998
5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
9
PART II
ITEM 1. LEGAL PROCEEDINGS
11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
11
ITEM 5. OTHER INFORMATION
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
12
SIGNATURE
12
PART I.
ITEM 1. FINANCIAL STATEMENTS.
BETTING, INC.
BALANCE SHEETS
February 28, August
31,
1999
1998
ASSETS (Unaudited) (Audited)
Cash $ 22,510 $
0
Total Assets $ 22,510 $ 0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 280,316 $
283,971
Due to related party 35,569 18,969
Commissions payable 57,400 21,400
Total current liabilities 373,285 324,340
Commitments and Contingencies (Note 10)
Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding,14,354,798
and 14,284,234 at February 28,
1999 and 1998, respectively 143,548 142,842
Preferred stock, $.01 par
value, authorized 5,000,000
shares; issued and
outstanding - none - -
Additional paid-in capital 5,157,064 5,000,420
Accumulated deficit (5,651,387) (5,467,602)
Total stockholders' equity
(deficit) (350,775)
(324,340)
Total Liabilities and
Stockholders' Equity (Deficit) $ 22,510 $ 0
See accompanying notes to interim financial statements
BETTING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months
Ended February 28,
February 28,
1999 1998
1999 1998
General and
Administrative expenses
$ 175,730 $ 48,775 $
183,785 $143,468
Total Operating Expenses
(175,730) (48,775)
(183,785) (143,468)
Net loss (175,730) (48,775)
$(183,785) $(143,468)
Net loss per common share
$ (.01) $ (.00) $
(.01) $ (.01)
Weighted average
shares outstanding
14,316,067 11,062,234
14,316,067 10,489,984
See accompanying notes to interim financial statements
BETTING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
February 28, February
28,
1999
1998
Cash Flows From Operating Activities
Net loss (Note 9) $ (175,735) $
(25,128)
Changes in assets and liabilities:
Accounts payable (3,655)
7,999
Commissions payable 36,000 3,001
Cash Used in Operating Activities (143,390)
(14,128)
Cash Flows From Financing Activities:
Proceeds from additional borrowings
from stockholder 0
0
Proceeds from issuance of
common stock 149,300 0
Proceeds from borrowings
from related party 16,600 15,694
Cash provided by financing
activities 165,900
15,694
Net increase in cash 22,510 1,566
Cash at beginning of period 0
45
Cash at end of period $ 22,510 $ 1,611
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the six months ended
February 28, 1999 and 1998, respectively.
The following summarizes noncash investing and financing
transactions:
Six Months Ended February 28, 1999
Issuance of 161,000 shares of common stock
for services rendered $8,050
Six Months Ended February 28, 1998
Issuance of 1,769,000 shares of common stock
for services rendered $82,590
Issuance of 750,000 shares of common stock
for due to stockholder 35,135
Issuance of 350,000 shares of common stock
for accounts payable 21,000
See accompanying notes to interim financial statements.
BETTING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Unaudited Interim Periods:
The information furnished herein relating to interim periods
has not been audited by independent Certified Public Accountants.
In the opinion of the Company's management, the financial
information in this report reflects any adjustments that are
necessary for a fair statement of results for the interim periods
presented in accordance with generally accepted accounting
principles. All such adjustments are of a normal and recurring
nature. The accounting policies followed by the Company, and
additional footnotes, are set forth in the audited financial
statements included in the company's Annual Report Form 10-KSB/A
filed with the SEC on April 8, 1999.
2. Initial Public Stock Offering:
On November 18, 1993, the Company completed an initial
public offering in which it sold 900,000 Units at $3.125 per
Unit. Each Unit consisted of one share of Common Stock and one
Class A Warrant.
Three Warrants entitled the holder thereof to purchase one share
of Common Stock at $3.75 per share and expired on November 18,
1997.
The warrants were callable in total by the Company after November
18, 1994, at a redemption price of $.05 per warrant upon 60 days
prior notice if the common stock has traded above $3.75 for at
least 20 out of the 30 trading days preceding the date of the
notice of redemption.
3. Earnings (loss) Per Share:
Net earnings (loss) per share are computed using the
weighted average number of common and common equivalent shares
outstanding during the period. The Class A Warrants issued
during the public offering are anti-dilutive and have not been
included in the computation of common equivalent shares
outstanding. Fully diluted net earnings (loss) per share for all
periods presented is not materially different from primary net
earnings (loss) per share.
4. Income Taxes:
Effective September 1, 1987, the Company elected to be
taxed under Subchapter S of the Internal Revenue Code. As such,
the Company's taxable income or loss was included in the
individual tax returns of its shareholders for Federal and State
income tax purposes. Upon the closing of the public stock
offering on November 18, 1993, the Company terminated its
Subchapter S election.
