UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: August 31, 1997
Commission file number: 33-68570
BETTING, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1239043
(State of incorporation)(IRS Employer Identification number)
31310 Eaglehaven Center, Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices and Zip Code)
(310) 541-4393
(Registrant's telephone number, inc luding area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Betting, Inc. Common Stock $.01 Par Value
Betting, Inc. Class A Warrants
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or informational statements incorporated by
reference in Part III of this form 10-KSB or any amendment to
this form 10-KSB. [ ]
Revenues for the fiscal year ended August 31, 1997: $0
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the closing average bid
and asked price of the Common Stock on August 31, 1997, as
reported on the OTC Bulletin Board, was $784,000
Number of shares of common stock outstanding as of August
31,1997: 7,843,234
Documents Incorporated by Reference: Registrant's Annual Report
on Form 10-KSB filed on January 17, 1997, Exhibit's in
Registrant's Annual Report on Form 10-K filed on December 14,
1995, and Exhibits in Registrant's Annual Report on Form 10-K
filed on November 29, 1994, are incorporated by reference to the
exhibit index attached hereto. Exhibits in Registrant's
Registration Statement on Form S-1 filed on October 28, 1993, are
incorporated by reference to the exhibit index attached hereto.
BETTING, INC.
Index to Annual Report
on Form 10-KSB
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Part I Page
Item 1- Description of Business 3-4
Item 2- Description of Property 4
Item 3- Legal Proceedings 4
Item 4- Submission of Matters to a Vote of 4
Security Holders
Part II
Item 5- Market for Common Equity and Related 5
Stockholder Matters
Item 6- Management's Discussion and Analysis of 5-8
Financial Condition Results of Operations
Item 7- Financial Statements 8
Item 8- Changes in and Disagreements with 8-9
Accountants on Accounting and Financial
Disclosure
Part III
Item 9- Directors, Executive Officers and 9
Compliance With Section 16(a) of the Exchange
Act
Item 10- Executive Compensation 9
Item 11- Security Ownership of Certain 10
Beneficial Owners and Management
Item 12- Certain Relationships and Related 10-11
Transactions
Part IV
Item 13- Exhibits, Financial Statement 11
Schedules and Reports on Form 8-K
</TABLE>
PART I
Item 1. Description of Business
(a) Business Development
Betting, Inc., was organized under the laws of the State
of Missouri on September 1, 1981, as HANDY-TOP, INC. On
April 20, 1983, the Articles of Incorporation were
amended to change the name of the corporation to HTI
Corporation. On May 28, 1993, the Articles of
Incorporation were amended to change the name of the
corporation to Leggoons, Inc. In addition to changing
the 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, 1997
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High Low
First Quarter 3/8 1/8
Second Quarter 1/2 1/8
Third Quarter 15/16 1/16
Fourth Quarter 9/16 1/16
</TABLE>
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1996
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High Low
First Quarter 1 7/8 3/4
Second Quarter 1 7/8
9/16
Third Quarter 1 5/16
9/16
Fourth Quarter 15/16 3/8
</TABLE>
(b) Holders of Common Equity
As of August 31, 1997, 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
(a) Results of Continuing Operations
Comparison of Fiscal 1997 and 1996
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. (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). 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 expenese
of $139,862.
The loss from continuing operations for the year ended
August 31, 1996, was $128,920. This loss was due to
general and administrative expenses of $128,920. The
primary general and administrative expenses incurred
during the year ended August 31, 1996, were legal
expenses related to possible merger or acquisition
agreements, accounting fees for the audit of Leggoons,
Inc., financial statements as of and for the year ended
August 31, 1995, and stock expenses required to maintain
Leggoons, Inc., public shell status.
Liquidity and Capital Resources
During the six month period from September 1, 1996,
through February 28, 1997, Leggoons, Inc., prinicpal
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 $5,270,634.
The Company's losses from operations and inability to
generate sufficient cash flow from normal operations to
meet its obligations as they come due raise substantial
doubt about the Company's ability to continue as a going
concern. The Company's ability to continue in existence
is dependent upon future developments, including
obtaining financing and achieving a level of profitable
operations sufficient to enable it to meet its
obligations as they become due.
Plan of Operations
The plan of the Company is to establish partners in
countries including, but not limited to, the United
Kingdom, China, Mexico, Australia and South Africa with
the stated goal being the establishment of the wagering
gate between the bank hosts in that country and the
gaming operators. The second phase will be the
connection between the various countries' Company
wagering gates so that same day per play between
countries will be possible.
Establishing the wagering gate presence involves the
linking of Betting, Inc. to both the gaming operators and
the bank hosts. In effect, the Company will be a data
host processing center whose business is the passing of
messages back and forth between the bank hosts and the
gaming operators.
