U.S. Securities And Exchange Commission
Washington, DC 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(POS-AM - SEC File Number 333-79739)
eConnect
(Name of small business issuer in
its charter)
Nevada
(State of jurisdiction of incorpo
ration or organization)
7990
(Primary Standard Industrial Clas
sification Code Number)
43-1239043
(I.R.S. Employer Identification n
o.)
2500 Via Cabrillo Marina, Suite 1
12, San Pedro, California 90731
(Address of principal executive o
ffices)
2500 Via Cabrillo Marina, Suite 1
12, San Pedro, California 90731
(Address of principal place of bu
siness or intended principal place of business)
Daniel G. Chapman, Chapman & Flan
agan, Ltd., 2080 E. Flamingo Road, Suite 112, Las Vegas, NV 89119
(Name, address and telephone numb
er of agent for service)
Approximate date of proposed sale to the public: As
soon as practicable after the
effective date of this Amendment.
If this Form is filed to If this Form is a post-
register additional securities effective amendment filed
for an offering pursuant to pursuant to Rule 462(d) under
Rule 462(b) under the the Securities Act, check the
Securities Act, please check following box and list the
the following box and list the Securities Act registration
Securities Act registration statement number of the earlier
statement number of the earlier effective registration
effective registration statement for the same
statement for the same offering.
offering.
If this Form is a post- If the delivery of the
effective amendment filed prospectus is expected to be
pursuant to Rule 462(c) under made pursuant to Rule 434,
the Securities Act, check the check the following box.
following box and list the
Securities Act registration
statement number of the earlier
effective registration
statement for the same
offering.
<TABLE>
<S> <C> <C> <C> <C>
Title of Amount to be Proposed Proposed Amount of
Each Class registered maximum Maximum Registratio
of (1) offering Aggregate n
Securities price per Offering Fee
to be unit (2) Price (3)
Registered
Common 61,000,000 $0.80 $22,437,810 $5,923.58
Stock
</TABLE>
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(1) Pursuant to Rule 416, such additional amounts to prevent
dilution from stock splits or similar transactions.
(2) In accordance with Rule 457, this is the market price for the
Company's common stock on June 12, 2000.
(3) Calculated on the basis of $0.80 for all unissued stock, plus
the exercise price of the warrants, and the proceeds from all stock
and warrants issued or exercised through March 31, 2000.
PART I. INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
eCONNECT 61,000,000 Shares* Common Stock Offering Price at Market
Value
eConnect, a Nevada corporation ("Company"), is hereby offering up
to 61,000,000 shares and warrants for shares of its $0.001 par
value common stock ("Shares") at offering prices based upon the
market value of the Company's common stock 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 5).
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.
<TABLE>
<S> <C> <C> <C>
Price to Underwriti Proceeds to
Public (1) ng Issuer (2)
Discounts
&
Commission
s
Per Share $0.80 $0.0152 $ 0.78
Total Maximum $22,437,810 $922,831 $21,514,979
</TABLE>
Information contained herein is subject to 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.
Dated June 12, 2000
*Pursuant to SEC Rule 416, there will be a change in the amount of
securities being issued to prevent dilution resulting from stock
splits, stock dividends, or similar transaction.
THE SHARES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL TO THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OPEN OFFER TO BUY INTO SECURITIES OFFERED HEREBY A
STATE IN WHICH, OR TO A PERSON TRUE, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONTAINED HEREIN SUBSEQUENT TO THE DATE THEREOF. HOWEVER, IF A
MATERIAL CHANGE OCCURS, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY FOR ALL EXISTING SHAREHOLDERS, AND FOR ALL
PROSPECTIVE INVESTORS WHO HAVE NOT YET BEEN ACCEPTED AS
SHAREHOLDERS IN THE COMPANY.
THIS PROSPECTUS DOES NOT INTENTIONALLY OMIT ANY MATERIAL FACT OR
CONTAIN ANY UNTRUE STATEMENT OF MATERIAL FACT. NO PERSON OR ENTITY
HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR MAKE
A REPRESENTATION, WARRANTY, COVENANT, OR AGREEMENT WHICH IS NOT
EXPRESSLY PROVIDED FOR OR CONTAINED IN THIS PROSPECTUS; IF GIVEN OR
MADE, SUCH INFORMATION, REPRESENTATION, WARRANTY, COVENANT, OR
AGREEMENT MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THE COMPANY IS A REPORTING COMPANY. EACH PERSON WHO RECEIVES A
PROPSECTUS WILL HAVE AN OPPORTUNITY TO MEET WITH REPRESENTATIVES OF
THE COMPANY, DURING NORMAL BUSINESS HOURS UPON WRITTEN OR ORAL
REQUEST TO THE COMPANY, IN ORDER TO VERIFY ANY OF THE INFORMATION
INCLUDED IN THIS PROSPECTUS AND TO OBTAIN ADDITIONAL INFORMATION
REGARDING THE COMPANY. IN ADDITION, EACH SUCH PERSON WILL BE
PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF
ANY OF THE INFORMATION THAT IS INCORPORATED BY REFERENCE IN THE
PROSPECTUS AND THE ADDRESS (INCLUDING TITLE OR DEPARTMENT) AND
TELEPHONE NUMBER TO WHICH SUCH REQUEST IS TO BE DIRECTED.
ALL OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN
WRITING THAT THEY HAVE RECEIVED A COPY OF THIS PROSPECTUS.
(1) 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 for cash and which have not
already been sold under this offering. A total of 20,000,000 shares
are offered pursuant to a Common Stock Purchase Agreement (a total
of 10,152,578 of these shares have been sold, leaving 9,847,422
shares remaining); 15,800,000 shares are offered to the general
public in connection with certain acquisitions by the Company and
in connection with certain consulting services on the Company's
behalf (9,922,375 of these shares have been issued); 8,000,000 of
the Shares will be set aside for employees stock options. In
addition, 5,200,000 of the shares are being registered by certain
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 September 7, 2001 (two years from
September 7, 1999, the effective date of the Registration Statement
hereby being amended).
(2) The Proceeds to the Company is before the payment of certain
expenses in connection with this offering. See "Use of Proceeds."
ITEM 3. PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus ("Prospectus").
Each prospective investor is urged to read this Prospectus, and the
attached Exhibits, in their entirety.
The Company.
(a) Background.
The Registrant 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. designed, manufactured and distributed apparel and
related accessories to specialty and department stores nationwide.
In 1996, Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an "Assignment for the
Benefit of Creditors" as an alternative to bankruptcy, and retained
its corporate 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 known 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, a majority and
controlling interest in which is 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 terminals 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 March 8, 1999, Betting, Inc. was redomiciled to Nevada. On June
22, 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's operations are divided into two divisions. The
"Transactions" division is involved with electronic financial
transactions. In this division, the Company is developing
technology for ATM cards with PIN (personal identification number)
or smart card payments (same-as-cash - except that the merchant can
reverse the transaction) using the Personal Encrypted Remote
Financial Electronic Card Transactions ("PERFECT").
The second division is involved in internet gaming. This "Internet
Gaming" division until recently consisted of the eSportsbet and
777WINS.com acquisitions. These companies were located in Costa
Rica, and were expected to become operational in the near future.
The Registrant has decided to delay the operation of these
companies, and to move their operations and equipment from Costa
Rica to the Dominican Republic. Additionally, the operations of
both companies will be combined with that of Top Sports, as
discussed below (See Item 16(b), "Business of the Registrant.")
Thus, the Company is, or will soon be, 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 Item 16, "Description of Business."
The internet gaming industry has developed significantly in recent
years and is under increasing governmental scrutiny as the industry
develops. It is possible that at some time 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
U.S. Securities and Exchange Commission ("SEC") Rule 415 at a price
based upon the market price of the Company's common stock (or upon
a discount from the market price for shares issued in accordance
with the Common Stock Purchase Agreement). Certain of the Shares
have already been issued or sold. The remaining offering will be
used for the following purposes (maximum amounts): (a) sales to the
general public for cash, in connection with certain acquisitions by
the Company, and in connection with certain consulting services for
the Company, of the following: (i) 5,877,625 Shares (9,922,375
shares have already been issued); and (ii) 10,500,000 warrants
(exercisable at $0.40 per Share from the effective date of this
Prospectus to December 31, 2001); (b) 20,000,000 Shares in
connection with the registration of restricted shares issued in
connection with a Common Stock Purchase Agreement ("Purchase
Agreement"), dated September 28, 1999; (c) 1,000,000 Shares to
cover the exercise of warrants to purchase these Shares in
connection with the Purchase Agreement (exercisable at a price
equal to 80% of the closing bid price of the common stock on the
effective date of the Purchase Agreement from said date until a
date which is five years thereafter); (d) 500,000 Shares to cover
the exercise of warrants to purchase these Shares in connection
with certain drawdowns under the Purchase Agreement (exercisable at
the closing bid price on the date of each draw from the effective
date of the Purchase Agreement until a date which is five years
thereafter); (e) 5,000,000 Shares to cover options to be issued in
the future to employees of the Company, exercisable at $0.40 per
Share; (f) 3,000,000 Shares to cover options to be issued in the
future to Thomas S. Hughes, President of the Company, exercisable
at $0.40 per Share; and (g) 5,200,000 of restricted shares being
registered by certain 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 under the current
offering are sold for cash, this will represent proceeds of a
maximum of $22,437,810, 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," there has been only a
limited market for the Shares. Therefore, an investor may not be
able to sell his Shares when he or she wishes and may consider his
or her investment to be long-term. See "Risk Factors."
Investment in the company involves 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 operate profitably, 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 internet gaming 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 statute is passed making Internet
gambling illegal in the United States, any State, or any country,
eSportsbet.com is prepared to make any and all adjustments
necessary in order to comply with those statutes.
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, 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 can be found, there
could be material adverse effects on the Company's business and
prospects. In addition, management has no experience 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 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 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, or earnings. There can be no assurance that the Shares will
maintain market values commensurate with the offering price. See
"Determination of Offering Price."
"Shelf" Offering
Other than the shares currently held by shareholders, the Shares
are offered directly by the Company on a delayed basis pursuant to
certain exercise rights of warrants. Other than the shares subject
to the Common Stock Purchase Agreement, 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. 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.
Since March 27, 2000, the Company's common stock has been trading
on the National Quotation Bureau's Pink Sheets (symbol ECNC) since
the Company's common stock was delisted on that date from the OTC-
BB due to the 10 day trading suspension on March 13, 2000.
Subsequent to the effectiveness of this Registration Statement, the
Company intends to file a 15c2-11 through a market maker in order
to apply for relisting on the OTC-BB.
Penny Stock Regulations.
The Company's Shares are presently being quoted on the "Pink
Sheets", and the Company intends to apply to have the shares quoted
on the "Over-the-Counter Bulletin Board" 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 9,840,000 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 Exchange 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.
ITEM 4. USE OF PROCEEDS
Following the issuance of the Shares and warrants for Shares of
common stock offered for sale by the Company to the public
(assuming they are sold for cash) together with the $5,428,852
already raised in connection with the issuance of Shares under this
Registration Statement, this will represent gross proceeds to the
Company of approximately $22,437,810 (See "Plan of Distribution").
This amount is an estimate, since the issue price is based upon the
market price of the Company's common stock. 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:
<TABLE>
<S> <C> <C>
Use of Proceeds Maximum Maximum
Offering Offering
Amount Percent
Transfer Agent Fee $1,000 0.00%
Printing Costs $1,000 0.00%
Legal Fees $50,000 0.22%
Accounting Fees $1,500 0.01%
Sales Commissions $922,831 4.11%
(1)
Working Capital $21,461,479 95.65%
Total $22,437,810 100.00%
</TABLE>
(1) The Company will not pay sales commissions on any of the
shares other than those issued pursuant to the Common Stock
Purchase Agreement. Those shares will be subject to an 8% sales
commission.
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 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.
ITEM 5. 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 by
viewing the current prospectus for the Company's common stock and
the expressions of interest by potential investors.
ITEM 8. PLAN OF DISTRIBUTION
Shares of the Company will be offered as a shelf registration under
SEC Rule 415 at market price (or, in the case of shares issued
pursuant to the Common Stock Purchase Agreement, at a price based
upon the market price), except for the Subscribed Shares and
Warrants and Further Warrants (as defined below) (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). Certain shares have
already been issued or sold. The remaining offering will sold under
the following categories (maximum amounts): (a) sales to the
general public, in connection with certain acquisitions by the
Company, and in connection with certain consulting services for the
Company, of the following: (i) 5,877,625 Shares (a total of
9,922,375 shares have already been issued); and (ii) 10,500,000
warrants (exercisable at $0.40 per Share from effective date of
this Prospectus to December 31, 2001); (b) 20,000,000 Shares in
connection with the registration of restricted shares issued in
connection with a Common Stock Purchase Agreement ("Purchase
Agreement"), dated September 28, 1999 (as of March 31, 2000,
10,152,578 issued for a total consideration of $2,871,000); (c)
1,000,000 Shares to cover the exercise of warrants to purchase
these Shares in connection with the Purchase Agreement (exercisable
at a price equal to 80% of the closing bid price of the common
stock on the effective date of the Purchase Agreement from said
date until a date which is five years thereafter); (d) 500,000
Shares to cover the exercise of warrants to purchase these Shares
in connection with certain drawdowns under the Purchase Agreement
(exercisable at the closing bid price on the date of each draw from
the effective date of the Purchase Agreement until a date which is
five years thereafter); (e) 5,000,000 Shares to cover options to be
issued in the future to employees of the Company, exercisable at
$0.40 per Share; (f) 3,000,000 Shares to cover options to be issued
in the future to Thomas S. Hughes, President of the Company,
exercisable at $0.40 per Share; and (g) 5,200,000 of restricted
shares being registered by certain shareholders of the Company:
Ranco Plasticos, a Costa Rica corporation, and Menhur Azul, S.A., a
Costa Rica corporation.
As set forth in the Registration Rights Agreement and based upon
the terms and subject to the conditions of the Subscription
Agreement, the Company has agreed to issue and sell to the
subscriber up to $5,000,000 of the common stock of the Company,
which will be converted into free trading shares of the common
stock of the Company upon the terms and subject to the conditions
of the Subscribed Shares (the number of Shares to be issued in
connection with any drawdown under the Subscription Agreement will
equal the dollar amount of such drawdown divided by 80% of the
lowest closing reported bid price of the Shares for the five
trading days immediately preceding the drawdown date). In addition,
under the Registration Rights Agreement, the Company will register
1,500,000 Shares to cover the exercise of the Warrants and Further
Warrants, as set forth above. The Subscription Agreement,
Registration Rights Agreement, and Warrant are incorporated herein
by reference, and are set forth in their entirety as Exhibits 4.2,
4.2, and 4.4 to this Form SB-2/A.
Under the Registration Rights Agreement, the Company was obligated
to prepare and file with the SEC, no later than ten (10) days after
the effective date of the Subscription Agreement, a post-effective
amendment to the Registration Statement on Form SB-2/A (declared
effective by the SEC on September 7, 1999) covering a sufficient
number of shares of common stock to cover the registration of the
maximum of $5,000,000 of the Subscribed Shares and the conversion
of a maximum of 1,500,000 Warrants and Further Warrants. If at any
time the number of Shares of into which such Subscribed Shares and
Warrants and Further Warrants issued in this offering may be
converted exceeds the aggregate number of shares of common stock
then registered, the Company is obligated to, within ten business
days after receipt of written notice from any subscriber, file with
the SEC an additional Registration Statement on Form SB-2 or any
other applicable registration statement, to register the shares of
common stock into which the Subscribed Shares may be converted that
exceed the aggregate number of shares of common stock already
registered.
There can be no assurance that all of these Shares will be issued
or that any of them will be issued for cash. The gross proceeds to
the Company represented by issue of all the Shares and warrants for
Shares for cash under this amended offering to the public will be
$22,437,810; this does not include the Subscribed Shares and the
Warrants and Further Warrants since the amount raised from these
sales will fluctuate depending on the current market price of the
Shares. 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,
other than in connection with the Common Stock Purchase Agreement
(see "Use of Proceeds"). 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.
ITEM 9. LEGAL PROCEEDINGS
Other than as stated below, the Registrant is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the Registrant has been
threatened:
(a) Securities and Exchange Commission Action (March 12, 1999).
On March 12, 1999, the Securities and Exchange Commission ("SEC")
filed a complaint alleging the Company had failed to make available
to the investing public current and accurate information about its
financial condition and results of operations through the filing of
periodic reports as required by the Securities Exchange Act of 1934
(specifically, the Form 10-KSB for the 1997 and 1998 fiscal years,
the Form 10QSB for each of the first three quarters of fiscal 1998,
and the corresponding Notifications of Late Filings (Form 12b-25)).
