U.S. SECURITIES AND
EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
eConnect
(Name of Small Business
Issuer in its charter)
Nevada
454390 43-1239043
(State or jurisdiction of incorporation
(Primary Standard Industrial
I.R.S. Employer or organization) Classification Code
Number) Identification No.)
31310 Eaglehaven Center, Suite 10, Rancho Palos
Verdes, California 90275; (310) 541-4393
(Address and telephone number of Registrant's
principal executive offices and principal place of
business)
Shawn F. Hackman, Esq., 3360 West Sahara Avenue,
Suite 200, Las Vegas, Nevada 89102; (702) 732-2253
(Name, address, and telephone number of agent for
service)
Approximate date of proposed sale to the public: As
soon as practicable after this Registration
Statement
becomes effective.
If this Form is filed
to register additional
securities for an
offering pursuant to
Rule 462(b) under the
Securities Act, please
check the following
box and list the
Securities Act
registration number of
the earlier effective
registration statement
for the same offering.
?
If this Form is a
post-effective
amendment filed
pursuant to Rule
462(c) under the
Securities Act, check
the following box and
list the Securities
Act registration
statement number of
the earlier effective
registration statement
for the same offering.
?
If this Form is a
post-effective
amendment filed
pursuant to Rule
462(d) under the
Securities Act, check
the following box and
list the Securities
Act registration
statement number of
the earlier effective
registration statement
for the same offering.
?
If the delivery of
the prospectus is
expected to be made
pursuant to Rule 434,
check the following
box.
?
CALCULATION OF REGISTRATION FEE
Title of
each class
of
securities
to be
registered
Amount to
be
registered
(1)
Proposed
maximum
offering
price per
unit (2)
Proposed
maximum
aggregate
offering
price
Amount of
registrati
on fee
Comm Stock
61,000,000
$0.19
$11,590,000
$3,222.02
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.
Pursuant to Rule 416, such additional amounts to
prevent dilution from stock splits or similar
transactions.
Calculated in accordance with Rule 457(c): The
average of the bid and asked price as of August 18,
1999.PART I. INFORMATION REQUIRED IN PROSPCTUS
PROSPECTUS
eConnect
61,000,000 Shares *
Common Stock
Offering Price $0.19 per Share
eConnect, a Nevada corporation ("Company"), is
hereby
offering up to 61,000,000 shares of its $0.001 par
value common stock ("Shares") at an offering price
of
$0.19 per Share on a delayed basis under Rule 415
pursuant to the terms of this Prospectus for the
purpose of providing working capital for the
Company.
The Shares offered hereby are highly speculative and
involve a high degree of risk to public investors
and
should be purchased only by persons who can afford
to
lose their entire investment (See "Risk Factors" on
page 4).
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Price to
Public
Underwriting
Discounts and
Commissions (2)
Proceeds to
Issuer (3)
Per
Share
$0.19
$0
$0.19
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
*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.
T
HE 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.
A maximum of 61,000,000 shares may be sold on a
delayed basis under Rule 415 under the Securities
Act
of 1933, as amended. The Price to Public only shows
the Shares and warrants for common stock that will
be
offered to the public; 8,000,000 of the total Shares
will be set aside for employees stock options and
31,000,000 shares will be set aside for warrants to
be give to each of the shareholders of record as of
June 30, 1999. In addition, 1,800,000 of the shares
are being sold by selling shareholders of the
Company: Ranco Plasticos, a Costa Rica corporation,
and Menhur Azul, S.A., a Costa Rica corporation.
The
offering will remain open until the last date that
the warrants can be exercised, which is June 30,
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
3
USE OF PROCEEDS
10
DETERMINATION OF OFFERING PRICE
10
DILUTION
11
PLAN OF DISTRIBUTION
12
LEGAL PROCEEDINGS
13
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
15
DESCRIPTION OF SECURITIES
16
INTEREST OF NAMED EXPERTS AND COUNSEL
17
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
17
ORGANIZATION WITHIN LAST FIVE YEARS
18
DESCRIPTION OF BUSINESS
18
PLAN OF OPERATION
30
DESCRIPTION OF PROPERTY
30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 30
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
32
EXECUTIVE COMPENSATION
33
FINANCIAL STATEMENTS
34
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
34
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.
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 to Articles of Incorporation was filed
with
the Nevada Secretary of State changing the name of
the Company to "eConnect" and increasing the number
of authorized common shares to 100,000,000. On
August 23, 1999, a Certificate of Amendment to
Articles of Incorporation was filed with the Nevada
Secretary of State increasing the number of
authorized common shares to 200,000,000.
(b) Business.
The Company is made up of two divisions: The first,
eGaming, is presently generating revenues and
earnings from its eSportsbet and 777WINS.com
acquisitions (internet gaming). The second division
of eGate which is developing technology for ATM card
with PIN or smart card payments (same-as-cash - only
the merchant can reverse the transaction) using the
Personal Encrypted Remote Financial Electronic Card
Transactions ("PERFECT"). Thus, the Company is both
an Internet and non Internet company, and both a
gaming and non gaming company. focused on connecting
the consumer directly to the recipient merchant...
no
middlepersons. See "Description of Business."
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 $0.19 per Share. See "Plan of
Distribution." The offering will be primarily used
for the following purposes (maximum amounts): (a)
sales to the general public of the following: (i)
10,200,000 Shares; and (ii) 10,000,000 warrants
(exercisable at $1.00 per Share from the effective
date of this Registration Statement to December 31,
2001); (b) the issuance of one warrant to each
shareholder of record of the Company as of June 30,
1999 (maximum of 31,000,000) (exercisable at $1.00
per Share from June 30, 2000 to June 30, 2002); (c)
5,000,000 options for Shares to be issued in the
future to employees of the Company, exercisable at
$0.50 per Share; (d) 3,000,000 options for Shares to
be issued in the future to Thomas S. Hughes,
President of the Company, exercisable at $0.50 per
Share; and (e) 1,800,000 of restricted shares being
sold by selling shareholders of the Company: Ranco
Plasticos, a Costa Rica corporation, and Menhur
Azul,
S.A., a Costa Rica corporation. See "Plan of
Distribution." If all the Shares being offered to
the public are sold, this will represent net
proceeds
of a maximum of $3,838,000, 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, and there is a
large public float in the Shares as of August 13,
1999 (60,523,775), these shares are owned by only
415 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 20,200,000 Shares offered to the
public and in connection with the acquisition 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. See "Plan of
Distribution." 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 20,200,000 Shares being offered to the public
and
in connection with the acquisition 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(c): 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 August 18, 1999
($0.19). There can be no assurance that the Shares
will maintain market values commensurate with the
offering price. See "Determination of Offering
Price."
Dilution of Share Value.
Assuming the sale of all Shares offered to the
public
hereby (20,200,000), the net tangible book value of
the Shares would then be $0.0202 per Share compared
to the effective offering price of $0.19 per common
share (based on the number of shares issued and
outstanding as of June 30, 1999 plus all of the
shares being offered in this offering).