The Company is currently satisfying its cash requirements
by issuing Betting, Inc. common stock for funds and
services rendered. The Company intends to issue Betting,
Inc. common stock at some point in the future to satisfy
a $258,000 obligation to the designer and developer of
the Merchant Response Software used with the Company's
hardware products. The $258,000 obligation is included
in accounts payable at August 31, 1997.
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 December 31, 1998, 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. "98" for
1998). 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, 1997, and for the year ended August 31, 1996 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
On August 1, 1998, the Company engaged the services of
George Brenner, C.P.A. in Beverly Hills, California, to
provide an audit of its financial statements for the
fiscal year ended August 31, 1997. Mr. Brenner is not
associated with the August 31, 1996, financial statements
nor any note references to the financial statements for
that time period. The former accountant, BDO Seidman LLP
in St. Louis, Missouri declined to stand for re-election
for the 1997 engagement. The independent auditors'
reports for August 31, 1996 and 1995, were modified as to
uncertainties about the entity'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 accountants. The Company and
its former accountants had no disagreements during the
fiscal years ended August 31, 1996 and 1995, and through
the date they declined to stand for re-election.
PART III
Item 9. Directors, Executive Officers and Compliance With
Section 16(a) of the Exchange Act
(a) Directors and Executive Officers
Thomas S. Hughes, 50, Chief Executive Officer, President
and Director of the Company since 1997. Founder of
Electronic Transactions and Technologies (formerly HPOS).
Jack M. Hall, 67, Director of the Company since 1997
D. Diane Hewitt, 50, Director of the Company since 1997.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires the 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 1997, 1996, and 1995 for the Chief
Executive Officer and for each of the Company's other
executive officers whose annual salary and bonus exceeds
$100,000.
Summary Compensation Table
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Long-Term Compensation
Annual Compensation Awards Payouts
Name and Year Salary Bonus Other Stock Options LTIP All Other
Principal ($) ($) ($) ($) SARs(#) Payouts Compensation
Position ($) ($)
Thomas Hughes 1997 -0- -0- -0- 375,000 -0- -0- -0-
/ James
S.Clinton,
President and
Chief
Executive
Officer
1996 -0- -0- -0- -0- -0- -0- -0-
1995 17,631 -0- -0- -0- -0- -0- -0-
</TABLE>
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, 1997, 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.
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Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
James S. Clinton 1,416,0001 18.0%
30 Ginger Cove Road
Valley, NE 68064
Thomas S. Hughes 1,000,000 12.7%
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
</TABLE>
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 following table shows, as of August 31, 1997, 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.
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Name of Beneficial Amount and Nature of Percent of Class
Owner Beneficial Ownership1
Thomas S. Hughes 1,000,000 12.7%
All Directors and 1,000,000 12.7%
Officers as a Group (1
individual)
</TABLE>
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 year ended August 31, 1997, the salient
details of certain transactions which occurred between
the Company and its officers and directors are set forth
below. With respect to each such transaction, the
Company believes that the terms of each transaction were
approximately as favorable to the Company as could have
been obtained from an unrelated third party.
The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997. The Company
did not receive any cash consideration for this common
stock issuance and has treated this as an expense to the
Company of $375,000.
The Company utilized cash accounts maintained by HPOS to
fund day to day operations of the Company. Thomas S.
Hughes is the Chairman of both the Company and HPOS. At
August 31, 1997, the net result of these transactions is
a receivable from HPOS of $38,071. At August 31, 1997,
the $38,071 has been expensed by the Company as licensing
fees that are due to HPOS.
The Company issued 286,234 shares of common stock valued
at $41,864 to former associates of Thomas S. Hughes at a
company called Betts, Inc.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Index to Financial Statements and Schedules
See index to financial statements and supporting
schedules on page 12 of this annual report on Form 10-
KSB.
(b) Reports on Form 8-K
None
(c) Index to Exhibits
Any exhibits filed with the Securities and Exchange
Commission will be supplied upon written request of
Thomas S. Hughes, Betting, Inc., 31310 Eaglehaven Circle,
Rancho Palos Verdes, CA 90275. A charge will be made to
cover copying costs. See Exhibit Index below.
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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.
3.3 Leggoons, Inc. Agreement to License Assets
4.2 Class A Warrant Agreement, incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form
S-1 filed on October 28, 1993.
10.1 Assignment for Benefit of Creditors, incorporated by
reference to Exhibit 10.1 of Leggoons, Inc., Form 8-K filed
on June 27, 1996.
</TABLE>
BETTING, INC.
(Formerly Leggoons, Inc.)
Independent Auditor's Report 13
Financial Statements
Balance sheet 14
Statements of operations 15
Statements of stockholders' equity (deficit) 16
Statements of cash flows 17 - 18
Notes to financial statements 19 - 23
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, 1997 and the related
statements of operations, changes in stockholders'
equity, (deficit), and cash flows for the year then
ended. 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 did not
audit the financial statements for the year ended
August 31, 1996, nor was I engaged to perform any
accounting services with respect to those financial
statements. Consequently, I disclaim any association
with the accompanying August 31, 1996 financial
statements and note references to those financial
statements.