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August 31, 1997,
that were generated by Leggoons, Inc. The unused net operating
losses expire in various amounts from 2009 to 2012. However, due
to change of ownership rules of section 382 of the Internal
Revenue Code some or all of these NOL carryforwards may be
unavailable to offset any future income of Betting, Inc. The
Company generated losses of approximately $1,658,000 during the
six month period ended August
31, 1997, losses of approximately $197,000 during the year ended
August 31, 1998, and losses of approximately $183,000 during the
six months ended February 28, 1999. These losses, totaling
$4,838,000, may not qualify as federal and state NOL
carryforwards due to the possible nondeductibility of the noncash
service costs incurred and the change of ownership rules of
section 382 of the Internal Revenue Code. The Company provides
an allowance for the entire amount of
any deferred tax assets that are applicable to the NOL.
5. Due to Stockholder
The Company had a due to stockholder payable to James S.
Clinton, former Chairman of Leggoons, Inc., in the amount of
$35,135 for advances made to Leggoons, Inc., prior to March 1,
1997. This payable was paid in full during the six months ended
February 28, 1998, by the issuance of 750,000 shares of
restricted common stock.
6. Due to Related Party
The Company utilizes cash advances from HPOS/E.T.T. to
fund day to day operations of the Company. Thomas S. Hughes is
the Chairman of both the Company and HPOS/E.T.T.
7. Accumulated Deficit:
As a result of the termination of the Company's S
Corporation status on November 18, 1993, the accumulated deficit
of $1,168,375 incurred through that date was closed out against
additional paid-in capital. The $5,651,387 of deficit on the
balance sheet at February 28, 1999, is the result of operations
from November 18, 1993, to February 28, 1999.
8. Stockholders Equity:
During the period September 1, 1998, through February 28,
1999, the Company issued 161,000 shares of common stock for
services rendered. The financial value of the common stock issued
for no cash consideration is required to be expensed by the
Company. The "fair market value" of such common stock issued,
$8,050, has been expensed as consulting fees during the six
months ended February 28, 1999.
During the period September 1, 1997, through November 30,
1997, the Company issued 2,869,000 shares of common stock for
payments on accounts payable and services rendered. For the
1,769,000 shares of common stock issued for services rendered
during the period September 1, 1997, through November 30, 1997,
the closing "market" stock price was used to determine "fair
market value" of
the 569,000 unrestricted common shares issued; the closing
"market" stock price less a 50% discount was used to determine
"fair market value" of the 1,200,000 restricted common shares
issued. The financial value of the common stock issued for no
cash consideration is required to be expensed by the Company.
The "fair market value" of such common stock issued, $82,590, has
primarily been expensed as $63,450 in consulting fees, $7,140 in
legal fees, and $12,000 in general and administrative expenses
during the three months ended November 30, 1997. Some of the
common stock shares issued were registered with the Securities
and Exchange Commission using Form S8 Registration Statements.
9. Cash Flow and Income Statement Reconciliation
The following reconciles noncash financing transactions for the
six months ended February 28, 1999:
Net loss $
175,735
Issuance of 161,000 shares of common stock for Consulting
Fees
8,050
Income Statement Net Loss $
183,785
The following reconciles noncash financing transactions for the
six
months ended February 28, 1998:
Net loss $
25,128
Issuance of 2,469,000 shares of common stock for Consulting
Fees, and General and Administrative Expense 118,340
Income Statement Net Loss $
143,468 10. Contingencies
(a) Going Concern.
The Company's financial statements are presented on the
going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company
has
shown a significant loss from operations and has negative working
capital and a stockholders' deficit. This raises substantial
doubt about the Company's ability to continue.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems, principally by
obtaining additional debt financing and equity capital and
ultimately upon achieving profitability. While pursuing
additional debt and equity funding, the Company must continue to
operate on limited cash flow. Management is committed to
developing the product and continues to receive small amounts of
funding from private investors. It is the goal of management to
receive additional funding from an additional public offering of
its common stock within twelve months.
There is no assurance that the Company can achieve the
profitability and positive liquidity discussed above. The
financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the
Company to continue as a going concern.
(b) Common Stock Issued in Excess of Authorized Shares.
During the year ended August 31, 1998, the Company issued a
total of 6,441,000 shares of common stock. This has resulted in
the total issued common shares exceeding the 10,000,000 common
shares authorized by 4,284,234 common shares. Most of these
shares were to have been preferred stock. Due to an error that
was discovered after the close of the year, however, all of the
shares were issued as common shares, resulting in the Company
issuing more common shares than its articles of incorporation
authorize. The Company is in the process of "recalling" these
certificates totaling 4,550,000 shares and replacing them with
preferred certificates. The net result will not be significantly
different. Holders of preferred shares will have a priority over
common stockholders with respect to dividends and liquidation
rights, but no dividends are required or anticipated. The
preferred stockholders will have voting rights equal to those of
the common stockholders. The stockholders' equity (deficit)
section of the balance sheet then would be restated as follows to
take into account the preferred stock:
February 28, Proforma Restated
1999 Adjustment February
28, 1999
Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding, 9,803,834
$143,548 $(45,500) $
98,048
Preferred stock, $.01 par value, authorized 5,000,000
shares; issued and outstanding - 4,550,000
0 45,500 45,500
Additional paid-in capital
5,157,064 0
5,157,064
Accumulated deficit
(5,651,387) 0 (5,651,387)
Total stockholders' equity (deficit)
$ (350,775) $ 0 $
(350,775)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with
the financial statements of the Company and notes thereto
contained elsewhere in this report.