Accordingly,
persons purchasing Shares in this Offering would
then
suffer $0.1696 dilution to the net tangible book
value of their shares.
"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 issued and outstanding shares as of August 13,
1999 of 60,523,775 held by only 415 shareholders of
record). 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 9,850,000 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").
See "Security Ownership of Certain Beneficial
Owners
and Management." 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 issuance of the 20,200,000 Shares and
warrants for common stock offered for sale by the
Company to the public, this will represent gross
proceeds to the Company of approximately $3,838,000
(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
Maximum Offering
Amount
Percent
Transfer Agent Fee
$1,000
0.02%
Printing Costs
$1,000
0.02%
Legal Fees
$50,000
1.14%
Accounting Fees
$1,500
0.03%
Working Capital
$3,784,500
98.79%
Total
$3,838,000
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(c), 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
(August 18, 1999): $0.19 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 June 30, 1999 (the date of the latest Form 10-QSB
for the Company, the net tangible book value of the
Company was $(1,958,514) or $(0.0634) per Share.
Giving effect to the issue by the Company of all
Shares and warrants for common stock being sold to
the public (20,200,000), the pro forma net tangible
book value of the Company would be $1,879,486, or
$0.0204 per Share, which would represent an
immediate
increase of $0.0838 in net tangible book value per
Share and $0.1696 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 as of June 30, 1999):
Assuming
Maximum
Shares Sold
Offering Price (1)
$0.1900
Net tangible book value per
share before Offering (2)
$(0.0634)
Net tangible book value Share
after offering (3)
$0.0204
Increase attributable to
issue of stock to
new investors (4)
$0.0838
Dilution to new investors (5)
$0.1696
Percent Dilution to new
investors (6)
89.26%
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 ($0.0634) is determined by dividing the
number of Shares outstanding as of June 30, 1999
into
the net tangible book value of the Company as of
that
date.
(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 being offered to the public are issued).
The net tangible book value per share after the
offering ($0.0202) is determined by dividing the
number of Shares that will be outstanding after this
offering (91,885,100), assuming issue of all the
Shares offered (including those not being issued for
cash and not counting any shares issued after June
30, 1999), 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
($0.0202) and subtracting from it the net tangible
book value per share before the offering ($0.0634)
for an increase of $0.0838.
(5) The dilution to new investors is determined by
subtracting the net tangible book value per share
after the offering ($0.0202) from the offering price
of the Shares in this offering ($0.1900), giving a
dilution value of $0.1696.
(6) The Percent Dilution to new investors is
determined by dividing the book value after the
offering ($0.0202) by the offering price per Share
($0.1900) and subtracting from 100, giving a
dilution
to new investors of 89.26%.
PLAN OF DISTRIBUTION
The Company will issue a maximum of 61,000,000
Shares
of its common stock, par value $0.001 per Share, as
follows (maximum amounts): (a) sales to the general
public of the following: (i) 10,200,000 Shares; and
(ii) 10,000,000 warrants (exercisable at $1.00 per
Share from the effective date of this Registration
Statement to December 31, 2001); (b) the issuance of
one warrant to each shareholder of record of the
Company as of June 30, 1999 (31,000,000; exercisable
at $1.00 per Share from June 30, 2000 to June 30,
2002); (c) 5,000,000 options for Shares to be issued
in the future to employees of the Company,
exercisable at $0.50 per Share; (d) 3,000,000
options
for Shares to be issued in the future to Thomas S.
Hughes, President of the Company, exercisable at
$0.50 per Share; and (e) 1,800,000 of restricted
shares being sold by selling shareholders of the
Company: Ranco Plasticos, a Costa Rica corporation,
and Menhur Azul, S.A., a Costa Rica corporation.
There can be no assurance that any of these Shares
will be issued, except for the warrants to
shareholders of record and in connection with the
acquisition. The gross proceeds to the Company
represented by issue of all the Shares and warrants
for Shares under this offering to the public
(20,200,000) will be $3,838,000. 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.
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. On August 19, 1999, counsel for
Thomson Kernaghan, a Canadian investment firm
("TK"),
threatened to file suit against the Company in
connection with TK providing certain funds to the
Company in the amount of $500,000. The Company has
indicated to this counsel that based on the actions
of TK in this matter, the Company is not now
indebted
to TK in any amount since TK has caused damage to
the
Company and its shareholders well in excess of any
amount allegedly owed by the Company to TK. The
Company intends to vigorously defend any such action
and to pursue applicable counterclaims.
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 August 13,
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 (out of a total
issued and outstanding shares of 60,523,775 as of
that date):
Title of
Class
Name and Address
of Beneficial
Owner (1)
Amount and
Nature of
Beneficial
Owner (2)
Percent of
Class
Common
Stock
Thomas S, Hughes
31310 Eaglehaven
Circle
Rancho Palos
Verdes,
California 90275
4,450,000
7.35%
Common
Stock
Electronic
Transactions
& Technologies
2500 Via
Cabrillo Marina,
Suite 112
San Pedro,
California 90731
5,400,000
8.92%
Common
Stock
Rogel
Technologies
3399 East 19th
Street
Signal Hill,
California 90804
5,000,000
8.26%
Common
Stock
Cede & Co.
P.O. Box 222
Bowling Green
Station
New York, New
York 10274
15,609,149
25.79%
(1) Other than the Shares owned by Mr. Hughes
directly and indirectly through Electronic
Transactions & Technologies, 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 200,000,000 shares of common stock, with
a par value of $0.001. The holders of the Shares:
(a)
have equal ratable rights to dividends from funds
legally available therefore, when, as, and if
declared by the Board of Directors of the Company;
(b) are entitled to share ratably in all of the
assets of the Company available for distribution
upon
winding up of the affairs of the Company; (c) do not
have preemptive subscription or conversion rights
and
there are no redemption or sinking fund applicable
thereto; and (d) are entitled to one non-cumulative
vote per share on all matters on which shareholders
may vote at all meetings of shareholders. These
securities do not have any of the following rights:
(a) cumulative or special voting rights; (b)
preemptive rights to purchase in new issues of
Shares; (c) preference as to dividends or interest;
(d) preference upon liquidation; or (e) any other
special rights or preferences. In addition, the
Shares are not convertible into any other security.
There are no restrictions on dividends under any
loan
other financing arrangements or otherwise. See a
copy
of the Articles of Incorporation, and amendments
thereto, and Bylaws of the Company, attached as
Exhibit 3.1, Exhibit 3.2, and Exhibit 3.3,
respectively, to this Form SB-2.