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,
1997, and the results of its operations and its cash
flows for the year then ended, 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 9 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 9. 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.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
February 24, 1999
Beverly Hills, California
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEET
<TABLE>
<S> <C>
August 31, 1997
ASSETS
Current Assets:
Cash $45
Total current assets 45
Total Assets $45
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Due to stockholder $35,135
Accounts payable 283,178
Commissions payable 18,399
Total current liabilities 336,712
Contingencies (Note 9)
Stockholders' Equity:
Common stock, $.01 par value, 78,432
authorized 10,000,000 shares;
issued and outstanding,
7,843,234
Preferred stock, $.01 par
value, authorized 5,000,000
shares;
issued and outstanding - none
Additional paid-in capital 4,855,535
Accumulated deficit (5,270,634)
Total stockholders' equity (336,667)
Total Liabilities and $45
Stockholders' Equity
</TABLE>
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended Year Ended
August 31, 1997 August 31, 1996
Revenue $0 $0
Operating Expenses
Consulting Fees (Note 5) 565,740 0
General and Administrative Expenses 175,774 128,920
Research and Development Expenses (Note 450,331 0
5)
Software Development Costs (Note 5) 507,600 0
Loss from Continuing Operations (Note 1) (1,699,445) (128,920)
Discontinued Operations: (Note 2)
Income (loss) from discontinued apparel 0 (259,302)
operations
Loss on disposal of apparel operations, 0 (469,174)
including a provision for operating
losses during phase-out period
Loss from Discontinued Operations 0 (728,476)
Net Loss $(1,699,445) $(857,396)
Net Loss per Common Share $(.41) $(.31)
Weighted Average Common Shares 4,106,620 2,787,000
Outstanding
</TABLE>
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Shares Common Par Value Preferred Stock Additional Paid- Total Stockholders'
in Capital Accumulated Equity
Deficit
Balance at 2,787,000 $27,870 $0 $2,390,070 ($2,713,793) ($295,853)
September 1, 1995
Capital 0 0 0 1,132,722 0 1,132,722
contribution as a
result of
Assignment for
Benefit of
creditors
Net loss 0 0 0 0 (857,396) (857,396)
Balance at August 2,787,000 27,870 0 3,522,792 (3,571,189) (20,527)
31, 1996
Issuance of 346,000 3,460 0 82,040 0 85,500
346,000 shares of
Common stock at
$.25 per share
(Cash Transaction)
Issuance of 2,999,734 29,997 0 925,708 0 955,705
2,999,734 shares
of Common stock
(1) & (2)
Issuance of 1,710,500 17,105 0 324,995 0 342,100
1,710,500 shares
of Common stock at
$.20 per share
(Non-Cash
Transactions)
Net loss 0 0 0 0 (1,699,445) (1,699,445)
Balance at August 7,843,234 $78,432 $0 $4,855,535 ($5,270,634) ($336,667)
31, 1997
</TABLE>
(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 (754,000 common shares) 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
<TABLE>
<S> <C> <C>
Year Ended Year Ended
August 31, 1997 August 31, 1996
Operating Activities
Continuing operations:
Net loss (Note 8) $(401,640) $(128,920)
Changes in assets and liabilities:
Accounts payable 270,839 6,377
Commissions payable 18,399 0
Cash used in continuing operations (112,402) (122,543)
Discontinued operations:
Net loss 0 (728,476)
Adjustments to reconcile net loss to
net cash provided by (used in)
discontinued operations
Depreciation and amortization 0 101,620
Allowance for doubtful accounts 0 (10,000)
receivable
Loss (gain) on investment in 0 111,940
partnership
Changes in assets and liabilities 0 21,550
Inventories 0 423,626
Deferred charges 0 145,218
Prepaid expenses 0 89,233
Accounts payable 0 (245,393)
Accrued expenses 0 131,017
Cash provided by discontinued 0 40,335
operations
Cash Used in Operating Activities (112,402) (82,208)
Financing Activities
Continuing operations:
Proceeds from additional borrowings 26,947 41,354
from stockholder
Proceeds from issuance of common 85,500 0
stock
Cash provided by continuing 112,447 41,354
operations
Discontinued operations:
Net payments on note payable to bank 0 (160,439)
Payments on long-term debt 0 (40,903)
Proceeds from additional borrowings 0 259,969
from stockholder
Cash transferred under Assignment for 0 (27,654)
Benefit of Creditors
Cash provided by discontinued 0 30,973
operations
Cash Provided by Financing Activites 112,447 72,327
Net Increase (Decrease) in Cash 45 (9,881)
Cash at Beginning of Year 0 9,881
Cash at End of Year $45 $0
</TABLE>
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Supplemental Disclosures:
The Company paid $0 and $43,382 for interest for the years ended
August 31, 1997 and 1996, respectively.