The SEC sought in this action to compel the Company to file
delinquent reports and enjoin the Company from further violations
of the reporting requirements. The Company consented to the entry
of a final judgment granting the relief sought by the SEC.
Although this action has been concluded, since the permanent
injunction was entered the Company has been late with the following
reports: (a) Form 10QSB for the quarter ended February 28, 1999
(due by April 29, 1999 because of the filing of a Form 12b-25) -
filed with the SEC on May 28, 1999; (b) Form 10QSB for the quarter
ended June 30, 1999 (due by August 14, 1999) - filed with the SEC
on August 23, 1999 (due to an error in the CIK code for the Company
entered on the EDGAR electronic filing system); (c) a Form 10-QSB
for the transition period ended December 31, 1998 (due by July 5,
1999) - filed with the SEC on September 3, 1999; (d) Form 8-K to
reflect a certain acquisition by the Company (due by May 21, 1999)
- filed with the SEC on November 15, 1999; (e) Form 8-K to reflect
two acquisitions by the Company (due by September 15, 1999) - filed
with the SEC on November 16, 1999; (f) Form 10-KSB for the period
ended on December 31, 1999 (due by April 14, 2000) - filed with the
SEC on May 9, 2000; and (g) Form 10-QSBfor the period ended March
31, 2000 (due by May 22, 2000) - filed with the SEC on May 30,
2000.
(b) Securities and Exchange Commission Action (March 23, 2000).
In a complaint filed on March 23, 2000 (Securities and Exchange
Commission v. eConnect and Thomas S. Hughes, Civil Action No. CV 00
02959 AHM (C.D. Cal.)), the SEC alleged that since February 28,
2000, the Registrant issued false and misleading press releases
claiming: (1) the Registrant and its joint venture partner had a
unique licensing arrangement with PalmPilot; and (2) a subsidiary
of the Registrant had a strategic alliance with a brokerage firm
concerning a system that would permit cash transactions over the
Internet. The complaint further alleges that the press releases,
which were disseminated through a wire service as well as by
postings on internet bulletin boards, caused a dramatic rise in the
price of the Registrant's stock from $1.39 on February 28 to a high
of $21.88 on March 9, 2000, on heavy trading volume. The SEC
suspended trading in the Registrant's common stock on the Over the
Counter Bulletin Board on March 13 for a period of 10 trading days
(trading resumed on the National Quotation Bureau's Pink Sheets on
March 27, 2000). The complaint alleges that despite the trading
suspension and the SEC's related investigation, the Registrant and
Mr. Hughes continued to issue false and misleading statements
concerning the Registrant's business opportunities. In addition to
the interim relief granted, the Commission seeks a final judgment
against the Registrant and Mr. Hughes enjoining them from future
violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder (the anti-fraud provisions of that act) and assessing
civil penalties against them.
On March 24, 2000, a temporary restraining order was issued in the
above-entitled action prohibiting the Registrant and Mr. Hughes,
from committing violations of the antifraud provisions of the
federal securities laws. The Registrant and Mr. Hughes consented to
the temporary restraining order.
On April 6, 2000, without admitting or denying the allegations
contained in said complaint, the Registrant and Mr. Hughes entered
into a settlement by consent that has resulted in the entry of
permanent injunctive relief. The settlement agreement with the SEC
was accepted and a judgment of permanent injunction was entered by
the Court on April 7, 2000. The judgment that the Registrant and
Mr. Hughes consented to prohibit the Registrant and Mr. Hughes from
taking any action or making any statement, or failing to make any
statement that would violate Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. The court has yet
to determine whether disgorgement, civil penalties or other relief
should be assessed against the Registrant or Mr. Hughes.
(c) Shareholder Class Action Lawsuits.
Barbara Einhorn, et al. v. eConnect, Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No.
00-02674 MMM (JWJx);
Joel Eckstein, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No.
00-02700 DDP (CWx);
Felicia Bernstein, et al. v. eConnect, Inc., et al., Case No. 00-
02703 FMC (BQRx);
Robert Colangelo, et al. v. eConnect, Inc., et al., Case No. 00-
02743 SVW (SHx);
Irving Baron, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No.
00-02757 WJR (CTx);
James J. Warstler, et al. v. eConnect, Inc. , Thomas S. Hughes,
Jack M. Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis,
Case No. 00-02758 R (SHx);
Yakov Prager, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No.
00-02759 GHK (RCx);
Gil Weisblum, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
02770 MRP (CTx);
Kenneth Mazda, et al. v. eConnect, et al., Case No. 00-02776 LGB
(Mcx);
Domenico Pirraglia, et al. v. eConnect, et al., Case No. 00-02875
SVW (CWx);
Israel C. Hershkop and Shlomo Hershkop, et al. v. eConnect and
Thomas S. Hughes, Case No. 00-03095 MRP (RNRx);
Judith Bacun, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No.
00-03161 FMC (JWJx);
Howard Fine, et al. v. eConnect, Inc. and Thomas Hughes, Case No.
00-03290 SVW (BQRx);
Arthur Smith, et al. v. eConnect, Thomas Hughes, Case No. 00- 03301
DT (Mcx);
Thomas Reimer, et al. v. eConnect, Thomas Hughes, Case No. 00-
03405 JSL;
Morris Tepper, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
03444 WJR (CTx);
Vin Bury, et al. v. eConnect, Thomas Hughes, Case No. 00-03446 ABC;
Frances Villari, et al. v. eConnect, Thomas Hughes, Case No. 00-
03447 LGB (SHx);
Benjamin Ringel, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack
M. Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03591 RSWL (RNBx);
Anthony Massaro, et al. v. eConnect, Inc., Thomas S. Hughes, Jack
M. Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03671 DDP (MANx);
Ardelle Gardner, et al. v. eConnect, Inc., Thomas S. Hughes, Jack
M. Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03897 MMM (RZx);
The foregoing twenty-one actions were filed on various dates
between March 14, 2000 and April 12, 2000, inclusive, and are all
pending in the United States District Court for the Central
District of California. These actions are brought by various
putative classes of the purchasers of the Registrant's common
stock. The putative classes alleged, none of which have been
certified, range from no earlier than November 18, 1999 through
March 13, 2000. Plaintiffs in the various actions assert that the
Registrant and Thomas S. Hughes, as well as (in certain of the
actions) Jack M. Hall, Diane Hewitt, Anthony L. Hall, and Kevin J.
Lewis, have violated Section 10(b) of the Exchange Act (false or
misleading statements and omissions which deceived stock
purchasers) and also Section 20(a) of the Exchange Act (liability
as a "controlling person" with respect to a primary violation of
securities laws). The principal allegations concern various alleged
material misrepresentations and omissions which supposedly made the
Registrant's public statements on and after November 18, 1999
(and/or on and after November 23, 1999) false and misleading,
thereby artificially inflating the market in and for the Company's
common stock. The answers or other responses of the defendants to
the various initial complaints are not yet due. The Registrant
cannot as yet express any opinion as to the probable outcome of
these litigation matters. The Registrant intends to defend these
litigation matters vigorously.
(d) Employment Agreement - President/Chief Operating Officer.
On March 21, 2000, the Company consummated an amended employment
agreement with an individual for the position of President and
Chief Operating Officer for the Company (see Exhibit 10.42 to the
Form 10-QSB for the quarter ended March 31, 2000, attached hereto
as exhibit 13.1). On April 17, 2000, the Company terminated this
individual as President and Chief Operating Officer of the Company.
Based upon the amended employment agreement, the remaining salary
for the term of this agreement, will be due within 30 days upon the
termination of this individual if terminated for reasons other than
good cause. In addition, through the date of termination, all of
the granted stock options and warrants will vest and be exercisable
for their entire term. Accordingly, the termination of this
individual, for reasons other than good cause, may potentially
expose the Company to incur a liability of approximately $1,260,000
for the remaining portion of unpaid salary for the first, second,
third, and fourth years of this agreement. Furthermore, the
termination may have accelerated the vesting of the granted stock
options and warrants consisting of 1,000,000 warrants exercisable
at $1.00 per share, 6,000,000 stock options exercisable at $0.40
per share, and 1,500,000 stock options exercisable at the lowest
average daily trading price of the Company's common stock within
the first 90 days of the executive's employment. The Company's
management believes that the termination of this individual was in
good cause and intends to defend itself in this matter vigorously.
(e) Employment Agreement - Outside Counsel.
On March 22, 2000, the Company consummated an amended and restated
employment agreement with an individual and his firm to act as
outside counsel for the Company (see Exhibit 10-43 to the Form 10-
QSB for the quarter ended March 31, 2000, attached hereto as
exhibit 13.1). On April 14, 2000, the Company terminated this
individual and his firm as outside counsel. Based upon the amended
and restated employment agreement, the remaining compensation for
the term of this agreement will be due immediately upon the
termination of this individual and his firm as outside counsel if
terminated for reasons other than good cause. In addition, any
common stock and stock warrants granted through the term of this
agreement will be considered due in the event of termination for
reasons other than good cause. Accordingly, the termination of this
individual and his firm, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $700,000 for the remaining portion of unpaid
compensation for the first, second and third years of this
agreement. Furthermore, the termination may have accelerated the
vesting of the granted common stock and stock warrants consisting
of 600,000 common shares and 600,000 warrants exercisable at $1.00
per share. The Company's management believes that the termination
of this individual and his firm was in good cause and intends to
defend itself in this matter vigorously.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS
(a) Directors and Executive Officers.
The names, ages, and respective positions of the directors and
executive officers of the Registrant are set forth below. The
Directors named below will serve until the next annual meeting of
the Registrant's stockholders or until their successors are duly
elected and have qualified. Directors are elected for a one-year
term at the annual stockholders' meeting. Officers will hold their
positions at the will of the board of directors, absent any
employment agreement, of which none currently exist or are
contemplated. There are no arrangements, agreements or
understandings between non-management shareholders and management
under which non-management shareholders may directly or indirectly
participate in or influence the management of the Registrant's
affairs. There are legal proceedings involving the officers and
directors of the Registrant (please see Item 9. "Legal Proceedings"
for a description of these proceedings).
Thomas S. Hughes, Chief Executive Officer/Director.
Mr. Hughes, Age 52, has been President and a Director of the
Registrant 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, 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 Registrant. Mr. Hall
joined the Registrant as Secretary and a Director in March 1997.
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 Registrant's image development and
consulting with the Registrant's advertising firm. Ms. Hewitt
joined the Registrant as Treasurer and a Director in March 1997.
Laurence B. Donoghue, Director
Mr. Donoghue, age 55, is an attorney as well as a computer
professional, who has uniquely developed and combined successful
careers in both the law and computer technology. Headlining this
combination career was his selection from throughout the United
States to be the 1970-71 National Computers-In-Law Research Fellow,
for which he completed a year of computer-law graduate research,
and was awarded a graduate law degree at George Washington
University in Washington, D.C. in 1971.
In December 1997, Mr. Donoghue founded and incorporated in Internet
marketing consulting business call ADWEB COMMUNICATIONS. Continuing
his computer-law combination career, in July 1998, Mr. Donoghue
also opened his own practice of law, founding the LAW OFFICES OF
LAURENCE B. DONOGHUE. Mr. Donoghue continues to operate both
enterprises.
From 1975 to 1998, Mr. Donoghue built a successful prosecuting
career in the Los Angeles County District Attorney's Office as a
Deputy District Attorney. From 1980 1998, Mr. Donoghue worked as an
Adjunct Professor at Law at Trinity University School of Law.
(b) Key Employee.
Anthony J. Bayne, Senior Vice President of Operations.
Mr. Bayne, age 33, received his Bachelor of Science degree in 1992
from Simon Greenleaf University, and his J.D. degree from the same
school in 1994. In 1998, he was awarded an LL.M. degree in taxation
from Washington School of Law. Mr. Bayner is licensed as an
attorney in the State of California. From January 1995 to February
2000, Mr. Bayne served as a deputy public defender in the Los
Angeles County Public Defender's Office. In this position, he
represented defendants in all stages of criminal proceedings though
trial, directed investigations, appointed experts, and planned case
strategy. For the period of February 2000 to April 2000, Mr. Bayne
was in private practice Rancho Palo Verdes, California. He joined
the Registrant in his current position on April 27, 2000.
(c) Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires
executive officers and directors, and persons who beneficially own
more than 10% of any class of the Registrant's equity securities to
file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and beneficial owners of more than
10% of any class of the Registrant's equity securities are required
by SEC regulations to furnish the Registrant with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
the Registrant during or with respect to fiscal 1999, and certain
written representations from executive officers and directors, the
Registrant is aware that Mr. Hughes and Ms. Hall failed to report
certain stock issuances to them between September 1999 and March
2000. A Form 4 for each of these issuances is now in the process of
being prepared for filing. The Registrant is unaware of any other
filings that have not been timely made.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of the Registrant's common stock as of May 1,
2000 (162,394,801 issued and outstanding) by (i) all stockholders
known to the Registrant to be beneficial owners of more than 5% of
the outstanding common stock; and (ii) all directors, executive
officers, and key employees of the Registrant, individually and as
a group:
<Table
>
[S] [C] [C] [C]
Title Name/Address of Owner Shares Percentag
of Beneficial e
Class ly Owned Ownership
Common Hughes Net Income Charitable 8,533,500( 5.25%
Remainder Unitrust (2) 2)
c/o Anthony J. Bayne, Esq.
2500 Via Cabrillo Marina, Suite 300
San Pedro, CA 90731
Common Diane Hewitt 1,157,500 0.71%
2500 Via Cabrillo Marina, Suite 112
San Pedro, CA 90731
Common Thomas S. Hughes 150,000 0.09%
2500 Via Cabrillo Marina, Suite 112
San Pedro, CA 90731
Common Jack M. Hall 0 0.00%
2500 Via Cabrillo Marina, Suite 112
San Pedro, CA 90731
Common Anthony J. Bayne, Esq. 10,000 0.006%
2500 Via Cabrillo Marina, Suite 300
San Pedro, CA 90731
Common All directors executive officers, 9,840,000 5.95%
and key employees as a group
(4 persons)
</Tabl
e>
(1) Except as noted in footnote 2 below, each person has sole
voting power and sole dispositive power as to all of the shares
shown as beneficially owned by them
(2) The trustor of this trust is Thomas S. Hughes. Thomas S. Hughes
is the trustee of the trust; Lawrence B. Donoghue, Esq. is the
special trustee, and as such has the voting power and power over
the disposition of the Registrant's shares under this trust. In
addition, Mr. Hughes is the lifetime net income beneficiary of this
trust, and the remainder beneficiary is Philosopher Kings and
Queens, a California nonprofit public benefit corporation
(according to information provided by Mr. Hughes). According to
information provided by Mr. Hughes, this trust is irrevocable.
ITEM 12. 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, of which 38,701,563 shares have already been
sold as of March 31, 2000, the Company's authorized but unissued
capital stock will consist of 15,306,762 shares of common stock
(based on the issued and outstanding Shares of 162,394,801 as of
May 1, 2000). One effect of the existence of authorized but
unissued capital stock may be to enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy contest,
or otherwise, and thereby to protect the continuity of the
Company's management. If, in the due exercise of its fiduciary
obligations, for example, the Board of Directors were to determine
that a takeover proposal was not in the Company's best interests,
such shares could be issued by the Board of Directors without
stockholder approval in one or more private placements or other
transactions that might prevent, or render more difficult or
costly, completion of the takeover transaction by diluting the
voting or other rights of the proposed acquiror or insurgent
stockholder or stockholder group, by creating a substantial voting
block in institutional or other hands that might undertake to
support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Corporate Stock Transfer,
370 17th Street, Denver, Colorado 80202, to act as transfer agent
and registrar.
ITEM 13. 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.
ITEM 14. 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 Registrant
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.
ITEM 15. 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.
ITEM 16. DESCRIPTION OF BUSINESS
(a) Business Development
The Registrant 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. and increase the
number of authorized shares of common stock from 40,000 to
10,000,000 and decrease the par value of the common stock from
$1.00 per share to $0.01 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 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 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"), was 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.(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 Registrant. This technology
is designed to enable consumers to instantly pay bills or
impulse purchase from home with real time cash transactions.
Mr. 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 Registrant 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 future transactions
that are sent by terminals that read credit cards or ATM cards.
On March 27, 1998, the Registrant entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions. The
technology licensed under this agreement 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 ("Registrant") was executed by an authorized
signatory of each company (see Exhibit 2 to this Registration
Statement). On May 21, 1999, the merger of the two companies was
approved by a majority of the shareholders. Effective on June 1,
1999, Articles of Merger were filed with the Nevada Secretary of
State, which formally resulted in the redomicile of the
Registrant from the State of Missouri to the State of Nevada.