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 61,000,000 is sold, the
Company's
authorized but unissued capital stock will consist
of
78,476,225 shares of common stock (based on the
issued and outstanding Shares of 60,523,775 as of
August 13, 1999). 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, Suite 2350, 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
In its' aggressive pursuit to deliver diverse,
leading-edge solutions, the Company has created a
wide range of customer-driven service programs and
patent-pending products that are technologically
proven, accepted by consumers and endorsed by
businesses of every size. The Company is made up of
two divisions: The first, eGaming, is presently
generating revenues and earnings from its eSportsbet
and 777WINS.com acquisitions. The second division
of eGate which is developing technology for ATM card
with PIN or smart card payments (same-as-cash - only
the merchant can reverse the transaction) using the
Personal Encrypted Remote Financial Electronic Card
Transactions ("PERFECT"). Thus, the Company is both
an Internet and non Internet company, and both a
gaming and non gaming company. focused on connecting
the consumer directly to the recipient merchant...
no middlepersons.
eGaming Division.
This division of of the Company consists of
777WINS.com and eSportsbetcom. These recent
acquisitions are generating revenues and earnings
for the Company. eSportsbet and 777WINS.com are
both located in Costa Rica. eSportsbet is
projecting $1 million in revenue by the fourth
quarter of 1999 and 777WINS.com is projecting
$500,000 in revenue by the same time period.
It is intended that eSportsbet will have a web
presence shortly. 777WINS.com is increasing their
band width and is the first Internet casino to offer
a Tournament whereby the winners travel to a real
Casino in Costa Rica. eGaming will be creating the
sites of Bingo and Slots over the next several
months.
The Company is presently generating about $150,000
per month in revenues from this division. A new
business unit will be EzyGame,which will be the on
site or off site usage of the Company's equipment to
effect Lottery and Powerball transactions by ATM
card or EzyCard.
(a) 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.
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.
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 the Company's 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.
(b) 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.
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 will be
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.
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
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
(c) 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.
(d) 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.
eGate Division.
EzyLink Consumer Sales Group:
(a) EzyDepot Transaction Terminal.
The EzyDepot is a low-cost terminal that can be used
as a consumer activated shopping and pay-station
kiosk. The EzyDepot is an intelligent and
programmable device, and features a 4-line display,
qwerty keyboard, modem, and built-in receipt
printer. New programming and data can be remotely
loaded to units already in the field. In terms of
flexibility for consumer operation, any functions
that a kiosk or ATM is able to perform, can also be
achieved by the EzyDepot
(b) EzyShop Shopping System.
EzyShop is an exciting new service that allows
people to shop for goods while in waiting rooms and
other public areas. Catalogs from leading
merchandisers and an EzyDepot unit, a compact
terminal designed to process credit card
transactions, is placed at all EzyShop locations.
Consumers browse the catalogs and then place their
orders using the EzyDepot. The process simply
involves keying in a product code, typing in a
delivery address and swiping a major credit card
through the EzyDepot's built in credit card reader.
A printed receipt confirms the transaction.
By using a small, low-cost device, rather than a
traditional PC-based kiosk, an EzyDepot can be
profitably placed in locations where a traditional
kiosk could not, such as waiting rooms in doctors'
offices, car washes, etc
EzyShop is not a catalog merchandising company.
Instead, we work with some of the nation's leading
catalog retailers, providing our client's the
flexibility to promote demographically targeted
merchandise to their own customers. Therefore, any
product or service can be easily sold through
EzyShop.
Companies featuring the EzyShop service, called
EzyRetailers, earn a percentage of all sales
generated through the EzyDepot. EzyRetailers carry
no inventory and have no overhead, yet benefit from
the profits generated by this revolutionary new
distribution channel.
(c) EzyPay.
Recent reports from the U.S. Federal Reserve state
that an estimated 70+ billion checks are written
every year. Overall costs incurred by a merchant or
financial institution to process each consumer check
can be as high as $3.50. This adds up to more than
$40 billion spent each year by retailers to accept
check payments.
The Company's EzyPay eliminates the ongoing
inconvenience of accepting, processing and handling
payments by check, cash or other paper instruments.
Designed to dramatically improve customer service
and reduce the inherent cost of processing paper
transactions, EzyPay is the means by which pre-
authorized debits are electronically transmitted
from a customer's credit card account to the
businesses' accounts.
EzyPay Benefits
- - Simple to use
- - Simple implementation
- - 100% electronic: no physical handling
- - Proven technology
- - Flexible
- - Automatic collection and deposit
- - Pre-authorized payments
- - Provides faster funds availability
- - Reduces costs of accepting paper checks
- - Improves customer retention
EzyPay Applications
- - Mortgage or medical payments
- - Dues or subscriptions
- - Utility bills
- - Cable companies
- - Telephone companies
- - Insurance premiums
eSecure Internet Group:
(a) eSecure Systems.
One of the Company's most exciting concepts is the
use of a traditional ATM card to make purchases over
the Internet. The use of an ATM card with PIN ID
offers a cost advantage to the retailer, and
security advantages to both the consumer and
retailer. In the ever expanding world of e-
commerce, it is imperative that card based business
transactions be safe and secure. The Company's
patented eSecure "Same-As-Cash" technology enabling
encrypted remote financial transactions is our
solution for providing secure ATM-card transactions
via the Internet. These ATM card with PIN or smart
card payments are the same-as-cash in that only the
merchant can reverse the transaction. The Company
has positioned itself as a "processor", or
"gateway", for these transactions and work with
banks and ISOs to sign up web merchants for debit
acceptance, just as store fronts are signed up for
on-line debit acceptance today.
For users of major credit cards, the Company's
eSecure "SafeTpay" system allows people to make
purchases and payments on-line. By simply swiping a
major credit card through any of the Company's
eSecure hardware products, the encryption processing
systems provide the ultimate in current anti-piracy
technology.
(b) ePINpad.
At the heart of our new ePINpad product is eSecure
technology. This system enables the consumer to
utilize his or her PC to make on-line purchases and
payments with an ATM or credit card! Plug-in
software enables the ePINpad to work seamlessly with
your current web browser.
(c) ePocketPay.
For the busy consumer in today's world, desktop or
counter top convenience is not enough. The ultimate
solution is a portable device, carried with the
conumer, which can transact business at any tine.
That device is the "ePocketPay".
The ePocketPay looks and works like a cell phone.
But, because a card reader with processing
capabilities is built into it, it represents a whole
new class of device. While walking down the street,
riding in a cab, or sitting in your office, someone
can order flowers for a spouse, pay a bill, book
airplane tickets....and simply swipe the card to
pay. The transaction is done and the merchandise or
service provider can proceed without risk of non-
payment; a risk that is always present in a
traditional phone order
The Company has been granted a broad patent for the
ePocketPay, and is seeking strategic alliance(s)
with cellular equipment and/or service providers to
develop working prototypes.
(d) eKeys.
For good reason, many consumers have a strong desire
to make internet based payments with an ATM or
credit card, but don't want any additional hardware
cluttering their desktops. As a solution to that
dilemma, the Company has patented "eKeys", a simple,
integrated and elegant keyboard / credit card
reader. eKeys simply attaches to a PC or Macintosh
computer. Finally, an integrated ATM / credit card
compatible encrypting keyboard / reader is at the
consumer's fingertips. eKeys also features a built
in modem so that the consumer can bypass the
internet to make direct secure payments to a vendor
or service provider.