The following summarizes noncash investing and financing
transactions:
<TABLE>
<S> <C>
Year Ended August 31, 1997
Issuance of 4,710,234 shares of common stock for $1,297,
services rendered 805
Year Ended August 31, 1996
Transfer of assets and liabilities under Assignment for $1,132,722
Benefit of Creditors
</TABLE>
See accompanying notes to financial statements and accompanying
auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1997 and 1996
(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 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 Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, 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
Leggoons, Inc., a royalty of five percent of the net sales of
"LEGGOONS" products. Also 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 the Benefit of
Creditors." Included in the Assignment were the rights and
obligations of the Licensing Agreement.
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.
See accompanying auditor's report
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 condtions 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.
Thomas S. Hughes, Chairman of Home Point Sale, Inc., will remain
as Chairman and President of Leggoons, Inc. 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 3)
See accompanying auditor's report
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) DISCONTINUED OPERATIONS AND DISPOSITION OF ASSETS AND
LIABILITIES
DISCONTINUED OPERATIONS
On January 19, 1996, Leggoons, Inc., adopted a formal plan to
discontinue the designing, selling, manufacturing and
distribution of its apparel products. The loss from operations
of this discontinued business was $259, 302 and the loss on
disposal including operating losses during the period January 19,
1996, to June 12, 1996, were $469,174. Sales for this
discontinued business were $1,013,026 for the year ended August
31, 1996.
DISPOSITION OF ASSETS AND LIABILITIES
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.
The approximate book values of all assets and liabilities
transferred on June 12, 1996, are as follows:
Assets
(liabilities)
Cash
27,654
Accounts receivable, less allowance 204,567
Inventories 130,670
Property, plant and equipment, less accumulated depreciation
80,929
Trademark, less accumulated amortization 210,440
Notes payable to banks (518,836)
Notes payable to stockholder (755,510)
Accounts payable (293,586)
Accrued expenses (213,537)
Bank overdraft (5,513)
Net liabilities transferred (1,132,722)
The net liabilities as of June 12, 1996, were removed from the
Company's financial statements by a corresponding credit to
additional paid-in capital of $1,132,722.
(3) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL) carryforwards
of approximately $2,800,000 at August 31, 1997, that were
generated by Leggoons, Inc. The unused net operating losses
expire in various amounts from 2009 to 2012. However, due to
change of ownership rules of section 382 of the Internal Revenue
Code some or all of these NOL carryforwards may be unavailable to
offset any future income of Betting, Inc. The Company generated
losses of approximately $1,658,000 during the six month period
ended August 31, 1997. These losses 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.
See accompanying auditor's report
(4) 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.
(5) STOCKHOLDERS' EQUITY (DEFICIT)
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.
(6) 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 (5).
The Company issued 286,234 shares of restricted common stock to
former asscoiates 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.
DUE TO STOCKHOLDER
The Company has 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.
See accompanying auditor's report
(7) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1997, the Company recorded adjustments
that increased its net loss by approximately $1,558,000. These
adjustments were primarily related to the issuance of common
stock for no cash consideration during the period March 1, 1997,
through August 31, 1997.
(8) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing transactions for the
year ended August 31, 1997:
Net loss from Continuing Operations
$ 401,640
Issuance of 4,710,234 shares of common stock for
Consulting
Fees, Research and Development and Software
Development
And General and Administrative Expense
1,297,805
Income Statement Loss from Continuing Operations
$1,699,445
(9) CONTINGENCIES
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.
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.
(10) SUBSEQUENT EVENTS (UNAUDITED)
COMMON STOCK ISSUED
In October 1997 the Company issued 750,000 common shares to James
S. Clinton as full payment on the $35,135 due to stockholder.
Subsequent to August 31, 1997, the Company has issued
approximately 1,000,000 shares of common stock for services
rendered. The "fair market value" of this issued stock is
estimated to be approximately $50,000.
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 September 30, 1997. This
constitutes a violation by the Company of a provision of the
Securities Exchange Act of 1934, as amended. The Company entered
into a consent decree with the SEC by which the Company agreed to
file all necessary reports by April 9, 1999, and agreed to file
all required reports with the SEC on a timely basis in the
future.
Signatures
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 on February 15, 1999.
BETTING, INC.
By: /s/ Thomas S. Hughes
Thomas S. Hughes
Chairman of the Board,President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ Thomas S. Hughes
Thomas S. Hughes
Chairman of the Board, Date
President, Chief Financial
Officer and Director
/s/ Jack M. Hall
Jack M. Hall
Director Date
/s/ D. Diane Hewitt
D. Diane Hewitt
Director Date