This also resulted in the change of the fiscal year end from
August 31 to December 31. 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 Registrant to
"eConnect" and increasing the number of authorized common shares
to 100,000,000 (see Exhibit 3.2 to this Registration Statement).
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
(see Exhibit 3.3 to this Registration Statement).
(b) Business of the Registrant.
(1) Transaction Division.
The business of the Registrant is to drive (process) PERFECT
global transactions with specific emphasis on ATM card with
PIN instant cash transactions. There are two aspects to the
industry of self serviced home or mobile swiped ATM card with
PIN entry or credit card transactions which the Registrant has
named PERFECT (personal encrypted remote financial electronic
card transactions).
The first aspect is the development of the "Bank Eyes Only"
transactions system whereby a consumer can use a remote
terminal from a home environment or mobile environment to read
a credit card or ATM card with PIN or a smart card which is
then sent to a host processor for card authorization. "Bank
Eyes Only" transactions refers to a direct Internet connection
between the consumer's terminal and the Registrant's bank card
authorization system. The web merchant does not store nor has
ready access to the consumer's card data. These "Bank Eyes
Only" terminals are remote from the merchant (protecting the
consumer's data) and are wireless or landline or computer
enabled. This should result in greater consumer confidence in
performing such financial transactions.
This system will also enable the consumer or business person
to effect instant cash payments to the recipient. A
transaction using the terminal device with an ATM card with
PIN is considered a cash payment. Internet "Bank Eyes Only"
ATM card with PIN payments could substantially affect global
commerce, completely changing the way people around the world
do business.
The second aspect of a PERFECT transaction is the usage of the
Registrant's proprietary hardware placed in public locations
for self serviced bill payments by ATM card with PIN entry.
Today, bankcard authorized transactions, that are terminal
driven, are initiated by consumers, "face to face" with
merchants. The Registrant's "Bank Eyes Only" transaction
enables the consumer to perform the transaction safely from a
remote location. These PERFECT transactions are originated by
the consumer. The transaction is encrypted before being sent.
The merchant does not originate the transaction by swiping the
bank card; the consumer swipes the bank card with no merchant
present. The consumer is "remote" from the merchant.
Applications of the PERFECT industry focus specific attention
of the usage of ATM card with PIN entry to effect "just in
time" bill, tax, mortgage, or premium payments from home, to
"reserve your seat" T for entertainment purposes.
The Registrant acknowledges that a proprietary hardware device
is necessary to conduct its fee per transaction business.
However, the revenue will derive not from the hardware but
from the transaction fees. The Registrant's goal is to develop
network global host processing centers. These centers will
drive and be compatible with all types of hardware made by
many different competitors.
The Registrant has spent over $2,000,000 in cash and stock
during the last two fiscal years developing the system for the
implementation of the PERFECT industry in general and for the
specific application of Internet "Bank Eyes Only" transactions
in particular.
The Registrant has contracted exclusive licenses for global
usage of Patent No. 5,336,870, issued August 8, 1994, Patent
No. 5,754,655, issued May 19, 1998, and Patent No. 5,809,143,
issued September 15, 1998 (see Exhibit 99.1 to this
Registration Statement). These three Patents broadly cover the
implementation of what the Registrant is now calling "Bank
Eyes Only" transactions.
Patent No. 5,336,870 has developed into the EzyDepot unit,
which is now being upgraded to a wireless unit for use by
households in the U.S. pay home services such as for plumbers
and carpet cleaners. Using the EzyDepot unit, consumers may
pay for household services from home with an ATM card rather
than with a check. The Registrant will generate revenues from
fees paid by the home service merchant to receive real cash in
real time, and the Registrant will also generate revenue from
the sales of the EzyDepot.
Patent No. 5,809,143 has developed into what the Registrant is
calling the eCashPad, and the specific focus is for Internet
"Bank Eyes Only" usage. This device connects directly to a
personal computer and runs on the Windows operating system.
The Registrant expects that the eCashPad should be
commercially available in September, 2000 for use by
consumers.
Patent No. 5,754,655 is in the process of development as a
hand held wireless voice capable phone and terminal for sale
and distribution into the PERFECT industry, with specific
focus for "Bank Eyes Only" Internet ATM card with PIN entry
transactions. This product is called the ePocketPay and is in
the development stage.
The present "Bank Eyes Only" system consists of the
proprietary Registrant eCashPad, the proprietary Registrant
EzyDepot, the Registrant/RGTecq Linux Transaction Server, and
the Registrant host systems which will drive these
transactions. In other words, simple servers at the host
center will "drive" the incoming eCashPad or EzyDepot
transactions into the bank system for authorization. For
example, the Linux transaction server will receive the
incoming eCashPad transaction and then send the transaction on
to the Registrant host system for card authorization. At no
time is any bankcard data stored with the Internet merchant,
and this simple action effects a highly secure consumer
Internet transaction. The Linux server operates on proprietary
software developed by the Registrant.
National Data Funding Corporation will be providing the
Registrant with operations support for the Registrant' host
systems under an agreement with the Registrant in April 2000.
The eCashPad has been developed by Asia Pacific Micro, Inc,
under a manufacturing agreement entered into in January 2000.
Production of the eCashPad has commenced in Asia and is
commercially targeted for distribution in September, 2000.
This unit attaches to the consumer's computer keyboard and
enables the consumer to affect Internet "Bank Eyes Only"
transactions, from the consumer's home or office. The
Registrant will receive a fee from the merchant per
transaction. The Registrant is currently establishing
distribution agreements for the eCashPad.
The eCashPad will also be distributed with private labels.
Companies participating in the private label eCashPads will
enjoy the benefit of receiving a portion of the Registrant's
transaction fee for transactions made to them in addition to
those made to other merchants. For example, an insurance
company using the eCashPad will generate cash payments by ATM
card with PIN entry for its premium payments. In addition, it
can generate additional revenues from the same eCashPad as it
is used to pay a phone bill, to make a charitable donation, to
purchase a product, or to pay a tax bill. The Registrant will
receive a projected fee of $1.00 per transaction.
The ePocketPay is targeted for a third quarter prototype which
will effect hand held wireless "Bank Eyes Only" transactions
plus act as a wireless voice phone.
The first country outside of the United States that the
Registrant is presently developing a host system is the
Dominican Republic, the second is Ireland, followed by Hong
Kong and then Australia. The Registrant has recently formed E-
Connect Caribbean, S.A. to develop its gaming and other
operations in the Dominican Republic. The Registrant has
chosen these countries since they have a strong usage of ATM
card with PIN entry.
Within the countries of Hong Kong, Ireland, Australia, and the
Dominican Republic, the Registrant recognizes that the
eCashPad within those countries will naturally evolve into ATM
card with PIN cash games, and the Registrant intends the
present holdings of Top Sports and 777WINS to be combined into
an eGaming company which will feature the "International",
which will be the equivalent of a same day instant cash game
between the countries of Australia, Hong Kong, Ireland and the
Dominican Republic whereby the eCashPad is used with ATM card
and PIN entry and processed by the Registrant's host systems.
The specific goal of the Registrant is to establish global
"Bank Eyes Only" ATM card with PIN entry by the usage of the
eCashPad which will be targeted for substantial free
distribution within the United States and in Hong Kong,
Ireland, the Dominican Republic and Australia in the third
quarter of 2000.
The long term strategic goal of Registrant is to position its
global host systems to offer "Bank Eyes Only" processing
services for both competitors' terminal solutions and for the
Registrant's terminal solutions. This places the Registrant in
the position of being a HUB for its own transactions and
competitor's transactions. There will also be a particular
emphasis on Internet cash payments between countries by the
usage of eCashPad or ePocketPay type of devices and ATM card
with PIN entry. This enables the Registrant to handle Business
to Business transactions and Country to Country transactions.
Revenue generation from "Bank Eyes Only" transactions is
expected to begin in the third quarter of 2000 when the
eCashPad is freely distributed by the Registrant and is also
aggressively deployed by the industries of telecommunications,
insurance, collection, network marketing, charity and
utilities.
Within the United States market, the Registrant is closely
working with NDFC to secure the go ahead for regional ATM card
networks for an eCashPad ATM card with PIN entry "Bank Eyes
Only" internet payment.
The Registrant's host service in the United States is provided
by eFunds, a wholly owned subsidiary of Deluxe Data under an
agreement between eFunds and the Registrant entered into in
February 2000. The Registrant is currently using the eFunds
CONNEX software to provide the Registrant Host support system
outside of the United States.
The Registrant is confident that the ATM card network will
accept "Bank Eyes Only" transactions. A targeted pilot program
is scheduled to begin in the third quarter. Since this is a
new endeavor, the Registrant cannot guarantee that such United
States "Bank Eyes Only" with ATM card and PIN entry
transactions will actualize. The usage of ATM card with PIN
entry "Bank Eyes Only" transactions is directly dependent on
the acceptance by bank networks such as STAR or MAC.
The Registrant expects the industry of "Bank Eyes Only"
Internet transactions to develop substantially by the fourth
quarter and anticipates numerous "Bank Eyes Only" product
devices to be introduced by various companies. It is the
intention of the Registrant to provide support services for
such hardware devices and to gain a service fee from the
processing of "Bank Eyes Only" transactions. The Registrant
encourages the introduction of different types of "Bank Eyes
Only" devices.
The Registrant anticipates a strong effort by competitors to
seize the "Bank Eyes Only" space on an Internet merchant site
and the Registrant recognizes that there are a finite number
of top 100 web merchants per category.
In summary, the Registrant intends to build host systems in
such countries as the Dominican Republic, Hong Kong, Australia
and Ireland, plus numerous other countries, whereby the
Registrant's host system is driving many different types of
hardware devices as developed by many companies to meet the
demand of the PERFECT industry. The Registrant will generate a
fee per transaction from the driving of each hardware device
which is sending in PERFECT ATM card and PIN entry, credit
card and smart card payments.
(2) Gaming Division.
As of December 31, 1999, the Registrant held a 50% interest in
Top Sports S.A., a series of 12 walk-in Dominican Republic
Sportsbooks. The Registrant's interest in gaming is two-fold:
generating revenues and establishing a base for the use of
"bank eyes only" eCashPads for global ATM card with PIN entry
gaming.
It is anticipated that the gaming division, as explained in
more detail below, will generate revenue in 2000. Under the
strict control of the Dominican Republic subsidiary, United
States originated gaming transactions will not be accepted.
The government of the Dominican Republic has granted the
Registrant the specific Licenses required to own and manage
full service walk in sports gaming public locations and to
offer Internet gaming with the 777WINS.com service, or an
equivalent service provided by Top Sports.
(3) General.
Registrant presently has 12 full time employees and contracts
with multiple independent contractors. To meet the
Registrant's service launch requirements, it expects to hire
additional financial, technical, administrative and sales
staff.
In addition to the Patents set forth above, the Registrant
currently has 8 filed applications for trademarks.
(c) Acquisitions of the Registrant.
(1) Rogel Technologies.
According to an agreement dated May 6, 1999, the Registrant
acquired all of the assets of Rogel Technologies, a sole
proprietorship ("RT") (see Exhibit 10.7 to the Form 10-KSB).
These assets consisted of the following: (a) proposed RT's
Secure Email service; (b) Perfect Merchant Response Software
(MRS); (c) RT's "GlobalMarketPlaceMall.com" website (GMM) (the
GMM includes these products: GMM Classified Adds, GMM Web
hosting services, eTrusts, eHomebuy, eDine, eTheater, Portable
Website Software, PCA Compression Software, and Virtual Card
Game Software); and (d) the consulting services of Rogel
Patawaran for the purpose of creating and writing new software
products for the Registrant.
The Registrant agreed to make the following payments under
this agreement: (a) 2,750,000 free trading shares; (b)
2,500,000 restricted shares of common stock; (c) options to
purchase 500,000 shares of common stock at an exercise price
of $0.50 per share, which options expire on June 30, 2000; (d)
options to purchase 500,000 shares of common stock at an
exercise price of $1.00, which options expire on June 30,
2001; (e) options to purchase 250,000 shares of common stock
at an exercise price $2.00 per share, which options expire on
June 30, 2002 ; (f) $200,000 per year management fee payable
from the gross revenues of RT; and (g) 12.5% of the remaining
net profits of RT as an administration fee. A total of
2,500,000 restricted shares of common stock and 2,500,000 free
trading shares of common stock have been issued date under
this agreement (no options as set forth in the agreement have
been issued to date).
Under an agreement dated October 23, 1999, the Registrant
agreed to pay Rogel Technologies an additional $168,000 for
services related to MRS software and the SafeTPay system
server, and to provide additional consulting services for an
hourly fee (see Exhibit 10.14 to the Form 10-KSB). Under an
agreement dated November 23, 1999, the parties agreed that in
consideration of said sum the MRS and SafeTPay software will
remain under the ownership and full control of Rogel
Technologies; however, the Registrant would have the right to
utilize this software and provide instruction in its use (see
Exhibit 10.16 to this Registration Statement).
Based on the main focus of this agreement being the consulting
services of Mr. Patawaran in research and development
activities of the Registrant, the shares issued under this
agreement are being accounted for as research and development
costs in the financial statements of the Registrant. The
Registrant has not as yet made any determination regarding
further development of the other items set forth in the
agreement.
(2) Isla Escondida, S.A.
La Empresa Ranco Plasticos Limitada, a Costa Rica corporation
("Holder"), was the owner of record of 58.33% of the issued
and outstanding stock of Isla Escondida, S.A., a Costa Rica
Corporation ("IE") ("Stock"). Pursuant to an agreement between
Holder, Jamie Ligator and Michael Lanes, one-half (1/2) of the
Stock was actually being held in the name of Holder for the
benefit of Lanes and the other one-half (1/2) of the Stock was
actually being held in the name of Holder for the benefit of
Ligator. Effective on August 31, 1999, the Registrant
purchased the Stock under a Stock Exchange Agreement (see
Exhibit 10.10 to this Registration Statement).
Under this agreement the Registrant paid the following amounts
for the Stock: 7,000,000 shares of free trading common stock
of the Registrant, to be deposited into an escrow account.
These shares were all released by December 31, 1999 under the
provisions of an accompanying escrow agreement. Subsequent to
this agreement, the Registrant acquired, for 5,000,000 free
trading shares, the remaining 41.67% of the stock of IE
directly from the shareholders of that company in a stock swap
(an additional 5,200,000 restricted shares of common stock
previously issued in connection with this transaction, which
were registered in a Form SB-2 of the Registrant filed on
September 3, 1999, are to be cancelled by the Registrant). In
addition to the above amounts paid, the Registrant paid an
additional 1,510,000 shares of free trading common stock in
connection with closing this transaction.
This asset has generated no revenues for the Registrant since
its acquisition. Due to various problems with the 777WINS
operation in Costa Rica, this website was closed shortly after
the acquisition by the Registrant and no revenues or profits
were realized from this operation. As a result, this entire
investment was written down to $250,000 in the fourth quarter
of fiscal 1999. As set forth in section (4) below, the
Registrant now owns only a 50% interest in 777WINS.com in
connection with the agreement with Top Sports, S.A.
(3) TheArtAuction.com
Effective on September 9, 1999, the Registrant acquired the
website known as "theArtAuction.com" from PowerClick, Inc., a
Nevada corporation, through an Agreement and Plan of
Acquisition Agreement (see Exhibit 10.11 to this Registration
Statement for the agreement which reflected the actual
acquisition, which is different from the one attached to a
Form 8-K filed on November 16, 1999). Under this agreement,
Registrant paid the following: (a) 1,000,000 shares of free
trading common stock of the Registrant; and (b) 1,000,000
shares of restricted common stock of the Registrant. In
addition, the Registrant paid an additional 165,000 shares of
restricted common stock in connection with closing this
transaction.
Although this website did briefly generate revenues in
September 1999 totaling approximately $40,000, the website was
closed down in November 1999 for reconstruction and has not as
yet reopened. Registrant has been upgrading theArtAuction.com
into artaste.com, which is scheduled for an early in the third
quarter of 2000.
(4) Top Sports S.A.
By a Contract of Partnership dated November 20, 1999, the
Registrant acquired a 50% interest in Top Sports S.A., a
Dominican Republic corporation (see Exhibit 10.17 to the
December 31, 1999 Form 10- KSB, attached hereto as Exhibit
13.2). The Registrant has also entered into a Business
Cooperation Agreement with Top Sports S.A., dated December 9,
1999, to carry forward the terms of the partnership between
the two companies under local Dominican Republic law (see
Exhibit 10.21 to the December 31, 1999 Form 10- KSB, attached
hereto as Exhibit 13.2).
Top Sports operates various sports book betting establishments
in the Dominican Republic, where casino and related types of
gaming are legal. Under these agreements, the Registrant shall
be the beneficiary of 50% of all the assets, benefits and
gains, and shall share in 50% of all the liabilities, losses
or obligations. As part of these agreements, the Registrant
agreed to give-up a 50% interest in its website 777WINS.com.