Company Staff.
The Company staff consists of 7 employees at
777WINS.com, 11 employees at eSportsbet.com, 4
employees at EzyShop, 6 employees at Rogel
Technologies and 5 corporate staff. The staff
expertise ranges from sportsgaming specialists to
transaction processing specialists to encryption
specialists.
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:
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. The
duration of the exclusive license is 20 years. The
licensing fee is to be paid by the Company at the
rate of $30,000 per month; however, under the terms
of this License Agreement, this fee is not due and
payable until the technology for a particular
product
covered by the license has been perfected and is
ready for public use. As of the date of this Form
10-KSB, none of the products covered by the License
Agreement had been perfected, and, therefore, no
licensing fee is required to be paid at this time
(when this does occur, a statement to that effect
will be placed in a future report filed by the
Company).
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
1.062
5
0.375
Second Quarter
0.85
0.41
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 ***
0.812
5
0.062
5
Fourth Quarter
0.562
5
0.06
*** The Shares did not trade from December 13, 1996
through April 24, 1997
(b) Holders of Common Equity.
As of August 13, 1999, there were 415 shareholders
of
record 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, except as
follows: Thomas S. Hughes received a salary payment
in June 1999 of $50,000. He had not previously
received any salary from the Company.
(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
(a) On August 1, 1998, the Company engaged the
services of George Brenner, C.P.A. of Beverly Hills,
California, to provide an audit of the Company's
financial statements for the fiscal years ended
August 31, 1997 and 1998. The former accountant for
the Company, BDO Seidman L.L.P. of St. Louis
Missouri
declined the stand for re-election for the 1997
engagement. The independent auditor's reports for
August 31, 1996 and 1995, were modified as to the
uncertainties about the Company's ability to
continue
as a going concern. The decision to change
accountants was approved by the Company's Board of
Directors with the selection of the successor
accountant. The Company and its former accountants
had no disagreement during the fiscal years ended
August 31, 1996 and 1995, and through the date they
declined to stand for re-election.
(b) Effective on July 19, 1999, the independent
accountant who was previously engaged as the
principal accountant to audit the registrant's
financial statements, resigned. This accountant's
report on the financial statements for the past two
years neither contained an adverse opinion or a
disclaimer of opinion, nor was qualified or modified
due to uncertainty, audit scope, or accounting
principles. The decision to change accountants was
approved by the Board of Directors.
During the registrant's two most recent fiscal years
and any subsequent interim period preceding such
resignation, there were no disagreements with the
former accountant on any matter of accounting
principles or practices, financial statement
disclosure, or auditing scope or procedure. In
addition, there were no "reportable events" as
described in Item 304(a)(1)(v)(A) through (D) of
Regulation S-K that occurred within the registrant's
two most recent fiscal years and the subsequent
interim period preceding the former accountant's
resignation.
(c) Effective on July 22, 1999, the firm of Farber
&
Hass has been engaged to serve as the new principal
accountant to audit the registrant's financial
statements. During the registrant's two most recent
fiscal years, and the subsequent interim period
prior
to engaging that accountant, neither the registrant
(nor someone on its behalf) consulted the newly
engaged accountant regarding any matter.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Propsectus
under the heading "Disclosure of Commission Position
on Indemnification for Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the
Prospectus under the heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
None.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B,
and an index thereto, are attached.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(a) (1) File, during any period in which it offers
or sells securities, a post-effective amendment to
this registration statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act; (ii) Reflect in the
prospectus any facts or events which, individually
or
together, represent a fundamental change in the
information in the registration statement; and
Notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
From the low or high end of the estimated maximum
offering range may be reflected in the form of
prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement. (iii) Include any
additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities
Act, treat each post-effective amendment as a new
registration statement of the securities offered,
and
the offering of the securities at that time to be
the
initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain
unsold
at the end of the offering.
(d) Provide to the underwriter at the closing
specified in the underwriting agreement certificates
in such denominations and registered in such names
as
required by the underwriter to permit prompt
delivery
to each purchaser.
(e) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the "Act")
may be permitted to directors, officers and
controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in
the opinion of the Securities and Exchange
Commission
such indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the small business issuer of expenses
incurred or paid by a director, officer or
controlling person of the small business issuer in
the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the small business issuer will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act and will
be
governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the
Securities
Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and
authorized this registration statement to be signed
on its behalf by the undersigned, thereunto duly
authorize, in the City of San Pedro, State of
California, on August 19, 1999.
eCONNECT
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S.
Hughes their true and lawful attorney-in-fact and
agent with full power of substitution, for him and
in
his name, place, and stead, in any and all
capacities, to sign any and all amendments,
including
post-effective amendments, to this Form SB-2
Registration Statement, and to file the same with
all
exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange
Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every
act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents
and purposes as he might or could do in person,
hereby ratifying and confirming all that such
attorney0in-fact may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act
of
1933, this registration statement has been signed by
the following persons in the capacities and on the
date indicated:
Signature
Title
Date
/s/ Thomas S.
Hughes
Thomas S.
Hughes
President, Chief
Executive Officer,
Director
August 19, 1999
/s/ Jack M.
Hall
Jack M. Hall
Secretary,
Director
August 19, 1999
/s/ Diane
Hewitt
Diane Hewitt
Treasurer
(Principal
Financial and
Accounting
Officer), Director
August 19, 1999
EXHIBIT INDEX
Exhibit
Number
Description
Method of
Filing
3.1
Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registration
Statement on Form SB-2 filed on July 2, 1999)
Incorporated
by Reference
3.2
Certificate of Amendment of Articles of
Incorporation (incorporated by reference to
Exhibit 3.2 to the Registration Statement on
Form SB-2 filed on July 2, 1999)
Incorporated
by Reference
3.3
Certificate of Amendment of Articles of
Incorporation
See Below
3.4
Bylaws (incorporated by reference to Exhibit
3.3 to the Registration Statement on Form SB-2
filed on July 2, 1999)
Incorporated
by Reference
4
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
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
10.5
Letter of Commitment (incorporated by
reference to Exhibit 10.5 to the Form 10-QSB
for the quarter ended June 30, 1999)
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
See Below
23.2
Consent of Accountant
See Below
24
Special Power of Attorney
See
Signature
Page
CERTIFICATE OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
eCONNECT
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. The amendment set forth herein does not, in
compliance with Nevada Revised Statutes 78.207,
require the approval of the shareholders.
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 Four:
This Corporation is authorized to issue only one
class of shares of stock, the total number of which
is 200,000,000 shares, each with a par value of
$0.001.
/s/_______________________________________
Thomas S. Hughes, President/Director
Verification
State of California
SS
County of Los Angeles
On this 20th day of August, 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 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
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.
