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 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
ASSET 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 vendo 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
1. 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 FINANCIAL
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 sharesholders 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 Description No.
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).
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