The Registrant paid the following: (a) U.S. $35,000 and (b)
1,000,000 of restricted common stock of the Registrant. The
Registrant also agreed to pay options to purchase 2,000,000
shares of common stock of the Registrant, during the 12 months
following the execution hereof for the fixed price of U.S.
$0.30 per share; these options have not yet been issued.
Under these agreements, it is the intention of the parties
that not only will sports book betting be expanded in the
Dominican Republic, but that only wagering will be facilitated
through the 777WINS.com website. To this end, all of the
equipment and other assets of 777WINS.com moved from Costa
Rica to the Dominican Republic in January 2000.
On January 1, 2000, the Registrant entered into a Shares Sale
Contract to acquire the remaining 50% interest of Top Sports
from Paul Egan. Under the terms of the agreement, the
Registrant is to pay Mr. Egan a) 1,000,000 unrestricted free-
trading shares of the Company; b) 1,000,000 restricted shares
of the Company; and c) 1,000,000 warrants at a fixed price of
$1.00 per share. As of the date of this registration
statement, Mr. Egan has not exercised any warrants.(see
exhibit 10.48 to this Registration Statement)
On June 20, 2000, the Registrant verbally agreed to modify the
two previous agreements. This verbal agreement was committed
to writing and made effective as of April 1, 2000 (see Exhibit
10.49). In accordance with this agreement, Mr. Egan is to
receive 25% of the common stock of eConnect Caribbean, S.A.,
as a Dominican Republic subsidiary of the Registrant. The
Registrant will own 100% of Top Sports. Mr. Egan would resign
as a director of Top Sports and would keep all consideration
received to date under the December 9, 1999 and January 1,
2000 agreements and will not receive any other consideration
under either of these agreements. He will be employed as
President of eConnect Caribbean, S.A. for a term of three
years.
In July 2000 the Registrant formed eConnect Caribbean, S.A.
for the purpose of acting as a full service host processing
center for both bank eyes only transactions as originated by
the ecashPad and to also service merchant walk in retail
locations in the Dominican Republic.
It is also the intention of eConnect Caribbean to process
Internet credit card transactions for gaming companies and to
sell the eCashPad to Internet gaming companies for
distribution of the eCashPad to their clients.
In order to help fund the operation of Top Sports, S.A., this
firm and the Registrant entered into an agreement dated
December 16, 1999, whereby the Registrant is to provide that
firm with 100,000 free trading shares of the Registrant per
month beginning January 2000 and ending December 2000 (see
Exhibit 10.24 to the December 31, 1999 Form 10- KSB, attached
hereto as Exhibit 13.2). Top Sports will sell such shares in
the marketplace and will use the resulting revenues to fund
the continued expansion plans of Top Sports SA, specifically
the acquisition of 20 targeted Dominican Republic Sports
Books.
(d) Other Agreements.
(1) First Entertainment Holding Corp.
On April 29, 1999, the Registrant entered into a Joint Venture
Agreement with First Entertainment Holding Corp. for the
purpose of using the allowing customers to use their ATM cards
to make purchases from a number of websites owned by that firm
at www.firstentertainment.com (see Exhibit 10.6 of the
December 31, 1999 Form 10-KSB, attached hereto as Exhibit
13.2). These companies intend to move forward with this
project once the eCashPad is available for distribution. Each
company will share equally in the profits and losses from this
joint venture.
(2) Cash2Trade.
In September 1999, the Registrant entered into an oral joint
venture agreement with Robert Bragg and Michael Rice to
develop an online investment trading website. The Registrant
issued a total of 1,650,000 shares of free trading common
stock in this transaction. As of December 31, 1999, the
Registrant's management evaluated the value of this investment
and substantially all of the $325,000 investment was written
off as a loss on investment since it has no future benefit.
(3) International Investor Relations Group.
The Registrant entered into a Consulting Agreement with
International Investor Relations Group, Inc. ("IRG"), dated
September 24, 1999 (see Exhibit 10.12 to this Registration
Statement). Under the terms of this agreement, this firm
provided certain services for the Registrant, as follows: (a)
10 road shows; (b) 1 Media Placement in Stock/Card deck
reaching 250,000 + investors; (c) 2 News releases, includes
broadcast fax to all interested parties; (d) one research
report 6-8 page full color; and (e) a broker card - 2 sided,
full color.
Under this agreement, the Registrant paid the following
amounts for the services of IRG: (a) $85.000.00; (b) 167,000
free trading shares based on a .21 cent per share price; and
(c) 300,000 purchase warrants, as follows: 100,000 $0.50 cents
per share, 100,000 at $0.75 cents per share, and 100,000 at
$1.00 per share. These have a 2-year expiration date from the
original date of signing the agreement.
(4) Kanakaris Communications.
On October 21, 1999, the Registrant entered into an agreement
with Kanakaris Communications for the purpose of developing
Internet Cash Programming ("ICP"), a service to be offered by
Kanakaris and the Registrant which will enable the consumer to
purchase internet video streaming programming by Same-as-Cash
(ATM card and PIN), or by Enhanced Credit Card (the payment by
credit card that is read by the ePIN or like devices) (see
Exhibit 10.13 to the December 31, 1999 Form 10- KSB, attached
hereto as Exhibit 13.2). Under this agreement, Kanakaris
Communications will provide the delivery to the internet
consumer of video streaming programming from either Kanakaris
Communications own inventory base or shall act as a
distributor of video streaming programming from other
entertainment providers.
Under the terms of this agreement, ICP will be established as
a separate Nevada corporation and will authorize 1,000,000
shares of stock; Kanakaris Communications will receive 400,000
shares of stock and eConnect shall receive 400,000 shares of
stock, and 200,000 shares of stock shall remain in the ICP
treasury. Kanakaris Communications will retain the managing
control of ICP and shall appoint officers to manage ICP. All
profits of ICP shall be equally split between eConnect and
Kanakaris Communications.
The Registrant will receive exclusive global rights to drive
or process all originating ICP transactions whether transacted
by an ePIN or by a competitive hardware devices that are
effecting either a Same-as-Cash or Enhanced Credit Card
programming purchase. In addition, the Registrant will charge
ICP a flat fee per ICP processed transaction. Further
development of this project is awaiting the delivery of the
eCashPad, as previously discussed.
The Registrant paid a total of 3,000,000 shares of free
trading common stock for the research and development to be
done under this agreement. However, unbeknownst to the
Registrant these shares were paid out directly to a nominee of
Richard Epstein, United Capital Management.
(5) SafeTPay.com.
On November 5, 1999, the Registrant entered into a Capital
Contribution Agreement with SafeTPay.com, a Nevada corporation
(see Exhibit 10.15 to the December 31, 1999 Form 10- KSB,
attached hereto as Exhibit 13.2). Under the terms of this
agreement, the Registrant agreed to creation and management of
a business unit focused on the processing of secure internet
transactions.
Under this agreement, the Registrant agreed to contribute the
following assets to this newly formed company:
(a) Software. All ownership and rights to the software that
have been developed by Rogel Technologies ("RT") per
specifications provided by SafeTPay ("System"). SafeTPay is
to have access to this software as needed for the operation
of its business.
(b) Computer Hardware. The server which has been procured
by RT for use as the SafeTPay internet server, and
installed in St. Petersburg, Florida.
(c) Miscellaneous Physical Assets. Three laptop personal
computers, 7 sample PIN pads, and miscellaneous office
supplies that have been purchased for and/or are being used
by the SafeTPay business unit.
(d) Trademarks, Trade-names, Copyrights. Ownership of any
and all marks, registrations, and goodwill that eConnect
may own, regarding "SafeTpay", "Same-As-Cash", "ePIN" and
"ePAD". As a condition for this transferal, Harry Hargens
is to contribute and unconditionally transfer to SafeTPay
any and all trademarks and domain names held in his name.
(e) Web Address. Ownership of any web addresses reserved
for any of the above names or marks.
Under the agreement, the parties were to receive stock in
SafeTPay.com as follows:
(a) Common Stock: SafeTPay will initially authorize 20
million shares of common stock. In return for the capital
contributions listed above, the Registrant is to receive
2,300,000 shares of restricted common stock of SafeTPay.
The principals of SafeTPay (Harry Hargens, Gerard Gay,
Robert Hodgson, and Dale Reistad) are to each receive
150,000 shares of restricted common stock of SafeTPay.
(b) Options.
(1) The Registrant is to, upon execution of the
agreement, receive options to purchase 5,000,000 shares
of SafeTPay common stock, at an exercise price of one
dollar ($1.00) per share. Any unexercised options shall
expire 3 years after execution of this Agreement.
(2) The principals of SafeTPay are to each receive
options to purchase 500,000 shares of SafeTPay common
stock, at an exercise price of $1.00 per share. Any
unexercised options shall expire 3 years after execution
of this Agreement.
(3) For a period of 24 months following execution of this
Agreement, any additional options given to officers or
shareholders of either SafeTPay or eConnect shall be
issued at the same exercise price at those set forth in
subparagraph (a) above.
(c) Additional common stock in return for capitalization:
eConnect hereby commits to invest in SafeTPay $500,000 over
the period of one year from the date of this Agreement, in
four (4) equal quarterly installments, with $20,000 of the
first installment due not later than November 15, 1999,
$42,500 due not later than December 15, 1999, and the
remainder of the first installment due not later than
January 15, 2000; subsequent installments shall be due not
later than the following dates: April 15, 2000, July 15,
2000, and October 15, 2000.
Although to the knowledge of the Registrant no litigation
has been threatened with regard to this agreement with
SafeTPay.com, the principals of SafeTPay now claim that the
Registrant is now in breach of contract since it did not
pay certain sums for the capital contribution, as stated
above, and has not fulfilled certain obligations under the
agreement. The Registrant has contributed a total of
$62,500 to SafeTPay.com. The Registrant does not intend to
contribute any further cash, or other assets as set forth
above, until other claims of the principals of SafeTpay.com
can be resolved.
In connection with this agreement, the Registrant entered
into a separate consulting agreement with Michael Leste and
Michael Kofoed for their services in connection with this
agreement (see Exhibits 10.22 and 10.23, respectively, to
the Form 10-KSB). Under the terms of these agreements,
these individuals are to receive certain options and
restricted shares of SafeTPay.com; these have not been paid
due to the status of this agreement.
(6) eMarkit (eConnect2Trade.com).
(a) August 16, 1999 Agreement.
On August 16, 1999, the Registrant entered into a
consulting agreement with eMarkit Incorporated, a Nevada
corporation, whereby this company would provide certain
consulting services for the Registrant in connection with
introductions to the brokerage industry (see Exhibit 10.9
to the December 31, 1999 Form 10- KSB, attached hereto as
Exhibit 13.2). Such introductions would be for the purpose
of developing the "Bank Eyes Only" system for use in the
financial services industry.
Under the terms of this agreement, the Registrant agreed to
pay 1,000,000 free-trading shares of Registrant's common
stock deemed fully earned upon execution hereof for
eMarkit's initial setup activities which are necessary for
Contractee to provide the services herein. In addition, the
Registrant agreed to pay 1,000,000 warrants exercisable at
$1.00 per share, which expire on December 31, 2000.
However, this consulting agreement never went forward and
the compensation was not paid.
(b) December 29, 1999 Agreement.
On December 29, 1999, the Registrant entered into an
agreement with eMarkit for the purpose of a joint venture,
whereby the Registrant agrees to purchase on a "stock for
stock" basis, 50% of a corporation to be formed by eMarkit,
that name being eConnect2Trade.com, Incorporated ("ET")
(see Exhibit 10.25 to the December 31, 1999 Form 10- KSB,
attached hereto as Exhibit 13.2). The business of ET is to
be the marketing and sales of the Registrant's "same-as-
cash" transactions to the securities industry via any
medium, but initially via the internet using an ATM pin
pad. The long term goal of ET will be, for a fee, to act as
a financial interface between securities broker/dealers and
their clients who are transacting currencies via
transactions using bank host processing centers that are
authorizing such transactions.
Upon signing of this agreement of the Registrant agreed to
issue 1,000,000 "free-trading" shares of the Registrant's
stock to eMarkit and 2,000,000 warrants to eMarkit to
purchase 2,000,000 "free-trading" shares of eConnect stock
at an exercise price of $1.00 per share. The expiration
date of the warrants is to be December 31, 2000. The
Registrant is to deliver the stock and warrants as follows:
300,000 shares and 300,000 warrants no later than January
20, 2000. The next issuance of 200,000 shares and 200,000
warrants will be delivered when Beta testing begins and
500,000 shares and 500,000 warrants will be delivered when
Beta testing is complete but no later than March 20, 2000.
Subsequent to December 31, 1999, a total of 300,000 free
trading shares were issued to Robert Bragg, the principal
of eMarkit; the Registrant has not as yet been issued any
shares in eConnect2Trade.com but the parties intend to
proceed with this transaction.
Although a recent agreement of eConnect2Trade.com with
Empire Financial Holding Co., a broker/dealer, did not
proceed, it is the intention of the Registrant to seek
other contacts within the brokerage industry.
ITEM 17. PLAN OF OPERATION
(a) Twelve Month Plan of Operation.
In the year 2000, the Registrant will focus its attention on the
marketing and development of the PERFECT industry (Personal
Encrypted Remote Financial Electronic Card Transactions), with
specific focus on the "Bank Eyes Only" Internet aspect of the
PERFECT transaction.
"Bank Eyes Only" refers to a direct Internet connection between the
consumer's terminal and the Registrants bank card authorization
system by which the consumer will order an item from an Internet
merchant, but the credit card data or ATM data will go directly to
the Registrant's server and then to the bank, bypassing the
merchant. Thus, this service will enable customers to pay for
Internet purchases, bill payments and other types of transactions
from home by physically swiping either credit cards or ATM cards
with PIN entry. These "Bank Eyes Only," transactions can be
processed over the Internet without the cardholder account
information being stored at the merchant's web site, nor does the
merchant have ready access to the consumer's bank card information.
The Registrant believes that "Bank Eyes Only" transaction
processing system will effectively address Internet consumers'
concerns regarding personal and financial information security. The
Registrant will receive a projected flat fee of $1.00 for each
"Bank Eyes Only" transaction which will be paid by the merchant,
not the consumer.
The Registrant has begun initial sign ups of web Merchants for this
service and based on responses, will now expend substantial dollars
for an aggressive May sign up campaign to begin simultaneously on
several fronts. To launch the service of Internet "Bank Eyes Only"
transactions, the Registrant has implemented the following
initiatives:
(1) The development of the eCashPad by Asia Pacific Micro, Inc,
under a manufacturing agreement entered into on January 21, 2000
(see Exhibit 10.29 to the Form 10-QSB for the quarter ended
March 31, 2000, attached hereto as exhibit 13.1). Production of
the eCashPad has commenced in Asia and is commercially targeted
for distribution in September, 2000.
(2) The Registrant has entered into two agreements with eFunds
Corporation, a subsidiary of Deluxe Data, dated February 3, 2000
and February 4, 2000 to provide the Dominican Republic and
Ireland host systems for "Bank Eyes Only" transactions (see
Exhibits 10.34 and 10.36, respectively, to the Form 10-QSB for
the quarter ended March 31, 2000, attached hereto as exhibit
13.1). This means that eFunds will help process the transaction
after it leaves the Registrant's server.
(3) Under the agreement with eFunds, the Registrant also
obtained a license of the eFunds CONNEX host system software for
usage in countries other than the United States. The CONNEX
system provides the Registrant with a proven host software
system which will effect "Bank Eyes Only" transactions as
originated by eCashPads.
(4) The purchase of an IBM Multiprise 2000 as a platform for the
CONNEX host system software in March 2000.
(5) The Registrant has entered into a letter of intent with Real
Solutions, Ltd. on March 9, 2000 to provide the IBM hardware
support in connection with the eFunds agreements (see Exhibit
10.40 to the Form 10-QSB for the quarter ended March 31, 2000,
attached hereto as exhibit 13.1). On April 13, 2000, the
Registrant entered into a formal Master Services Agreement with
Real Solutions, Ltd. in connection with this matter.
(6) On February 9, 2000, the Registrant consummated an
acquisition agreement with PowerClick, Inc., a Nevada
corporation, whereby the Registrant acquired 50% of the
outstanding capital stock of this company (see Exhibit 10.37 to
the Form 10-QSB for the quarter ended March 31, 2000, attached
hereto as exhibit 13.1). PowerClick, Inc. owns and operates a
website that provides a wide range of products and services to
the public, and is intended to be used as a vehicle to promote
the use of the "Bank Eyes Only" system.