PART I.
ITEM 1. BUSINESS.
(a) Business Development
Betting, Inc., was organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-
TOP,
INC. On April 20, 1983, the Articles of
Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993,
the
Articles of Incorporation were amended to change the
name of the corporation to Leggoons, Inc. In
addition to changing the company's name, the May
28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the
par
value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons,
Inc.,
declared a 14-for-1 stock split. Unless otherwise
indicated, all share and per share data are
reflected
on a post split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of
its assets and liabilities to a third party
assignee,
under an "Assignment for the Benefit of Creditors"
(the "Assignment"). An Assignment is a business
liquidation device available as an alternative to
bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the
"Assignee"), will be required to properly, timely,
and orderly dispose of all remaining assets for the
benefit of creditors. Leggoons, Inc., continued to
maintain its' status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of
Sales,
Inc.(HPOS). HPOS is a privately held corporation
focused on the emergence of the Personal Encrypted
Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase
from home with real time cash transactions.
Management believes the proprietary technology and
the large demand for wagering opportunities in
today's marketplace will combine to generate
substantial sales for Leggoons, Inc., over the
medium
term.
Thomas S. Hughes, Chairman of HPOS, became Chairman
and President of Leggoons, Inc., on March 1, 1997.
He will focus on procedures, policies and state
approvals to begin home lottery, off track betting,
casino and sports ATM card and SMART card wagering.
A
search is presently being conducted to locate a
CEO/COO for the Company. The CEO/COO will assemble
a
team of professionals to develop the procedures and
policies of home ATM card and SMART card wagering.
This development process will include a close focus
on the political and the instant taxation of home
winnings issues associated with home ATM card and
SMART card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as
Chairman and President of the Leggoons, Inc.
Leggoons, Inc., intends to seek shareholder
ratification of its name change from Leggoons, Inc.
to Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the "Company") is positioning itself
to facilitate same as cash ATM card or smart card
transactions that are originating from bank host
processing centers and are being sent to gaming
operators. These transactions are being effected
with electronic equipment that allows self service
pay per play and no actual communications between
the
player and the gaming operator. These types of
transactions will be originating from homes,
offices,
and public walk in locations. The Company will act
as the interface that will communicate data to the
gaming operators, receive back their acknowledgment
of the transaction and then pass on this gaming
acknowledgment to the bank host processing center
that has been standing by for this information and
has already completed the bank authorization of the
pay per play transaction.
The business model of the Company is to receive a
fee
per transaction paid to Betting, Inc. by the bank
host processing center at the moment of the
transaction. In general, this fee will be from
between 2% to 6% of the wager placed on a pay per
play or a $6 flat fee in the case of an account
being
opened.
The internet gaming industry is an industry that has
developed significantly in recent years. The
internet gaming industry as a whole is under
increasing governmental scrutiny as the industry
develops. It is possible that at some point in the
future there could be legislation against gambling
on
the internet or other similar methods.
Leggoons, Inc., was engaged in the design,
manufacture and distribution of apparel and related
accessories which are sold to better specialty and
department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork
Apparel and Snooggel. On January 19, 1996, Leggoons,
Inc., entered into a Licensing Agreement with Robert
Tamsky, a former director and employee of the
Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr.
Tamsky effective January 1, 1996, the right to use
the LEGGOONS trademark in connection with the
design,
production, marketing, sales and sublicensing of all
clothing, wearing apparel and accessories bearing
the
"LEGGOONS" symbol. This right will continue until
December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration
for the license, Mr. Tamsky, according to the
Licensing Agreement, shall pay to the Leggoons, Inc.
a royalty of five percent of the net sales of
"LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc.,
adopted
a formal plan to discontinue the designing, selling,
manufacturing and distribution of its apparel
products. As part of such plan, Leggoons, Inc.,
discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations
within twelve months of that date. On June 12,
1996,
Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors." Included
in the Assignment were the rights and obligations of
the Licensing Agreement.
Item 2. Description of Property.
Not Applicable
Item 3. Legal Proceedings.
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders.
Not Applicable
PART II.
Item 5. Market for Common Equity and Related
Stockholder Matters.
(a) Market Information
The Common Stock is traded in the over-the-counter
market and the range of closing bid prices shown
below is as reported by the OTC Bulletin Board. The
quotations shown reflect inter-dealer prices,
without
retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High
Low
First Quarter
0.12
0
Second Quarter
0.08
0
Third Quarter
0.15
0.03
Fourth Quarter
0.20
0.06
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High
Low
First Quarter
8
5.875
Second Quarter
8.125
7.625
Third Quarter
0.8125
0.0625
Fourth Quarter
0.5625
0.06
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there
were 400 beneficial shareholders of the Company's
Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend
to stockholders since it became a "C" corporation
on
November 18, 1993. The Board of Directors presently
intends to retain any earnings to finance Company
operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the
Company's earnings, capital requirements and other
factors.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was
$196,968. The Company recognized $0 in revenue
while
preparing the setup of the Company to commence
operations as a facilitator of same as cash ATM card
or smart card transactions that are originating from
bank host processing centers and are being sent to
gaming operators. The loss was due to consulting
fees of $122,020 and general and administrative
expenses of $74,948.
During the period September 1, 1996, through
February
28, 1997, the Company was operating as Leggoons,
Inc.
(a public shell available for merger or
acquisition).
During this six month period the net loss from
continuing operations was $35,912. This loss was
due
to general and administrative expenses of $35,912.
The primary general and administrative expenses
incurred during the six month period ended February
28, 1997, were legal expenses related to the HPOS
license agreement, accounting fees for the audit of
Leggoons, Inc., financial statements as of and for
the year ended August 31, 1996, and stock expenses
required to maintain Leggoons, Inc., public shell
status. During the period March 1, 1997, through
August 31, 1997, the Company was maintaining
operations as Betting, Inc. During this six month
period the net loss from continuing operations was
$1,663,533. This loss was due to operating expenses
of $1,663,533. The operating expenses were
consulting fees of $565,740, research and
development
expenses of $450,331, software development costs of
$507,600 and general and administrative expense of
$139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August
31, 1998, the Company issued 6,441,000 shares of
common stock for services rendered and payments on
accounts payable and due to stockholder. For the
shares of common stock issued for services rendered
and payments on accounts payable during the period
September 1, 1997, through August 31, 1998, the
following valuation policies were used so that a
financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the
1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used
to
determine "fair market value" of the 2,322,000
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 2,750,000 shares, were valued at par
value,
$.01 per share. For the 2,750,000 shares of common
stock issued for which no performance was received a
stop has been placed on the stock certificates with
the Company's stock transfer agent.
The financial value of the common stock issued for
no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $153,160, has primarily been expensed
as $122,020 in consulting fees and $31,140 in
general
and administrative expenses during the year ended
August 31, 1998. Some of the common stock shares
issued were registered with the Securities and
Exchange Commission using Form S-8 Registration
Statements.