Results of Operations.
The Company had virtually no operations during the three
month period ended November 30, 1998, due to the unavailability
of funds.
Near the end of the three month period ended November 30, 1998,
and
during the three month period ended February 28, 1999, the
Company received cash from the sale of its common stock to a
private investors and from advances to the company by related
parties. These funds were used for operations during the three
month period ending February 28, 1999. The primary general and
administrative expenses incurred during the six month period
ended February 28, 1999, were consulting fees of $20,650, legal
fees of $17,862, accounting fees of $21,559, license fees of
$92,000 and stock expenses of $10,371. The primary general and
administrative expenses incurred during the six month period
ended February 28, 1998, were consulting fees, legal fees, office
expenses and stock expenses.
Liquidity and Capital Resources.
Net cash used in operating activities by the Company was
$143,390 for the six month period ended February 28, 1999 versus
$14,128 in the comparable prior year period.
Capital Expenditures.
No material capital expenditures were made during the quarter
ended on February 28, 1999.
Year 2000 Issue.
The Year 2000 issue arises because many computerized
systems use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant system failure which
could affect the Company's ability to conduct normal business
operations. This creates potential risk
for all companies, even if their own computer systems are Year
2000 compliant. It is not possible to be certain that all
aspects of the Year 2000 issue affecting the Company, including
those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and
products may contain undetected errors or defects with Year 2000
date functions that may result in material costs. Although
management is not aware of any material operational issues or
costs associated
with preparing its internal systems for the Year 2000, the
Company may experience serious unanticipated negative
consequences (such as significant downtime for one or more of
its web site properties) or material costs caused by undetected
errors or defects in the technology used in its internal systems.
Furthermore, the purchasing patterns of advertisers may be
affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000
compliance. The Company does not currently have any information
about the Year 2000 status of its advertising customers. However,
these expenditures may result in reduced funds available for web
advertising or sponsorship of web services, which could have a
material adverse effect on its business, results of operations,
and financial condition. The Company's Year 2000 plans are based
on management's best estimates.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis contains
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and as contemplated under the
Private Securities Litigation Reform Act of 1995, including
statements regarding, among other items, the Company's business
strategies, continued growth in the Company's markets,
projections, and anticipated trends in the Company's business and
the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control.
The Company cautions that these statements are further qualified
by important factors that could cause actual results to differ
materially from those in the forward looking statements,
including, among others, the following: reduced or lack of
increase in demand for the Company's products, competitive
pricing pressures, changes in the market price of ingredients
used in the Company's products and the level of expenses incurred
in the Company's operations. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire or prove to
be accurate. The Company disclaims any intent or obligation to
update "forward looking statements".
PART II.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's
stockholders during the first quarter of the fiscal year covered
by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. There are no reports on Form 8-K
filed during the second quarter of the fiscal year covered by
this report
(b) Exhibits included or incorporated by reference herein:
See Exhibit Index
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
eConnect (formerly known as
Betting, Inc.)
Dated: June 18, 1999 By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
EXHIBIT INDEX
Exhibit No. Description
3.1 Leggoons, Inc. Articles of Incorporation and Amendments,
incorporated by reference to Exhibit 3.1 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by reference
to
Exhibit 3.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
4 Class A Warrant Agreement, incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
10.1 Agreement to License Assets (incorporated by reference to
Exhibit 10.16 to the Form 8-K filed on February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to Exhibit
10.17
to the Form 8-K filed on February 25, 1997).
10.3 ET&T Host Processing Agreement (incorporated by reference
to
Exhibit 10.3 of the Form 10-KSB for the period ending on August
31, 1998).
10.4 ET&T Licensing Agreement (incorporated by reference to
Exhibit
10.4 of the Form 10-KSB for the period ending on August 31,
1998).
27 Financial Data Schedule (see below).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22
<CURRENT-LIABILITIES> 373
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> (351)
<TOTAL-LIABILITY-AND-EQUITY> 22
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (184)
<INCOME-TAX> 0
<INCOME-CONTINUING> (184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
May 27, 1999
U.S. Securities and Exchange Commission 450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect (formerly know as Betting, Inc.) - Form SB-2
Dear Sir/Madame:
As a certified public accountant, I hereby consent to the
inclusion in this Form SB-2 Registration Statement of my report
dated April 7, 1999 in Betting, Inc.'s Form 10-KSB for the fiscal
year ended August 31, 1998, and to all references to my firm
included in this Registration Statement.
Sincerely,
/s/ George Brenner
George Brenner, C.P.A.