(7) The Registrant has entered into a letter of intent to
acquire a controlling interest in National Data Funding
Corporation ("NDFC"), a company that will provide eCashPad
distribution, encryption, and maintenance (see Exhibit 10.47 to
this Registration Statement). The eCashpad is a device which
will attach to a personal computer to enable a credit card or
ATM transaction via Internet. NDFC will also provide full
merchant processing for all credit and debit cards in support of
the United States eFunds host. The Registrant is in the process
of negotiating a final acquisition agreement.
(8) Completion of testing of the eCashPads, the consumer "Bank
Eyes Only" device. The Registrant expects a national roll-out of
eCashPads in the third quarter of 2000.
(9) On December 29, 1999, the Registrant entered into an
agreement for establishing eConnect2Trade.com, Incorporated
("ET") (see Exhibit 10.25 to the December 31, 1999 Form 10-KSB,
attached hereto as exhibit 13.2). The business of ET is to be
the marketing and sales of the Registrant's "same-as-cash"
transactions to the securities industry via any medium, but
initially via the internet using an ATM pin pad. The long term
goal of ET will be, for a fee, to act as a financial interface
between securities broker/dealers and their clients who are
transacting currencies via transactions using bank host
processing centers that are authorizing such transactions.
Although a recent Letter of Intent between ET and Empire
Financial Holding Co., a broker/dealer, did not proceed, it is
the intention of the Registrant to seek other contacts within
the brokerage industry (see Exhibit 10.28 to the Form 10-QSB for
the quarter ended March 31, 2000, attached hereto as exhibit
13.1).
(10) On March 10, 2000, the Registrant entered into a Joint
Venture Agreement for the creation of a software/hardware
solution that will facilitate a secure transaction interface and
communications between handheld computing devices and secure
transaction servers (see Exhibit 10.39 to the Form 10-QSB for
the quarter ended March 31, 2000, attached hereto as exhibit
13.1). The net result to be to provide same as cash transactions
over virtual private networks. The combined hardware
/software/service is to be known as "PocketPay" an existing
trademark of eConnect.
(11) Development of "bankeyesonly.com" web sites in the United
States, Dominican Republic, Ireland, Australia and Hong Kong.
These web sites will be used to register web merchants within
the above listed countries to be able to receive a "Bank Eyes
Only" transaction by an eCashPad. A consumer will be able to go
the Registrant's website and with the use of his/her eCashPad
will be able to safely order merchandise on line.
(12) Aggressive recruiting of web merchants to the Registrant
"Bank Eyes Only" network. Registration of "Bank Eyes Only" web
merchants will be pursued by a team specialists to be hired who
understand their specific industry such as phone or cable or
collections and who will fully develop the pertinent "Bank Eyes
Only" applications for that industry and who will develop
strategic alliances within their specific industry. In addition,
the Registrant has structured a networking approach for mass
market consumer participation in finding "Bank Eyes Only"
merchants along with sales teams to sign on local web merchants.
(13) Using a revenue sharing plan from the flat fee, the
Registrant will incentivize private labels of eCashPads with
expected advertising and marketing of these private label
eCashPads by the web merchants to their consumer base. For
example, a merchant might distribute eCashPads with its logo to
its own consumers.
(14) Establishment of strategic alliances with a substantial
partner in each country. The partner will then proceed to
develop the business of "Bank Eyes Only" transactions by usage
of the simple and proprietary eCashPad which has been developed
by the Registrant.
(15) The activation of the Dominican Republic host system, and
host systems in Ireland, Hong Kong Host, and Australia as full
service centers which will provide not only "Bank Eyes Only"
Internet transactions by the usage of eCashPads but also full
service aspects of processing merchant retail terminal
transactions and ATM cash machines. Terminals could be placed in
strategic market areas of each country such as check cashing
centers or even grocery stores. In this regard, the Registrant
entered into a Joint Venture Agreement, dated March 27, 2000,
with Raymond and Li-Wang Kessler for the purpose of delivering a
delegation from the Peoples Republic of China to a meeting in
the United States with the Registrant to discuss launching the
Registrant's services in China (subsequent meetings with China
Delegation contact(s) and their associates will explore forging
business relationships in Singapore, Hong Kong, Macao and other
countries) (see Exhibit 10.44 to the Form 10-QSB for the quarter
ended March 31, 2000, attached hereto as exhibit 13.1).
(16) Establishment of the "International," which will be a four
country real time "Bank Eyes Only" with ATM card and PIN entry
game between the countries of the Dominican Republic, Ireland,
Australia, and Hong Kong, whereby consumers within those
countries will be able to use the eCashPad to effect same day
gaming with ATM card and PIN entry.
The Registrant intends to spin off eGaming and its PowerClick
subsidiary as separate publicly traded companies.
(b) Risk Factors in Connection with Plan of Operation.
An investment in the Registrant is subject to a number of risks.
Among these risks are the following:
(1) eCashPad Production. The agreement under which the eCashPad is
being manufactured for the Registrant only calls for an initial
production run of 5,000 units, at a total cost of $80,000. The
Registrant must conclude an agreement for a substantial additional
manufacturing run in order for the plan of business as set forth
above to succeed. There is no guarantee that the Registrant will be
able to conclude such an agreement.
This agreement offers the Registrant substantial savings by
contracting with an Asian country for manufacturing. Currently, the
manufacturer is stable but there is no guarantee that the
manufacturer may not be impacted by future changes in government
policies. The Registrant is presently seeking additional suppliers.
(2) Approval of Regional ATM Networks. Within the United States
market, the Registrant is closely working with NDFC to secure the
go ahead for regional ATM card networks for an eCashPad ATM card
with PIN entry "Bank Eyes Only" Internet payment. Such network
currently permit the usage of credit cards on their systems. Thus,
a substantial part of the Registrant's strategy is based on ATM
card with PIN entry Internet payments, and the Registrant may not
receive bank approvals from the regional ATM card networks in the
United States for such transactions. In such case, this payment
system could not be used in the United States, which could
substantially affect the prospects of the Company in this country.
Even though this type of payment system has already been approved
in the Dominican Republic and Ireland, and may be approved
elsewhere outside the United States, the Company would expect that
a substantial portion of its projected revenues would come form
United States based transactions.
(3) 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 the Registrant's services
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.
(4) 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 business, the extent
of which cannot be predicted. For example, the U.S. Senate has
considered a proposed bill introduced by U.S. Senator John Kyl that
would ban Internet gaming in the United States. The passage of such
a bill may adversely affect the operation of the Company, depending
on the form of legislation. Even though all gaming operations of
the Company are off-shore and such transactions are not accepted
from the United States, the effect of such legislation may
influence the business.
(5) Competition. The Registrant anticipates substantial competition
in the development of the PERFECT industry and the "Bank Eyes Only"
internet application in particular. The Registrant believes that
the marketplace is large enough to absorb many competitor companies
who may focus on ancillary aspects of the PERFECT industry such as
the development of hardware or of merchant sign ups, rather than on
the core business of the Registrant which is the processing of
transactions. Many competitors in this industry, and in internet
gaming will have greater experience, resources, and managerial
capabilities than the Company, may be in a better position than the
Company to obtain access to attractive clientele. Such competition
could have a material adverse effect on the Company's
profitability.
(6) 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
in managing companies in the same business as the Company.
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 decisions that affect 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 or she is willing
to entrust all aspects of the management of the Company to the
officers and directors.
(7) Conflicts of Interest. The officers and directors have other
interests to which they devote time, either individually or through
partnerships and corporations in which they have an interest, hold
an office, or serve on boards of directors. Each will continue to
devote such time to the business of the Company, notwithstanding
other obligations, that may reduce the time they can devote 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 of the Company, any proposed investments for its
evaluation.
(8) Additional Financing Will Be Required. The Registrant will be
required to raise significant capital to fund its Plan of
Operation; this is estimated to be $3,000,000 over the next 12
months. Currently, the Registrant is meeting its funding
requirements through financing provided by the Alpha Venture
Capital, Inc. through a Common Stock Purchase Agreement between the
Registrant and this firm Alpha Venture Capital, Inc., dated
September 28, 1999 (see Exhibit 4.22 to this Registration
Statement). However, there is no guarantee that this funding source
will continue to be available in the future.
The current funds available to the Company, and any revenue
generated by operations, will not be adequate for it to be
competitive in the areas in which it intends to operate, and may
not be adequate for the Registrant to survive. Therefore, the
Company will need to raise additional funds in order to fully
implement its business plan. The Company's continued operations
therefore will depend upon its ability to raise additional funds
through bank borrowings, equity or debt financing. There is no
assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the Company. If the Company cannot
obtain needed funds, it may be forced to curtail or cease its
activities. If additional shares were issued to obtain financing,
current shareholders may suffer a dilution on their percentage of
stock ownership in the Company.
(9) Uncertainty Due to 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 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 Registrant'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 Registrant, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The Registrant currently believes that its systems are Year 2000
compliant in all material respects. Although management is not
aware of any material operational issues or costs associated with
preparing its internal systems for the Year 2000, the Registrant
may experience serious unanticipated negative consequences (such as
significant downtime for one or more of its suppliers) or material
costs caused by undetected errors or defects in the technology used
in its internal systems. Furthermore, the purchasing patterns of
customers may be affected by Year 2000 issues. The Registrant does
not currently have any information about the Year 2000 status of
its potential material suppliers. The Registrant's Year 2000 plans
are based on management's best estimates.
(c) Forward Looking Statements.
The foregoing Plan of Operation contains "forward looking
statements" within the meaning of Rule 175 under the Securities Act
of 1933, as amended, and Rule 3b-6 under the Securities Act of
1934, as amended, including statements regarding, among other
items, the Registrant's business strategies, continued growth in
the Registrant's markets, projections, and anticipated trends in
the Registrant'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 Registrant's expectations and are subject to a number of risks
and uncertainties, certain of which are beyond the Registrant's
control. The Registrant 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 Registrant's products, competitive pricing
pressures, changes in the market price of ingredients used in the
Registrant's products and the level of expenses incurred in the
Registrant'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 Registrant disclaims any intent or obligation to update
"forward looking statements."
ITEM 18. DESCRIPTION OF PROPERTY
At its executive offices in San Pedro, California, which the
Registrant leases, it owns approximately $18,000 of miscellaneous
office furniture and equipment, including computers. In the
Dominican Republic, the Registrant owns approximately $250,000 of
computer equipment and associated equipment for use in gaming
operations; this equipment has recently been transferred from the
former operations of 777WINS in Costa Rica to the Dominican
Republic.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two fiscal years, certain transactions which
occurred between the Registrant and its officers and directors are
set forth below. With respect to each such transaction, the
Registrant believes that the terms of each transaction were
approximately as favorable to the Registrant as could have been
obtained from an unrelated third party:
(a) 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") (see Exhibit 10.1
to this Registration Statement). ET&T is a privately held
corporation, a majority and controlling interest in which is owned
by Mr. Hughes, President of the Registrant, 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 Registrant,
it is included here since certain of the conditions under that
agreement have not been completely fulfilled, as discussed below).
This technology will provide consumers with the option to instantly
pay bills or impulse purchase from home with real time cash
transactions with the usage of simple equipment such as the
eCashPad.
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 Registrant is to issue
2,900,000 shares of restricted common stock to HPOS as the total
consideration 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 Registrant 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 Exhibit 10.2 to this
Registration Statement).
As of the date of this Registration Statement, the terms of the
Licensing Agreement have not been met by the Registrant. However,
the Registrant 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, 2001, 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, 2001.
The License Agreement also provides that in the event that the bid
price for the common stock of the Registrant 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
Registrant common stock at an exercise price of $.30 per share. To
date, the conditions of this provision have not been met.
Under the terms of this license agreement, it was the intention of
the parties hereto that if and when any additional shares of the
common stock of Leggoons (now the Registrant) are issued to the
public or any employees, HPOS' (now ET&T's) ownership interest in
the Registrant shall be and remain no less than 60% and that
ownership interest of the current shareholders of Leggoons (James
Clinton) shall, at that time, be no less than 10%. ET&T has never
sought to enforce this provision in this license agreement. Between
June 9, 1999 and November 24, 1999, the Registrant has issued a
total of 1,850,000 shares to James Clinton or his nominees based on
the stated reason that compliance with said 10% provision in such
license agreement was required. Shares issued under said provision
of this license agreement were not issued for consideration and
therefore may not have been properly issued in compliance with
Missouri Revised Statutes 351.160 (which governed the Registrant
prior to its redomicile to the State of Nevada on June 1, 1999) and
Nevada Revised Statutes 78.211.
(b) On April 28, 1997, the Registrant entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act
as the bank host processing for all Registrant transactions that
are sent by terminals that read credit cards or ATM cards (see
Exhibit 10.3 to this Registration Statement). ET&T is to charge the
Registrant a fee of $0.25 per transaction or 2.5% of the wager
being sent by the Registrant to gaming operators. These
transactions are to originate from globally placed Registrant
equipment and/or Registrant licensed operators.
(c) On March 27, 1998, the Registrant entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions (see
Exhibit 10.4 to this Registration Statement). This agreement states
that ET&T licenses the following ET&T products to the Registrant
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 the Registrant 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 Registrant 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 Registration
Statement, only the PayMaster has been perfected. This liability
was satisfied in full in June 1999 through the issuance of common
stock (as reflected in the Form 10-QSB for the quarter ended June
30, 1999). None of the other 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
Registrant). This obligation will be renewed upon the roll-out of
the eCashPad technology which is expected to occur in September,
2000.
(d) The Registrant and ET&T and Mr. Hughes entered into a
Promissory Note, dated December 1, 1999 (see Exhibit 10.19 to the
December 31, 1999 Form 10-KSB, attached hereto as exhibit 13.2), to
reflect the principal sum of $2,836,411 owed by ET&T and Mr. Hughes
to the Registrant for various sums paid by the Registrant to ET&T,
as follows: (a) the sum resulting from the credit to Mr. Hughes and
ET&T of the license fee owed by the Registrant to ET&T, as set
forth above, and the charge to ET&T of 5,400,000 shares issued to
that firm in 1999 and the charge to Mr. Hughes of 4,000,000 shares
issued to him in 1999; and (b) the oral assumption by the
Registrant of payment of a promissory note in favor of Unipay, Inc.
whereby ET&T promised to pay the principal sum of $690,000 with
interest thereon at 8.5% accruing from April 26, 1999, the date of
this note (see Exhibit 10.5 to this Registration Statement)
(through December 31, 1999, the Registrant had paid a total of
$93,800 towards this note). The amount set forth in the Promissory
Note is secured by the 9,400,000 shares of the Registrant owned by
Mr. Hughes and ET&T as reflected in an accompanying Security
Agreement (see Exhibit 10.20 to the December 31, 1999 Form 10-KSB,
attached hereto as exhibit 13.2).
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information.
On March 13, 2000, the SEC ordered a 10 trading day suspension in
the trading of the Registrant's common stock on the Over the
Counter Bulletin Board ("OTCBB"). This trading suspension was taken
in connection with an investigation of the Registrant by the SEC.
The Company's common stock resumed trading on March 27, 2000;
however, from that date to the present, the Company's common stock
has been trading on the National Quotation Bureau's Pink Sheets
(symbol ECNC) since the Company's common stock was delisted on that
date from the OTCBB OTC-BB due to the trading suspension.
Subsequent to the filing of the Registration Statement with the
SEC, the Company intends to file a 15c2-11 through a market maker
in order to apply for relisting on the OTCBB.
The range of closing prices shown below is as reported by these
markets. 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 December 31, 2000
<TABLE>
<S> <C> <C>
High Low
Quarter Ended March 31, 2000 16.50 0.49
*
</TABLE>
* The common stock did not trade from March 13, 2000 through March
24, 2000 due to the trading suspension ordered by the Securities
and Exchange Commission
Per Share Common Stock Bid Prices by Quarter For the Fiscal Year
Ended December 31, 1999
<TABLE>
<S> <C> <C>
High Low
Quarter Ended December 31, 0.40 0.06
1999
Quarter Ended September 30, 0.41 0.15
1999
Quarter Ended June 30, 1999 0.83 0.38
Quarter Ended March 31, 1999 0.81 0.37
</TABLE>
Per Share Common Stock Bid Prices For the Transition Period Ended
December 31, 1998 **
<TABLE>
<S> <C> <C>
High Low
Four Months Ended December 31, 0.69 0.05
1998
</TABLE>
** Due to a change in the fiscal year of the Registrant from August
31 to December 31
Per Share Common Stock Bid Prices by Quarter For the Fiscal Year
Ended August 31, 1998
<TABLE>
<S> <C> <C>
High Low
Quarter Ended August 31, 1998 0.16 0.09
Quarter Ended May 31, 1998 0.14 0.03
Quarter Ended February 28, 1998 0.08 0.00
Quarter Ended November 30, 1997 0.10 0.03
</TABLE>
(b) Holders of Common Equity.