During the six month period from September 1, 1996,
through February 28, 1997, Leggoons, Inc., principal
stockholder, James S. Clinton, provided the
operating
capital needed to fund operations. During the six
month period from March 1, 1997, through August 31,
1997, operations were funded via advances from HPOS
and by issuing common stock for funds and services
rendered. During the period March 1, 1997, through
August 31, 1997, the Company issued 4,710,234 shares
of common stock for services rendered. For the
2,999,734 shares of common stock issued for services
rendered during the period March 1, 1997, through
May
31, 1997, the following valuation policies were used
so that a financial value could be assigned to the
stock issuance transactions: the closing "market"
stock price on the day of each common stock issuance
was used to determine "fair market value" of the
520,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used
to
determine "fair market value" of the 1,725,734
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 754,000 shares, were valued at par value,
$.01 per share. For the 1,710,500 shares of common
stock issued for services rendered during the period
June 1, 1997, through August 31, 1997, an average
closing stock price of $.20 was used to determine
"fair market value" of each share issued so that a
financial value could be assigned to the stock
issuance transactions..
The financial value of the common stock issued for
no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $1,297,805, has primarily been
expensed
as $304,240 in consulting fees, $445,128 in research
and development costs, $500,000 in software
development costs and $48,437 in general and
administrative expenses during the year ended August
31, 1997. Some of the common stock shares issued
were registered with the Securities and Exchange
Commission using Form S-8 Registration Statements.
The common shares of stock issued for noncash
consideration were, in some cases, given for past
services rendered to HPOS in developing its'
product.
The management of the Company is continuing its
search for additional private investors to provide
the funds needed to fund day to day operations. It
is also the goal of management to register and
complete additional public stock offerings of its
common stock.
The Company has an accumulated deficit of
$5,467,602.
The Company's losses from operations and inability
to
generate sufficient cash flow from normal operations
to meet its obligations as they come due raise
substantial doubt about the Company's ability to
continue as a going concern. The Company's ability
to continue in existence is dependent upon future
developments, including obtaining financing and
achieving a level of profitable operations
sufficient
to enable it to meet its obligations as they become
due.
Plan of Operations
The plan of the Company is to establish partners in
countries including, but not limited to, the United
Kingdom, China, Mexico, Australia and South Africa
with the stated goal being the establishment of the
wagering gate between the bank hosts in that country
and the gaming operators. The second phase will be
the connection between the various countrys' Company
wagering gates so that same day per play between
countries will be possible.
Establishing the wagering gate presence involves the
linking of Betting, Inc. to both the gaming
operators
and the bank hosts. In effect, the Company will be
a
data host processing center whose business is the
passing of messages back and forth between the bank
hosts and the gaming operators.
The Company is currently satisfying its cash
requirements by issuing Betting, Inc. common stock
for services rendered. The Company intends to issue
Betting, Inc. common stock at some point in the
future to satisfy a $237,000 obligation to the
designer and developer of the Merchant Response
Software used with the 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 ("ET&T"), 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 $100,000.
Summary Compensation Table
Name
and
Princi
pal
Positi
on
Year
Sala
ry
($)
Bonu
s
($)
Othe
r
($)
Stoc
k
($)
SARs(#
) ($)
Optio
ns/
($)
Compensat
ion
Thomas
Hughes
1998
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
Thomas
Hughes
/
1997
- -0-
- -0-
- -0-
375,
000
- -0-
- -0-
- -0-
James
S.
Clinto
n,
Presid
ent
and
Chief
Execu-
tive
Office
r
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 of
Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Percent of
Class
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064
1,417,0001
18.0%
Thomas S. Hughes
31310 Eaglehaven
Circle
Rancho Palos
Verdes, CA 90275
1,000,000
12.7%
1On January 24, 1996, Mr. Larry Langston entered
into
an Option Agreement with Steven Walters, a former
officer and director of Leggoons, Inc., which grants
Mr. Walters an option to purchase 261,500 of Mr.
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 of
Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Percent of
Class
Thomas S. Hughes
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
1,000,000
12.7%
All officers and
directors as a group
(1 individual)
1,000,000
12.7%
1Shares reported include shares owned by spouses of
officers and directors. No options to acquire any
BETTING, INC. common stock are owned by any officer
or director.
Item 12. Certain Relationships and Related
Transactions.
During the 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 known as 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. The
duration of the exclusive license is 20 years. The
licensing fee is to be paid by the Company at the
rate of $30,000 per month; however, under the terms
of this License Agreement, this fee is not due and
payable until the technology for a particular
product
covered by the license has been perfected and is
ready for public use. As of the date of this Form
10-KSB, none of the products covered by the License
Agreement had been perfected, and, therefore, no
licensing fee is required to be paid at this time
(when this does occur, a statement to that effect
will be placed in a future report filed by the
Company).
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: August 6, 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
August 6, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
August 6, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
August 6, 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 SHEETS
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
August 31, 1998
Year Ended
August 31,
1997
Revenue
$0
$0
Operating Expenses (Note 4)
Consulting Fees
122,020
565,740
General and Administrative
Expenses
74,948
175,774
Research and Development
Expenses
0
450,331
Software Development Costs
0
507,600
Total Operating Expenses
(196,968)
(1,699,445)
Net Loss (Note 1)
$(196,968)$
(1,699,445)
Net Loss per Common Share
$(.02)
$(.41)
Weighted Average Common
Shares Outstanding
10,994,465
4,106,620
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Number
of
common
shares
Par
value
Preferre
d stock
Additiona
l paid-in
capital
Accumulate
d deficit
Stockholders
' equity
(deficit)
Balance at August
31, 1996
2,787,0
00
27,870
0
3,522,792
(3,571,189
)
(20,527)
Issuance of
346,000 shares of
Common stock at
$.25 per share
(Cash Transaction)
346,000
3,460
0
82,040
0
85,500
Issuance of
2,999,734 shares
of Common stock
(1) (Non-Cash
Transactions)
2,999,7
34
29,997
0
925,708
0
955,705
Issuance of
1,710,500 shares
of Common stock at
$.20 per share
(Non-Cash
Transactions)
1,710,5
00
17,105
0
324,995
0
342,100
Net loss
0
0
0
0
(1,699,445
)
(1,699,445)
Balance at August
31, 1997
7,843,2
34
$78,432
$0
$4,855,53
5
($5,270,63
4)
($336,667)
Issuance of
6,441,000 shares
of Common stock
at various $ per
share [1] (Non-
Cash Transactions)
6,441,0
00
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,
234
$142,842
$0
$5,000,42
0
($5,467,60
2)
($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 August
31, 1998
Year Ended August
31, 1997
Operating Activities
Continuing operations:
Net loss (Note 7)
$(43,808)
$(401,640)
Changes in assets and
liabilities:
Accounts payable
21,793
270,839
Commissions payable
3,001
18,399
Cash Used in Operating
Activities
(19,014)
(112,402)
Financing Activities
Continuing operations:
Proceeds from additional
borrowings from stockholder
18,969
26,947
Proceeds from issuance of
common stock
0
85,500
Cash Provided by Financing
Activities
18,969
112,447
Net Increase (Decrease) in
Cash
(45)
45
Cash at Beginning of Year
45
0
Cash at End of Year
$0
$45
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the
years
ended August 31, 1998 and 1997, respectively. The
following summarizes noncash investing and financing
transactions:
Year Ended August 31,
1998
Issuance of 5,341,000 shares of common stock for
services
rendered
$153,160
Issuance of 750,000 shares of common stock for
payment on
due to stockholder
35,135
Issuance of 350,000 shares of common stock for
payment on
accounts payable
21,000
Year Ended August 31,
1997
Issuance of 4,710,234 shares of common stock for
services
rendered
$1,297,805
See accompanying notes to financial statements and
accompanying 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
$1,699,44
5
(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
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 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
eCONNECT .