As of May 1, 2000, the Registrant had approximately 567
shareholders of record of the Registrant's common stock.
(c) Dividends.
The Registrant has not declared or paid a cash dividend to
stockholders since it was originally organized on September 1,
1981. The Registrant did pay a 5% stock dividend on September 20,
1999 to shareholders of record as of close of business on September
14, 1999. The Board of Directors presently intends to retain any
earnings to finance Registrant 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 Registrant's
earnings, capital requirements and other factors.
(d) Sales of Unregistered Securities.
The Registrant made the following sales of unregistered securities
during the three month period ended on March 31, 2000:
(1) Between February 2, 2000 and February 29, 2000, the Registrant
sold a total of 3,069,011 shares of common stock to 79 individuals
at a price of $0.40 per share, for an aggregate consideration of
$1,227,604.
(2) During the period of January 1, 2000 through March 6, 2000, the
Registrant sold a total of 9,320,167 shares of common stock to 17
individuals and firms in exchange for consulting and other services
performed for the Registrant (including 6,000,000 shares issued to
Ryan Kavanaugh in connection with the Consulting Agreement with the
Registrant).
No commissions or fees were paid in connection with these sales.
All of the above sales were undertaken pursuant to a claim of
exemption from registration under the Securities Act of 1933 as
provided in Rule 506 under Regulation D.
The Registrant made the following sales of unregistered securities
during the three year period prior to December 31, 1999:
(1) During the period of September 28, 1998 through July 16, 1999,
the Registrant sold a total of 1,058,622 shares of common stock to
76 individuals, at an average price of $0.40 per share. In
conjunction with some of these sales, the Registrant give to these
individuals for no additional charge warrants to purchase common
stock of the Registrant at $0.40 per share.
(2) During the period of April 7, 1999 through November 24, 1999,
the Registrant sold a total of 4,484,500 shares of common stock to
14 individuals and firms in exchange for consulting and other
services to the Registrant.
(3) In addition to the above sales, the Registrant issued
restricted shares in the following amounts in connection with the
following acquisitions: (a) 2,500,000 shares in connection with the
Letter of Intent between the Registrant and Rogel Technologies; (b)
5,200,000 shares in connection with the acquisition of Isla
Escondida, S.A. (owner of the 777WINS.com website) (these are the
shares being offered for sale in this Registration Statement); (c)
1,165,000 shares in connection with the acquisition of the
TheArtauction.com website from PowerClick; and (d) 1,000,000 shares
in connection with the acquisition of a 50% interest in TopSports,
S.A.
(4) The sale of restricted shares to Alpha Venture Capital, Inc.
through a Common Stock Purchase Agreement between the Registrant
and this firm Alpha Venture Capital, Inc., dated September 28, 1999
(see Exhibit 4.22 to this Registration Statement). Under the terms
of this agreement, Alpha Venture Capital, Inc. is permitted, upon
notice by the Registrant, to purchase up to 20,000,000 shares of
restricted common stock of the Registrant (held in an escrow
account) based on 80% of the lowest market price on the 5 business
days immediately following such notice (see Exhibit 4.23 to this
Registration Statement). In addition, Alpha Venture Capital, Inc.
is also entitled to receive warrants to purchase up to 1,000,000
shares of common stock (exercisable at a price equal to 80% of the
closing bid price of the common stock on the effective date of the
Purchase Agreement from said date until a date which is five years
thereafter) and up to 500,000 shares of common stock in connection
with drawdowns under the Purchase Agreement (exercisable at the
closing bid price on the date of each draw from the effective date
of the Purchase Agreement until a date which is five years
thereafter) (these warrants are also being offered for sale
pursuant to this Registration Statement; see Exhibit 4.24 to this
Registration Statement).
No commissions or fees were paid in connection with these sales,
except for a commission of 8% of the amount of each draw under the
Common Stock Purchase Agreement payable to Alpha Venture Capital,
Inc. All of the above sales were undertaken pursuant to a claim of
exemption from registration under the Securities Act of 1933 as
provided in Rule 506 under Regulation D.
(e) Use of Proceeds.
The Registrant filed a Form SB-2 with the SEC on June 1, 1999. This
offering was used exclusively for consulting and other services
provided to the Registrant and for settling litigation involving a
debenture and certain warrants between the Registrant and CALP II,
LP (see Exhibit 4.20 to this Registration Statement), as reported
in a Form 8-K filed with the SEC on January 18, 2000. Therefore, no
cash proceeds were raised from this offering.
On August 20, 1999, the Registrant filed a Form SB-2 with the SEC
under Rule 415 (shelf offering) to register an aggregate amount of
61,000,000 shares of common stock (aggregate offering price of
$11,590,000 under Rule 457(c)). This offering was used primarily
for consulting services and acquisitions by the Registrant, and
commenced on the effective date of this registration statement
(September 7, 1999). However, 20,000,000 shares of common stock
under this offering were used for the registration of shares sold
under a Common Stock Purchase Agreement (as discussed above)
(through a post-effective amendment to this Form SB-2 filed and
effective on September 29, 1999 - File No. 333-79739). The total
amount of shares sold under this offering through March 31, 2000 is
38,701,563; out of this total, the Registrant issued 9,088,442
shares out of those registered from the Common Stock Purchase
Agreement for a total consideration of $933,000. The expenses
involved with this offering to March 31, 2000 were approximately
$370,640 (which includes an 8% commission of payable on the sales
made under the Common Stock Purchase Agreement). The net cash
proceeds from this offering (gross proceeds of $5,799,492 less
offering expenses) of $5,428,852 were used for working capital for
the Registrant. This offering has not as yet terminated.
(f) Announced Stock Buy Back Program.
In December 1999 the Registrant announced that from mid October
1999 up until December 29, 1999 it would "buy-back" a total of
2,560,752 shares of its common stock on the Over the Counter
Bulletin Board for the purpose of reducing the public float of its
stock. On November 29, 1999, the Registrant entered into an
agreement with Alliance Equities pursuant to which Alliance
Equities was to advance funds of up to $1,000,000 to the Registrant
to facilitate the buy-back program and to otherwise assist the
Registrant in this program. Alliance Equities ended up being the
owner of the purchased stock, as described below. (see Exhibit
10.18 to the December 31, 1999 Form 10-KSB, attached hereto as
exhibit 13.2).
What occurred with respect to this program is as follows: (a)
Alliance Equities advanced the sum of $250,000 to the Registrant
under said agreement; (b) the Registrant in turn loaned the sum of
$250,000 to Thomas Hughes, President of the Registrant, who in turn
opened a brokerage account in his name with this sum; (c) Mr.
Hughes subsequently purchased $250,000 worth of the Registrant's
common stock on the Bulletin Board; (d) Mr. Hughes sold the stock
purchased directly to Alliance Equities for $250,000 in order to
repay the advance (Mr. Hughes in turn repaid the loan from the
Registrant with the $250,000 sale of the stock). Alliance Equities
was paid a stock bonus for this advance under the terms of said
agreement.
ITEM 21. EXECUTIVE COMPENSATION
(a) No officer or director of the Company is receiving any
remuneration at this time, except as follows: Thomas S. Hughes
received salary as follows: i) a cash payment in June 1999 of
$50,000, and ii) later in 1999 a total of 6,000,000 shares of
common stock. Beginning in the year 2000, Mr. Hughes is to receive
compensation in the amount of $20,000 per month. Prior to 1999, Mr.
Hughes had not 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.
ITEM 22. 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 (see Item 27), and are set forth in their entirety as
Exhibits 13.1 and 13.2 to this Registration Statement.
ITEM 23. 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 was
modified as to uncertainty that the Company will continue as a
going concern. 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.
(d) Effective on March 8, 2000, the independent accountants who
were previously engaged as the principal accountants to audit the
Registrant's financial statements were dismissed. These accountants
have not issued any financial statements for the Registrant. 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 accountants 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)(iv)(B)1 through
3 of Regulation S-B that occurred within the Registrant's two most
recent fiscal years and the subsequent interim period preceding the
former accountants' dismissal.
Effective on March 8, 2000, the firm of L.L. Bradford & Company has
been engaged to serve as the new principal accountants to audit the
Registrant's financial statements. During the Registrant's two most
recent fiscal years, and the subsequent interim period prior to
engaging those accountants, neither the Registrant (nor someone on
its behalf) consulted the newly engaged accountants regarding any
matter.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Prospectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the Prospectus under the
heading "Use of Proceeds."
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
Unaudited Financial Statements as of March 31, 2000:
eCONNECT
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash $ 1,247,262
Due from related party 200,000
---------------
Total current assets 1,447,262
Fixed assets, net 135,506
Other assets
Investments, net 2,445,046
Goodwill, net 187,614
Other intangibles, net 680,520
Other assets 11,012
--------------
3,324,192
-------------
Total assets $ 4,906,960
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 664,504
Accrued liabilities 57,795
Due to related party 607,221
Due to affiliate 1,725,000
---------------
Total current liabilities 3,054,520
Total liabilities 3,054,520
Stockholders' equity
Common stock; $.001 par value; 200,000,000
shares authorized, 154,870,876 shares
issued and outstanding 154,871
Additional paid-in capital 55,521,296
Due from related party - secured by
Company's common stock (4,093,529)
Accumulated deficit (49,730,198)
---------------
-
Total stockholders' equity 1,852,440
---------------
-
Total liabilities and stockholders' equity $ 4,906,960
=========
</TABLE>
See Accompanying Notes to Financial Statements
1
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C>
For the three months ended March
31,
----------------------------------
2000 1999
------------ -----------
Revenue $ - $ -
------------- -----------
Operating expenses
Consulting 9,868,917 -
Public relations 5,232,780 -
Research and development 1,910,310 -
General and administrative 1,951,826 175,730
------------- -----------
Total operating expenses 18,963,833 175,730
------------- -----------
Net loss from operations (18,963,833) (175,730)
Other income (expense)
Interest income 87,350 -
Equity losses of investees (280,366) -
------------- -----------
Total other income (expense) (193,016) -
Net loss before provision for (19,156,849) (175,730)
income taxes
Provision for income taxes - -
------------- -----------
Net loss $ (19,156,849) $ (175,730)
============= ===========
Basic and diluted loss per common $(0.14) $(0.01)
share
============= ===========
Basic and diluted weighted
average
common shares outstanding 136,090,236 14,316,067
============= ===========
</TABLE>
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C>
For the three months ended March
31,
----------------------------------
--
2000 1999
--------------- -------------
Cash flows from operating activities:
Net loss $ (19,156,849) $ (175,730)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 223,183 -
Common shares issued for services 15,627,561 -
Equity losses of investees 280,366 -
Changes in operating assets and
liabilities:
Decrease in stock subscription receivable 220,176 -
Increase in due from related party 50,000 -
Increase in due from related party -
secured by Company's common stock (1,112,647) -
Increase in other assets (11,012) -
Increase (decrease) in accounts payable 139,234 (12,522)
Increase (decrease) in accrued liabilities (32,885) 36,000
Increase in due to related party (5,789) -
Decrease in stockholder loan payable (350,000) -
------------- -----------
Net cash used by operating activities (4,128,662) (152,252)
Cash flows from investing activities:
Purchase of fixed assets (138,144) -
Payments for investments (706,200) -
------------- -----------
Net cash used by investing activities (844,344) -
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 16,600
Proceeds from issuance of common stock 6,094,096 149,300
------------- ----------
Net cash provided by financing activities 6,094,096 165,900
------------- ----------
Net increase in cash 1,121,090 13,648
Cash, beginning of period 126,172 8,862
------------- ----------
Cash, end of period $ 1,247,262 $ 22,510
============ ==========
Schedule of non-cash investing and
financing
activities:
Remaining consideration of the acquisition
of
Powerclick, Inc. recorded as Due to $ 1,725,000 $ -
affiliate
============ ===========
2,000,000 common shares issued
related to the acquisition of Powerclick, $ 325,000 $ -
Inc.
=========== ==========
666,667 common shares issued for
accounts payable $ 550,000 $ -
=========== ==========
6,000,000 common shares issued for
officer bonus payable $ 4,800,000 $ -
=========== ==========
203,865 common shares issued for
stock subscription payable $ 81,546 $ -
=========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
3
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The financial statements should be read in
conjunction with the Form 10-KSB for the year ended December 31,
1999 of eConnect ("the Company").
The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected
for the full year. In the opinion of management, the
information contained herein reflects all adjustments necessary
to make the results of operations for the interim periods a fair
statement of such operation. All such adjustments are of a
normal recurring nature.
2. ACQUISITION
Powerclick, Inc. - In February 2000, the Company acquired 50% of
the outstanding capital stock of Powerclick, Inc. ("the
Investee") in consideration of $1,200,000 and 8,000,000 shares
of the Company's common stock ("the Acquisition"). As of March
31, 2000 the Company has made payments totaling $450,000 and
issued 2,000,000 shares of the Company's common stock related to
the Acquisition. The remaining unpaid balance of $750,000 and
unissued common stock totaling 6,000,000 shares are recorded as
"Due to affiliate" totaling $1,725,000 at March 31, 2000. The
Company has accounted for its ownership interest in the Investee
under the equity-method as the Company has the ability to
exercise significant influence, but not control, and has an
ownership interest of the investee's voting stock between 20%
and 50%. As of March 31, 2000, the investment in the Investee
exceeded the Company's share of the underlying net assets by
approximately $2,424,190. The excess of the underlying net
assets in the Investee is being amortized on a straight-line
basis over the estimated useful life of three years. For the
year ended March 31, 2000, amortization expense related to this
investment approximated $120,000.
3. Related party transactions
Due from related party - As of March 31, 2000, the Company
loaned $200,000 to a director of the Company. The balance is
non-interest bearing and is due on demand. The Company received
a $100,000 repayment of this amount in April 2000.
Due from related party - secured by Company's common stock - As
of March 31, 2000, the Company made loans totaling $4,093,529
(including accrued interest receivable of $231,821) to ET&T and
Thomas Hughes (an officer and director of the Company). The
balance is secured by approximately 9,400,000 shares of the
Company's common stock, which is owned by ET&T and Thomas
Hughes, bearing an interest rate of 10% and is due on demand.
4. Going Concern
The Company incurred a net loss of approximately $19,000,000 for
the three months ended March 31, 2000. The Company's current
liabilities exceed its current assets by approximately
$1,600,000 as of March 31, 2000. These factors create an
uncertainty about the Company's ability to continue as a going
concern. The Company's management has developed a plan to
complete the development of technology products to generate
future revenues and elect new directors to the board. The
Company will also seek additional sources of capital through the
issuance of debt equity financing, but there can be no assurance
that the Company will be successful in accomplishing its
objectives.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of
the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
4
Audited Financial Statements as of December 31, 1999:
eConnect
Consolidated Financial Statements
TABLE OF CONTENTS
PAGE NO.
Report of Independent Certified Public Accountants F - 2
Consolidated financial statements
Consolidated balance sheet F - 3
Consolidated statements of operations F - 4
Consolidated statement of stockholders' deficit F - 5
Consolidated statements of cash flows F - 6
Notes to consolidated financial statements F - 7
F - 1
L.L. Bradford & Company, LLC
Certified Public Accountants & Consultants
2901 El Camino Avenue, Suite 105
Las Vegas, Nevada 89102
(702) 735-5030 facsimile (702) 735-4854
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
eConnect
San Pedro, California
We have audited the accompanying consolidated balance sheet of
eConnect as of December 31, 1999, and the related statements of
operations, stockholders' deficit, and cash flows for the year
ended December 31, 1999 and for the transition period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audit. The consolidated financial statements of
eConnect for the year ended August 31, 1998, were audited by
another auditor whose report dated April 7, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the December 31, 1999 and December 31, 1998
consolidated financial statements referred to above present fairly,
in all material respects, the financial position of eConnect as of
December 31, 1999, and the results of its operations and its cash
flows for the year and transition period then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 11 to the consolidated financial
statements, the Company has suffered losses from operations,
current liabilities exceed current assets and has a net
stockholders' deficiency, all of which raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 11.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ L.L. Bradford & Company, LLC
L.L. Bradford & Company, LLC
March 24, 2000
(except for Note 12, as to
which the date is April 17, 2000)
Las Vegas, Nevada
F - 2
eCONNECT
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets
Cash $ 126,172
Stock subscriptions receivable 220,176
Due from related party 250,000
--------------
-
Total current assets 596,348
Other assets
Investments, net 93,883
Goodwill, net 208,333
Other intangibles, net 755,675
--------------
-
1,057,891
--------------
--
Total assets $ 1,654,239
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Officer bonus payable $ 4,800,000
Accounts payable 1,075,270
Accrued liabilities 90,680
Due to related party 613,010
Stockholder loan payable 350,000
--------------
--
Total current liabilities 6,928,960
Total liabilities 6,928,960
Commitments and contingencies --
Stockholders' deficit
Common stock; $.001 par value; 200,000,000
shares authorized, 110,601,173 shares
issued and outstanding 110,601
Additional paid-in capital 28,087,363
Due from related party - secured by
Company's common stock (2,980,882)
Stock subscription payable 81,546
Accumulated deficit (30,573,349)
--------------
--
Total stockholders' deficit (5,274,721)
--------------
--
Total liabilities and stockholders' $ 1,654,239
deficit
===========
</TABLE>
See Accompanying Notes to Financial Statements
F-3
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
Year Transition Year
Ended Period Ended Ended
December 31, December 31, August 31,
1999 1998 1998
-------------- ------------- -----------
Revenue $ 40,000 $ - $ -
------------ ------------ ------------
Operating expenses
Consulting 7,664,088 768,050 122,020
Officers compensation 5,026,165 - -
Research and development 3,490,411 - -
General and administrative 2,886,080 8,088 74,948
------------ ------------ ------------
Total operating expenses 19,066,744 776,138 196,968
------------ ------------ ------------
Net loss from operations (19,026,744) (776,138) (196,968)
Other income (expense)
Interest income 144,471 - -
Loss on investments (4,391,120) - -
------------ ------------ ------------
Total other income (expense) (4,246,649) - -
Net loss before provision for (23,273,393) (776,138) (196,968)
income taxes
Provision for income taxes - - -
------------ ------------ ------------
Net loss $ $ (776,138) $ (196,968)
(23,273,393)
============= =========== ===========
Basic and diluted loss per $ (0.63) $ (0.05) $ (0.02)
common share
=========== ========== =========
Basic and diluted weighted
average
common shares outstanding 36,868,312 14,346,554 10,994,465
=========== ========== ==========
</TABLE>
eCONNECT
COSLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Due From
Common Stock Related
Party -
------------------ Additional Secured By Stock Total
Number of Paid-in Company's Subscription Accumulated Stockholders'
Shares Amount Capital Common Stock Payable Deficit Deficit
-------- -------- ---------- ----------- --------- --------- ----------
Balance, 7,843,234 $ 7,843 $4,926,124 $ - $ - $(5,270,634) $(336,667)
September 1, 1997
Common shares
issued for
services 5,341,000 5,341 147,819 - - - 153,160
Common shares
issued for
payment on due
to
related
party 750,000 750 34,385 - - - 35,135
Common shares
issued
for payment on
accounts 350,000 350 20,650 - - - 21,000
payable
Net loss - - - - - (196,968) (196,968)
------- ------- ---------- ---------- -------- ---------- ---------
Balance, August
31,
1998 14,284,234 14,284 5,128,978 - - (5,467,602) (324,340)
Common shares
issued
for services 161,000 161 7,889 - - - 8,050
Common shares
issued for
cash 30,000 30 11,970 - - - 12,000
Net loss - - - - - (776,138) (776,138)
------- ------- ---------- ---------- --------- ---------- ----------
Balance, December
31,
1998 14,475,234 14,475 5,148,837 - - (6,243,740) (1,080,428)
Stockholder loan 9,400,000 9,400 2,827,011 (2,980,882) - - (144,471)
Stock
subscription
payable - - - - 81,546 - 81,546
Common shares
issued
for services 37,299,736 37,300 10,205,932 - - - 10,243,232
Common shares
issued
for interest 3,410,613 3,411 640,349 - - - 643,760
Common shares
issued
for stock
subscription
receivable 716,966 717 219,459 - - - 220,176
Common shares
issued
for principal
payments on
long-term debt 1,589,387 1,589 298,411 - - - 300,000
Common shares
issued
for cash 16,428,136 16,428 2,804,209 - - - 2,820,637
Common shares
issued
for acquisition
of Isla
Escondida, S.A. 18,710,000 18,710 3,533,091 - - - 3,551,801
Common shares
issued
for acquisition
www.theArtAuction 2,165,000 2,165 961,804 - - - 963,969
.Com
Common shares
issued
for joint 1,650,000 1,650 323,700 - - - 325,350
venture
Common shares
issued
for acquisition
of
Top Sports, 1,000,000 1,000 72,100 - - - 73,100
S.A.
Common shares
issued
for stock 3,756,101 3,756 1,052,460 - - (1,056,216) -
dividend
Net loss - - - - - (23,273,393) (23,273,393)
------- -------- ----------- ----------- --------- ---------- ----------
Balance, December
31,
1999 110,601,173 $ 110,601 $28,087,363 $(2,980,882) $ 81,546 $(30,573,349) $(5,274,721)
========== ======== ========== ========== ======= ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-5
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year Transition Year
Ended Period Ended Ended
December 31, December 31, August 31,
1999 1998 1998
------------- ------------ ----------
Cash flows from operating activities:
Net loss $(23,273,393) $ (776,138) $ (196,968)
Adjustments to reconcile net loss to
net
cash used by operating activities:
Amortization 207,019 - -
Common shares issued for interest
expense 643,760 - -
Common shares issued for services 10,243,232 8,050 153,160
Loss on investments 4,391,120 - -
Changes in operating assets and
liabilities:
Increase in due from related party (250,000) - -
Increase in due from related party -
secured by Company's common stock (757,481) - -
Increase in officer bonus payable 4,800,000 - -
Increase (decrease) in accounts (62,251) 759,750 21,793
payable
Increase in accrued liabilities 45,111 24,169 3,001
Increase in due to related party 613,010 - -
Increase (decrease) in stockholder
loan
payable 350,000 (18,969) 18,969
------------ ---------- ---------
Net cash used by operating activities
(3,049,873) (3,138) (45)
Cash flows from investing activities:
Payments for investment (35,000) - -
------------ ---------- ---------
Net cash used by investing activities
(35,000) - -
Cash flows from financing activities:
Proceeds from issuance of long-term 500,000 - -
debt
Principal payments on long-term debt (200,000) - -
Proceeds from issuance of common 2,820,637 12,000 -
stock
Proceeds from issuance of stock
subscription
payable 81,546 - -
------------ ---------
Net cash provided by financing 3,202,183 12,000 -
activities
Net increase (decrease) in cash 117,310 8,862 (45)
Cash, beginning of period 8,862 - 45
Cash, end of period $ 126,172 $ 8,862 $ -
=========== ========== =========
Schedule of non-cash investing and
financing activities:
18,710,000 common shares issued for
the
acquisition of Isla Escondida, S.A. $ 3,551,801 $ - $ -
=========== ========== =========
2,165,000 common shares issued for
the acquisition
of www.theArtAuction.com $ 963,969 $ - $ -
=========== ========== =========
1,650,000 common shares issued for
joint venture $ 325,350 $ - $ -
=========== ========== =========
1,000,000 common shares issued for
the acquisition
of a 50% interest in Top Sports, S.A. $ 73,100 $ - $ -
=========== ========== =========
9,400,000 common shares issued in
exchange
for due from related party - secured
by Company's common stock $ 2,836,411 $ - $ -
=========== ========== =========
716,966 common shares issued in
exchange
for stock subscription receivable $ 220,176 $ - $ -
=========== ========== =========
3,756,101 common shares issued for a
5%
stock dividend $ 1,056,216 $ - $ -
=========== ========== =========
1,589,397 common shares issued for
principal payments on long-term debt $ 300,000 $ - $ -
=========== ========== =========
Acquisition of investment in exchange
for
due from related party - secured by
Company's common stock $ 706,810 $ - $ -
=========== ========== =========
5,341,000 common shares issued for
payment
on due to related party $ - $ - $ 35,135
=========== ========== =========
350,000 common shares issued for
payment
on accounts payable $ - $ - $ 21,000
=========== ========== =========
</TABLE>
See Accompanying Notes to Financial Statements
F-6
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description of business - eConnect (the "Company") currently has two
divisions. The first division is primarily comprised of on-line gaming.
Presently, the on-line gaming division has not commenced operations but
plans to do so in the near future through an off-shore company. The
second division is comprised of technology developments for ATM cards
with PIN access or smart card payments (same-as-cash payments whereby
the merchant can reverse the transaction) using the Personal Encrypted
Remote Financial Electronic Card Transactions ("PERFECT").
History - eConnect (formerly Betting, Inc.) was originally incorporated
in the State of Missouri on September 1, 1981 under the name of Handy-
Top, Inc. The Company underwent several name changes until May 1993,
when it changed its name to Leggoons, Inc. As Leggoons, Inc., the
Company was engaged in the design, manufacturing and distribution of
apparel and related accessories. In June 1996, Leggoons, Inc.
transferred all of its assets to a third party assignee under an "
Assignment for the Benefit of Creditors" ("Assignment"). An Assignment
is a business liquidation device available as an alternate to
bankruptcy. As such, Leggoons, Inc. continued as a shell corporation
with no business operations.
In February 1997, the Company entered into an agreement to license
assets from Electronic Transaction Technology ("ET&T"), formerly known
as Home Point of Sales, Inc., for the purpose of licensing certain
technology for the development of PERFECT. ET&T is a privately held
corporation with a majority interest owned by Thomas S. Hughes,
President of the Company. This technology developed by ET&T would
provide consumers with the option to instantly pay bills or make
purchases from home with real-time cash transactions. In March 1997,
Thomas S. Hughes, Chairman of ET&T, was elected the Chairman and
President of the Company and concurrently changed the Company's name to
Betting, Inc.
In May 1999, an Agreement and Plan of Merger was consummated between the
Company and Betting, Inc., a non-operating privately held Nevada
corporation ("Betting-Nevada"), whereby no shares were issued between
companies. Effective in June 1999, the Articles of Merger were filed
with the Nevada Secretary of State, which formally resulted in the re-
domicile of the Company from the State of Missouri to the State of
Nevada. Under generally accepted accounting principles, the merger with
Betting-Nevada is considered to be a reorganization in substance, rather
than a business combination since Betting-Nevada had no assets,
liabilities or operations, and the Company has since re-domiciled in the
State of Nevada through Betting-Nevada. Accordingly, the accounting for
the merger has been recorded at historical cost in a manner similar to a
pooling of interests ("as-if pooling of interest accounting"), and no
goodwill was recorded.
In June 1999, a Certificate of Amendment to the Articles of
Incorporation changed the name of the Company to eConnect and increased
the number of authorized common shares to 100,000,000. On August 23,
1999, a Certificate of Amendment to the Articles of Incorporation was
filed with the Nevada Secretary of State further increasing the number
of authorized common shares to 200,000,000.
Business combination and investments - The business combination has been
accounted for under the purchase method of accounting, therefore the
Company includes the results of operations of the acquired business from
the date of acquisition. Net assets of the company acquired are
recorded at fair value as of the date of acquisition. The excess of the
acquired business' purchase price over the fair value of its tangible
and identifiable intangible assets is then included in goodwill in the
accompanying consolidated balance sheet.
F - 7
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
Business combination and investments (continued) - Investments in
affiliated entities in which the Company has the ability to exercise
significant influence, but not control, and generally is an ownership
interest of the investee's voting stock between 20% and 50%, are
accounted for under the equity method of accounting. Accordingly, under
the equity method of accounting, the Company's share of the investee's
earnings or losses are included in the consolidated statements of
operations. The Company records its investments accounted for under the
equity-method as "Investments" on the consolidated balance sheet and its
share of the investee's earnings or losses in "Equity earnings or losses
of investees" on the consolidated statement of operations. The portion
of the Company's investment in an investee that exceeds its claim of the
net assets of the investee, if any, is treated as goodwill and amortized
over a period of three years.
Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiary. All significant
intercompany balances and transactions have been eliminated.
Definition of fiscal year - In June 1999, the Company changed its fiscal
year-end from August 31 to December 31. Accordingly, the Company
reported a transition period, which began September 1, 1998 and ended on
December 31, 1998 (referred to herein as the "transition period").
Reclassification - Certain prior year balances have been reclassified to
conform to the current year presentation.
Use of estimates - The preparation of consolidated 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 consolidated financial statements and
the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Goodwill and intangible assets - Goodwill represents the excess of an
acquired business' purchase price over the fair value of its assets,
which is recorded for business acquisitions accounted for under the
purchase method. Goodwill is presented net of related accumulated
amortization and is being amortized over the estimated useful life.
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of
goodwill and intangible assets or whether the remaining balance of
goodwill and intangible assets should be evaluated for possible
impairment. The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the goodwill and intangible assets
in measuring their recoverability.
Fair value of financial instruments - The carrying amounts for the
Company's cash, stock subscriptions receivable, due to/from related
party, officer bonus payable, accounts payable, accrued liabilities,
stockholder loan payable and stock subscription payable approximate fair
value due to the short-term maturity of these instruments.
Earnings (loss) per share - Basic earnings (loss) per share excludes any
dilutive effects of options, warrants and convertible securities. Basic
earnings (loss) per share is computed using the weighted-average number
of outstanding common shares during the applicable period. Diluted
earnings per share is computed using the weighted average number of
common and common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation if
their effect is antidilutive.
F - 8
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
Income taxes - The Company accounts for its income taxes in accordance
with Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
As of December 31, 1999, the Company has available net operating loss
carryovers of approximately $30 million that will expire in various
periods through 2019. Such losses may not be fully deductible due to
the significant amounts of non-cash service costs and the change in
ownership rules under Section 382 of the Internal Revenue Code. The
Company has established a valuation allowance for the full tax benefit
of the operating loss carryovers due to the uncertainty regarding
realization.
Comprehensive income (loss) - The Company has no components of other
comprehensive income. Accordingly, net loss equals comprehensive loss
for all periods.
Advertising costs - The Company recognizes advertising expenses in
accordance with Statement of Position 93-7 "Reporting on Advertising
Costs." Accordingly, the Company expenses the costs of producing
advertisements at the time production occurs, and expenses the costs of
communicating advertisements in the period in which the advertising
space or airtime is used. Internet advertising expenses are recognized
based on the terms of the individual agreements, generally over the
greater of the number of impressions delivered over the total number of
contracted impressions, or a straight-line basis over the term of the
contract. Advertising costs of approximately $50,000 were incurred for
the year ended December 31, 1999. No advertising costs were incurred
for the transition period ended December 31, 1998 or the year ended
August 31, 1998.
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.
Stock-based compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statements of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation." Under APB No. 25, compensation expense is based on
the difference, if any, on the date of the grant, between the fair value
of the Company's stock and the exercise price. The Company accounts for
stock issued to non-employees in accordance with the provisions of SFAS
No. 123 and the Emerging Issues Task Force ("EITF") Issue No. 96-18.
New accounting pronouncements - In November 1999, the EITF commenced
discussions on EITF No. 99-17, "Accounting for Advertising Barter
Transactions." The EITF provides guidance on the recognition of
Internet barter advertising revenues and expenses under various
circumstances. The EITF reached a conclusion that revenues and expenses
from advertising barter transactions should be recognized at the fair
value of the advertising surrendered or received only when an entity has
a historical practice of receiving or paying cash for similar
advertising transactions. The Company does not expect that the adoption
of EITF No. 99-17 will have a material impact on its consolidated
financial statements.
F - 9
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2.BUSINESS COMBINATION
The Company initiated an acquisition of Isla Escondida, S.A. during
1999. This acquisition was recorded using the purchase method of
accounting under APB No. 16. The results of operations for the acquired
company have been included in the financial results of the Company from
the date of such transaction forward.
In accordance with APB No. 16, all identifiable assets were assigned a
portion of the cost of the acquired company (purchase price) on the
basis of their respective fair values. Intangible assets were
identified and valued by considering the Company's intended use of the
acquired assets and analysis of data concerning products, technologies,
markets, historical performance, and underlying assumptions of future
performance. The economic environment in which the Company and the
acquired company operate were also considered in the valuation analysis.
In August 1999, the Company completed its acquisition of Isla Escondida,
S.A. (hereafter "777WINS"), a Costa Rica Corporation with the ability to
provide on-line gaming through its website portal www.777WINS.com. In
connection with the acquisition, the Company issued 18,710,000 shares of
the Company's common stock. Substantially all of the purchase price,
approximately $3,552,000, was allocated to goodwill. Goodwill is being
amortized on a straight-line basis over the estimated useful life of
three years. As of December 31, 1999, the Company evaluated the balance
and useful life of goodwill related to 777WINS and determined that
approximately $3,302,000 had no future benefit and, accordingly,
recorded a loss on investment for the same amount. For the year ended
December 31, 1999, amortization expense related to this investment
approximated $42,000.
3.INVESTMENTS
In December 1999, the Company acquired 50% of the outstanding capital
stock of Top Sports, S.A. ("the Investee") in exchange for $35,000 and
1,000,000 shares of the Company's common stock. The Company has
accounted for its 50% ownership interest in the Investee under the
equity-method. As of December 31, 1999, the investment in the Investee
exceeded the Company's share of the underlying net assets by
approximately $85,300. The excess of the underlying net assets in the
Investee is being amortized on a straight-line basis over the estimated
useful life of three years. For the year ended December 31, 1999,
amortization expense related to this investment approximated $14,000.