(Exact name of registrant as specified in its
charter)
Nevada
43-1239043
(State or jurisdiction of incorporation
I.R.S. Employer
or organization)
Identification
No.)
2500 Via Cabrillo Marina, Suite 112, San Pedro,
California
90731
(Address of principal
executive offices)
(Zip
Code)
Registrant's telephone number: (310) 514-9482
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 X
No
.
As of June 30, 1999, the registrant had
30,885,100 shares of common stock issued and
outstanding.
Transitional Small Business Dislcosure Format
(check one): Yes No X .
PART I.
ITEM 1. FINANCIAL STATEMENTS.
eCONNECT
BALANCE SHEETS
(Unaudited)
June 30, December
31,
1999
1998
ASSETS
Current Assets
Cash $ 184,218 $8,862
Total current assets
184,218
8,862
Investment in wholly-owned subsidiary
2,062,500 0
Property and equipment 5,478
0
Total Assets $2,252,196
$8,862
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
440,331
$ 305,121
Due to a related party 1,219,379 24,169
Debenture payable 500,000 0
Common stock payable 1,411,000 0
Current portion - due vendor 60,000
0
Total current liabilities
3,630,710 329,290
Long Term Liability
Due vendor - less current portion of $60,000
580,000 0
Total liabilities
4,210,710 329,290
Commitments and Contingencies 0 0
Stockholders' Equity (Deficit):
Common stock, $0.001 par value at June 30,
$0.01 at December 31; authorized100,000,000
shares; issued and outstanding,14,354,798
and 30,885,100 and 14,475,234,
respectively
30,885 144,752
Additional paid-in capital 7,411,407
5,018,560
Accumulated deficit (9,400,806)
(5,483,740)
Total stockholders' equity (deficit)
(1,958,514) (320,428)
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,252,196 $
8.862
See accompanying notes to interim financial
statements
eCONNECT
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months
Ended
June 30, June 30,
1999 1998 1999
1998
General and
administrative expenses:
Consulting fees $ 841,365 $ 0 $
867,615 $ 23,750 Legal fees
48,956 800 65,318 800
Office expense 0 5,160
4,358 17,491
Software development 186,070 0
190,170 2,143
Stock expense 11,508 1,143
22,314 12,000
Interest 97,500 0 97,500
0 License fee - related party
1,908,000 0 2,000,000 0
Executive compensation 50,000 0
50,000 0 Research &
development 312,184 0 312,184
0
Finders fees & stock promotion 84,450
0 84,450 0
Restitution expense 125,000 0
125,000 0
Other
70,753 0 98,157
0
Total operating expenses
3,735,786 7,103 3,917,066
56,184
Net loss
$(3,735,786) $(7,103)
$3,917,066 $(56,184)
Net loss per common share $
(.25) $ (.00) $ (.22) $
(.01)
Weighted average shares outstanding 14,685,596
11,181,234 18,233,711 11,293,234
See accompanying notes to interim financial
statements
eCONNECT
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
1999 1998
Cash Flows From Operating Activities
Net loss: $ 3,917,066 $(57,327)
Stock given for services 722,638
35,750
Stock to be given to related party
2,125,000 0
Loss adjusted to cash basis (1,069,428)
(21,577) Changes in assets and
liabilities
(Accounts payable) 135,210 14,843
Cash Used in Operating Activities
(934,218) (6,734)
Cash Flows From Investing Activities:
Property and equipment (5,478) 0
Cash Flows From Financing Activities:
Issuance of Debenture 500,000
0 Issuance of common stock 861,587 0
Proceeds from borrowings 136,000 0
Paid down on borrowings (100,000) 0
(Paid down) borrowings from related party
(282,535) 6,700
Cash provided by financing activities
1,115,052 6,700
Net increase (decrease) in cash 175,356 (34)
Cash at beginning of period 8,862 34
Cash at end of period $ 184,218 $
0
Supplemental Disclosures:
Non-monetary transactions
Stock issued or to be issued for the
wholly owned subsidiary:
2,500,000 shares of restricted stock 687,500
0
2,500,000 shares to be issued (free trading)
1,375,000 0
$ 2,062,500 $ 0
Stock issued to a related party:
9,400,000 shares at par value $0.001
$ 9,400 $
0
Interest paid
$ 97,500 $
0
See accompanying
notes to interim financial statements.
ECONNECT
NOTES TO
INTERIM
FINANCIAL STATEMENTS
Basis of Presentation.
The information furnished herein relating to interim
periods has not been audited by an independent
certified public accountant. 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.
Certain information and footnote disclosure normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been omitted pursuant to the
requirements of the Securities and Exchange
Commission, although the Company believes that the
disclosures included in these financial statements
are adequate to make the information not misleading.
The financial statements should be read in
conjunction with the financial statements and notes
thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended August 31,
1998.
2. Organization.
The Company 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.
Thomas S. Hughes became Chairman and President of
Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
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. As a result of the merger, the
fiscal year-end was changed from August 31 to
December 31 and the par value of the common stock
was
changed from $0.01 per share to. $0.001 per share.
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.". An audited report will
be
filed (prior to August 31, 1999) for the four month
transition period from September 1, 1998 through
December 31, 1998.
The Company's business has been in a start-up mode.
No revenue has been recorded. As set forth in Note 9
"Subsequent Events," the Company has acquired (post
June 30, 1999) certain revenue producing businesses.
Hence forth, certain segments of the business will
be
revenue producing while other segments will continue
in the start-up phase.
3. Continued Existence.
The accompanying financial statements have been
prepared assuming that the Company will continue as
a
going concern. As set forth above, the Company,
through June 30, 1999, has been in a start phase
experiencing negative working capital and a
stockholders' deficit. This raises substantial doubt
about its ability to continue as a going concern.
The
interim 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.
Management's plans to continue as a going concern
include the acquisition of going concern businesses
(Note 9 Subsequent Event). Management is cautiously
optimistic that the unaudited revenue and earnings
generated by businesses prior to acquisition will
continue and be available to fund those business
segments still in the start-up phase.
4. Related Party Transactions.
The Company has entered into various agreements with
Electronic Transactions and Technologies ("ET&T"), a
corporation 70% owned by Mr. Hughes. The following
are the transactions for the six months ended June
30, 1999 between the related parties (ET&T and Mr.
Hughes) and e Connect:
Charges
Cash disbursed to the related parties (net of a
$50,000 salary): $ 189,411
144 Restricted Stock issued to Mr. Hughes:
4,000,000 shares
144 Resticted Stock issued to ET&T: 5,400,000
shares
9,400,000 shares
Value at par value of $.001 per share: 9,400
Assumption of ET&T liability: 706,810
Total Charges
905,621
Credits
License fee (Note 6B):
2,000,000
Restitution (Note 6C): 125,000
Total Credits: 2,125,000
Due to ET&T and Mr. Hughes: $ 1,219,379
It is planned to reimburse ET&T in company stock.
5. Acquisition.
During the six months ended June 30, 1999, the
Company acquired 100% of Rogel Technologies, a
corporation which will assist the Company in
developing its product line. The acquisition was
accounted for as follows:
2,500,000 shares of restricted stock: $ 687,500
2,500,000 shares of free trading stock
to be delivered post June 30, 1999: 1,375,000
$2,062,500
The stock was valued at $.55 per share less a 50%
discount for restricted stock.
Commitments and Contingencies.
A. Debenture Payable.
The Company is contesting the payment of $500,000
principal due on a certain debenture, as claimed by
a
Canadian firm. The companies respective counsels are
currently negotiating a settlement of this matter.
B. Licensing Agreement.
ET&T has licensed the global intellectual rights of
four products to e Connect. The products are: "The
Paymaster," "The Slick," "The Pocket Pay" and " The
TV Pin Pad Remote." Each product is licensed at
$2,000,000 and is due if and when the Company
perfects the product. To date, only "The PayMaster"
has been perfected.
C. Restitution.
In connection with the acquisition of the
wholly-owned subsidiary, Rogel Technologies, Mr.
Thomas Hughes gave up 250,000 shares of his own
stock
valued at $.50 per share. In the event Mr. Hughes
receives the stock back, the restitution loss will
be
canceled.
D. Stock Options.
The Company does not have a formal stock plan,
however, certain consultants have, as part of their
agreements, the right to buy stock at a stipulated
price per share.
E. Agreement to License Assets.
The Company issued 2,900,000 shares of restricted
common stock to ET&T in exchange for licensing home
ATM card and SMART card wagering technology
developed
by ET&T. Of this amount, 2,755,000 shares were
placed
in escrow and were subject to cancellation on
February 10, 1998, in the event the bid price of the
common stock of the Company was not at least $3.00
per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board
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 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, the ET&T 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.
7. Earnings (loss) Per Share.
Net earnings (loss) per share are computed using the
weighted average number of common shares outstanding
during the period.
8. Income Taxes.
eConnect has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at
February
18, 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 e
Connect. 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.
In connection with the change in fiscal years ( see
Note 2), an application with the IRS will be filed
to
change the tax year.
Subsequent Event.
The Company filed a SB2 (a shelf offering) with the
Securities and Exchange Commission on June 1,1999,
which became effective July 22, 1999. A maximum of
20,000,000 shares (some of which have been issued)
are available to acquire the assets of various
businesses.
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.
Because the Company was in a start-up phase, there
were no reviews in either period. Activity for the
six months ended June 30, 1998 was immaterial
(approximately $56,000 of expenses).
For the period ended June 30, 1999, expenses were
approximately $3,900,000. Of the total expenses
$293,000 were incurred by the e Gate Division (Ezy
Shop) which began start-up operations in May. The
balance of the expenses approximating $3,600,000
were
incurred at the corporate level of which $2,000,000
was for a license fee, $800,000 for consulting
expenses and $125,000 for restitution or an
aggregate
of $2,925,000.
The above enumerated license fee ($2,000,000) and
restitution ($125,000) were paid in stock. Of the
$800,000 consulting expense, approximately $723,000
was paid in stock of the Company. Of the
approximate
$57,000 expenses incurred for the period ended June
30, 1998, $36,000 were paid in stock of the Company.
Liquidity and Capital Resources.
Because activity for the six months ended June 30,
1998 was immaterial, liquidity was not a factor. For
the six month period ended June 30, 1999 the Company
raised $417,500 from a debenture offering ($82,500
fee), approximately $862,000 from a stock offering
and $160,000 from individual borrowings.
For the period ended June 30, 1999 debt from
individual borrowings was paid down by $100,000. A
related party debt (ET&T) was paid down
approximately
$283,000. The Company paid down approximately
$700,000 on its debt to ET&T by assuming ET&T's
liability to a vendor.
Capital Expenditures.
No material capital expenditures were made during
the
quarter ended on June 30, 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.
The following matters were submitted to a vote of
the
Company's stockholders during the second quarter of
the fiscal year covered by this report:
A Special Meeting of the shareholders of the Company
was held on May 21, 1999.
The shareholders voted on approving and Agreement
and Plan of Merger between Betting, Inc., a Missouri
corporation, into Betting, Inc., a Nevada
corporation
(now know as eConnect), for the purpose of
redomiciling the Company to the State of Nevada. The
Agreement and Plan of Merger was approved by a total
of 8,700,000 shares (in person and by proxy) out of
a
total of 14,500,000 shares entitled to vote at that
time (no shares voted against the merger). This
merger was evidenced by the filing of Articles of
Merger with the Nevada Secretary of State (effective
on June 1, 1999).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K. Reports on Form 8-K were filed
during the second quarter of the fiscal year covered
by this Form 10-QSB, as follows:
Form 8-K filed on June 2, 1999 reflecting the merger
described in Item 4 above, the resulting change of
the fiscal year, as well as the Amendement of the
Articles of Incorporation of the Company changing
the
name from "Betting Inc." to "eConnect."
Form 8-K filed on June 23, 1999 reflecting the new
address for the Company and the new trading symbol
for the Company on the OTC Bulletin Board: ECNC.
(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
Dated: August 11, 1999 By: /s/
Thomas S. Hughes
Thomas S. Hughes,
President
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2/A filed on July
22, 1999.
3.2 Amendment of Articles of Incorporation,
incorporated by reference to Exhibit 3.2 of the
Registration Statement on Form SB-2/A filed on July
22, 1999.
3.3 Bylaws of the Company, incorporated by
reference
to Exhibit 3.3 of the Registration Statement on Form
SB-2/A filed on July 22, 1999.
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).
10.5 Letter of Commitment between Rogel
Technologies and the Company, dated May 6, 1999 (see
below).
27 Financial Data Schedule (see below).
[TEXT]
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
August 18, 1999
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - 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.
81
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