In September 1999, the Company entered into a joint venture with certain
parties to develop an on-line investment trading website. In connection
with the joint venture, the Company issued 1,650,000 shares of the
Company's common stock. As of December 31, 1999, the Company's
management has evaluated and determined that this investment has no
future value and was written off as a loss on investment for
approximately $325,000.
F - 10
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK SUBSCRIPTION RECEIVABLE
The Company entered into a Regulation D Common Stock Private Equity Line
Subscription Agreement ("Subscription Agreement"). The Subscription
Agreement entitles the Company to draw funds up to $5,000,000 through
the issuance of the Company's common stock for an amount equal to 80% of
the market value at the time of each draw, which is subject to certain
terms and conditions. The Company is assessed a placement fee, as
provided within the Subscription Agreement, for funds drawn, which is
equal to 8% of each draw. As of December 31, 1999, the Company has
drawn $933,000 of the available $5,000,000. The related placement fee
totaling $74,640 has been recorded as additional paid-in capital since
this fee relates to the issuance of the Company's common stock. In
conjunction with this Subscription Agreement, the Company issued an
additional 716,966 shares of the Company's common stock as of December
31, 1999. However, the funds related to this additional issuance of the
Company's common stock totaling $220,176 was not fully received by the
Company until February 2000. Accordingly, the Company has recorded a
stock subscription receivable totaling $220,176 as of December 31, 1999.
5. OTHER INTANGIBLES
In February 1997, the Company entered into an agreement for the
exclusive 20-year license of certain assets of ET&T. In satisfaction of
the agreement terms, the Company reduced the balance due from related
party - secured by the Company's common stock by approximately $707,000
based upon the fair value of this license. The Company has estimated
the fair value based upon the amount of research and development costs
incurred by ET&T. As such, the Company has recorded such costs related
to this agreement as other intangibles. This other intangible is being
amortized on a straight-line basis over three years based upon
management's estimated useful life of such asset. Amortization expense
for the year ended December 31, 1999, approximated $118,000.
In September 1999, the Company acquired www.theArtAuction.com from
PowerClick, Inc., a domain name and website portal, to provide on-line
art auctions. In connection with the acquisition, the Company issued
2,165,000 shares of the Company's common stock to PowerClick, Inc.
Substantially all of the purchase price, approximately $964,000, was
allocated to other intangibles. This other intangible is being
amortized on a straight-line basis over an estimated useful life of
three years. As of December 31, 1999, the Company's management has
evaluated and determined that approximately $764,000 of this investment
has no future benefit, accordingly, the Company recorded a loss on
investment for the same amount. Amortization expense for the year ended
December 31, 1999, approximated $33,000.
6. OFFICER BONUS PAYABLE
As of December 31, 1999, the Company declared a bonus to the Chief
Executive Officer of the Company valued at $4,800,000, which is based
upon 6,000,000 shares of the Company's common stock issued in January
2000.
F - 11
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT
Stock dividend - On September 20, 1999, the Company issued a 5%
stock dividend totaling 3,756,101 shares of the Company's common
stock to stockholders of record on September 14, 1999.
Stock option activity - The following table summarizes the
Company's stock option activity:
<TABLE>
<S> <C> <C>
Number Weighted
Of Average
Shares Exercise Price
-------- -------------
Balance, September 1, 1998 -- $--
Options granted and assumed -- --
Options canceled -- --
Options exercised -- --
---------- -------
Balance, December 31, 1998 -- --
Options granted and assumed 15,770,000 0.40
Options canceled -- --
Options exercised -- --
---------- -------
Balance, December 31, 1999 15,770,000 $0.40
========== =======
</Table
The following table summarizes information about options
outstanding and exercisable at December 31, 1999:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares Underlying
Shares Underlying Options Options Exercisable
Outstanding
------------------------------------ -----------------------
-- ---
Weighted
Shares Average Shares
Underlying Remaining Weighted Underlying Weighted
Range of Options Contractua Average Options Average
l
Exercise Outstanding Life Exercise Exercisabl Exercise
Prices Price e Price
---------- ----------- ---------- ----------- ---------- ----------
$0.20-$1.00 15,770,000 1.0 years $ 0.40 15,770,000 $ 0.40
=========== =========== ========== ======== ========== =========
==
</TABLE>
Pro forma disclosure - SFAS No. 123 requires companies that
follow APB No. 25 to provide a pro forma disclosure of the impact
of applying the fair value method of SFAS No. 123. Accordingly,
had compensation cost been recognized based on the fair value at
the date of grant for options granted in 1999, the pro forma
amounts of the Company's net loss and net loss per share for the
year ended December 31, 1999 would have been as follows:
<TABLE>
<S> <C>
December 31,
1999
------------
-
Net loss - as reported $(23,273,393)
Net loss - pro forma $(24,198,493)
Basic and diluted loss per share - as $(0.63)
reported
Basic and diluted loss per share - $(0.66)
pro forma
</TABLE>
F - 12
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (continued)
Pro forma disclosure (continued) - The fair value for each option
granted was estimated at the date of grant using the Black-Scholes
option pricing model, assuming no expected dividends and the
following weighted average assumptions:
<TABLE>
<S> <C>
December 31,
1999
----------
--
Net loss - as reported $(23,273,393)
Net loss - pro forma $(24,198,493)
Basic and diluted loss per share - as $ (0.63)
reported
Basic and diluted loss per share - pro $ (0.66)
forma
</TABLE>
The weighted average fair value of options granted with exercise
prices at the current fair value of the underlying stock during 1999
was $877,600. During 1999, some options were granted with exercise
prices that were below the current fair value of the underlying
stock. The weighted average fair value of options granted with
exercise prices below the current fair value of the underlying stock
during 1999 was $47,500. Compensation expense that is recognized in
providing pro forma disclosures might not be representative of the
effects on pro forma earnings for future years because SFAS No. 123
does not apply to stock option grants made prior to 1995.
8. RELATED PARTY TRANSACTIONS
Due from related party - As of December 31, 1999, the Company loaned
$250,000 to an officer and stockholder of the Company. The balance
is non-interest bearing and is due on demand. The Company received
repayment of this amount in January 2000.
Due to related party - During 1999, the Company assumed a note
payable from ET&T with an outstanding balance at December 31, 1999 of
$613,010 in exchange for the due from related party - secured by the
Company's common stock in the same amount. The balance is non-
interest bearing and is due on demand.
Stockholder loan payable - As of December 31, 1999, a stockholder
made loans to the Company of $350,000. This outstanding balance is
comprised of $250,000, which is non-interest bearing and due on
demand; and $100,000, which bears a simple interest rate of 15% and
is due on demand.
Due from related party - secured by Company's common stock - As of
December 31, 1999, the Company made loans of $2,980,882 (including
accrued interest receivable of $144,471) to ET&T and Thomas Hughes
(an officer and director of the Company). The balance is secured by
approximately 9,400,000 shares of the Company's common stock, which
is owned by ET&T and Thomas Hughes, bearing an interest rate of 10%
and is due on demand.
F - 13
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Legal proceedings - From March 14, 2000 through the date of this
report, multiple legal proceedings were filed asserting the Company
and Thomas S. Hughes (an officer and director of the Company), as
well as the directors of the Company (in certain actions), have
violated Section 10(b) of the Exchange Act (false or misleading
statements and omissions which deceived stock purchasers) and also
Section 20(a) of the Exchange Act (liability as a "controlling
person" with respect to a primary violation of securities laws). The
principal allegations concern various material misrepresentations and
omissions which allegedly made the Company's public statements, on
and after November 18, 1999, false and misleading; and artificially
inflated the market for the Company's common stock. The answers or
other responses of defendants to the initial complaints are not yet
due; therefore, management is unable to express an opinion as to the
probable outcome of these litigation matters. The Company intends to
defend itself in these litigation matters vigorously.
On March 23, 2000, the Securities and Exchange Commission ("SEC")
filed a complaint alleging the Company and Thomas S. Hughes had
violated Section 10(b) and Rule 10b-5 of the Securities Exchange Act
of 1934 (the anti-fraud provisions of that act). The Complaint also
seeks civil penalties against the Company and Thomas S. Hughes and
any additional relief within the jurisdiction of the Court. The SEC
has alleged that the Company and Thomas S. Hughes disseminated
certain press releases that contained material misstatements. On
April 6, 2000, the Company consented to the entry of a Permanent
Injunction. The court has yet to determine whether disgorgement,
civil penalties or other relief should be assessed against the
Company.
While the results of these matters cannot be predicted with
certainty, the Company's management believes that losses, if any,
resulting from the ultimate resolution of these matters will not have
a material adverse effect on the Company's consolidated results of
operations, cash flows or financial position. However, unfavorable
resolution could affect the consolidated results of operations or
cash flows for the years in which they are resolved.
10. OTHER MATTER
On March 12, 1999, the Securities and Exchange Commission ("SEC")
filed a complaint alleging the Company had failed to make available
to the investing public current and accurate information about its
financial condition and results of operations through the filing of
periodic reports with the SEC as required by the Securities Exchange
Act of 1934. The SEC sought to compel the Company to file the
delinquent periodic reports and enjoin the Company from further
violations of the Exchange Act of 1934. The Company consented to the
entry of a Final Judgment granting the relief sought by the SEC.
11. GOING CONCERN
The Company incurred a net loss of approximately $23,000,000 for the
year ended December 31, 1999. The Company's liabilities exceed its
assets by approximately $5,300,000, and current liabilities exceed
its current assets by approximately $6,300,000 as of December 31,
1999. These factors create an uncertainty about the Company's
ability to continue as a going concern. The Company's management has
developed a plan to complete the development of technology products
to generate future revenues and elect new directors to the board.
The Company will also seek additional sources of capital through the
issuance of debt equity financing, but there can be no assurance that
the Company will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of the
Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
F - 14
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
During January 2000 through the date of this report, the Company
advanced approximately $966,000 to ET&T. These amounts advanced have
been secured by ET&T and Thomas Hughes' (an officer and director of
the Company) common stock in the Company (see Note 8), which bear an
interest rate of 10% and is due on demand.
On February 9, 2000, the Company consummated an acquisition agreement
with PowerClick, Inc. whereby eConnect acquired 50% of the
outstanding capital stock of PowerClick, Inc. in consideration of
$1,500,000 and 6,000,000 shares of the Company's common stock,
options to purchase 2,000,000 shares of the Company's common stock
with a price of $0.40 per share, and an option to purchase an
additional 4,000,000 shares of the Company's common stock with a
price of $0.40 per share exercisable no sooner than April 1, 2000,
but no later than April 30, 2000. This acquisition has been
accounted for under the equity method of accounting.
On March 13, 2000, the SEC suspended trading of the Company's common
stock in connection with an investigation of the Company. The
Company's common stock resumed trading on March 27, 2000; however,
from that date to the date of this report, the Company's common stock
has been trading on the National Quotation Bureau's Pink Sheets,
since brokerage firms who make a market in the Company's common stock
on the Over-The-Counter Bulletin Board ("OTCBB") are not willing to
do so at this time. The Company is currently in the process of
filing a Form 10-KSB with the SEC in order to provide current
financial information to these brokerage firms.
On March 13, 2000, the Company advanced approximately $200,000 to a
director of the Company. The balance is non-interest bearing and is
due on demand.
On March 22, 2000, the Company consummated an amended and restated
employment agreement with an individual and his firm to act as
outside counsel for the Company. On April 14, 2000, the Company
terminated this individual and his firm as outside counsel. Based
upon the amended and restated employment agreement, the remaining
compensation for the term of this agreement will be due immediately
upon the termination of this individual and his firm as outside
counsel if terminated for reasons other than good cause. In
addition, any common stock and stock warrants granted through the
term of this agreement will be considered due in the event of
termination for reasons other than good cause. Accordingly, the
termination of this individual and his firm, for reasons other than
good cause, may potentially expose the Company to incur a liability
of approximately $700,000 for the remaining portion of unpaid
compensation for the first, second and third years of this agreement.
Furthermore, the termination may have accelerated the vesting of the
granted common stock and stock warrants consisting of 600,000 common
shares and 600,000 warrants exercisable at $1.00 per share. The
Company's management believes that the termination of this individual
and his firm was in good cause and intends to defend itself in this
matter vigorously.
On March 21, 2000, the Company consummated an amended employment
agreement with an individual for the position of President and Chief
Operating Officer for the Company. On April 17, 2000, the Company
terminated this individual as President and Chief Operating Officer
of the Company. Based upon the amended employment agreement, the
remaining salary for the term of this agreement, will be due within
30 days upon the termination of this individual if terminated for
reasons other than good cause. In addition, through the date of
termination, all of the granted stock options and warrants will vest
and be exercisable for their entire term. Accordingly, the
termination of this individual, for reasons other than good cause,
may potentially expose the Company to incur a liability of
approximately $1,260,000 for the remaining portion of unpaid salary
for the first, second, third, and fourth years of this agreement.
Furthermore, the termination may have accelerated the vesting of the
granted stock options and warrants consisting of 1,000,000 warrants
exercisable at $1.00 per share, 6,000,000 stock options exercisable
at $0.40 per share, and 1,500,000 stock options exercisable at the
lowest average daily trading price of the Company's common stock
within the first 90 days of the executive's employment. The
Company's management believes that the termination of this individual
was in good cause and intends to defend itself in this matter
vigorously.
F - 15
ITEM 28. 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 7, 2000.
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 attorney-in-fact
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Thomas S. Hughes President, Chief 8/7/00
Thomas S.Hughes Executive Officer,
Director
/s/ Jack M. Hall Secretary, Director 8/7/00
Jack M. Hall
/s/ Diane Hewitt Treasurer (Principal 8/7/00
Diane Hewitt Financial and Accounting
Officer), Director
/s/ Laurence B. Director 8/7/00
Donoghue
Laurence B. Donoghue
</TABLE>
EXHIBIT INDEX
Exhibit No. Description
2 Agreement and Plan of Merger, dated June 1, 1999
(incorporated by reference to Exhibit 2 of the Form 10-KSB
filed on May 9, 2000, which is hereby attached to this Form
SB-2).
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registration Statemet on
Form SB- 2/A filed on July 22, 1999).
3.2 Certificate of 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 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.3 of the
Registration Statement on Form SB-2/A filed on September 3,
1999).
3.4 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.3 of the Registration Statement on Form SB-2/A
filed on July 22, 1999).
4.1 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).
4.2 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated April 26, 1999 (incorporated by reference
to Exhibit 4.1 of the Form S-8 filed on May 14, 1999).
4.3 Consulting and Service Agreement between the Registrant and
James Wexler, dated May 20, 1998 (incorporated by reference
to Exhibit 4.2 of the Form S-8 filed on May 14, 1999).
4.4 Consulting Agreement between the Registrant and Rogel
Patawaran, dated March 18, 1998 (incorporated by reference
to Exhibit 4.3 of the Form S-8 filed on May 14, 1999).
4.5 Consulting Agreement between the Registrant and David Ninci,
dated February 22, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on May 14, 1999).
4.6 Consulting Agreement between the Registrant and Harry
Hargens, dated January 17, 1999 (incorporated by reference
to Exhibit 4.5 of the Form S-8 filed on May 14, 1999).
4.7 Consulting Agreement between the Registrant and Charlene
Charles, dated March 10, 1999 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on May 14, 1999).
4.8 Internet Consulting Services Agreement between the
Registrant and Steve Goodman, dated May 3, 1999
(incorporated by reference to Exhibit 4.2 of the Form S-8
filed on July 2, 1999).
4.9 Consulting Agreement between the Registrant and Rogel
Patawaran, dated June 8, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on July 2, 1999).
4.10 Consulting and Service Agreement between the Registrant and
Edward Wexler, dated May 20, 1999 (incorporated by reference
to Exhibit 4.4 of the Form S-8 filed on July 2, 1999).
4.11 Consultant Agreement between the Registrant and Richard
Epstein, dated June 3, 1999 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on July 2, 1999).
4.12 Consultant Agreement between the Registrant and Ezzat
Jallad, dated March 10, 1999 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on July 2, 1999).
4.13 Consultant Agreement between the Registrant and Shar
Offenberg, dated June 20, 1998 (incorporated by reference to
Exhibit 4.7 of the Form S-8 filed on July 2, 1999).
4.14 Consultant Agreement between the Registrant and Richard
Parnes, dated May 10, 1999 (incorporated by reference to
Exhibit 4.8 of the Form S-8 filed on July 2, 1999).
4.15 Consulting Contract between the Registrant and Robert Bragg,
dated August 19, 1999 (incorporated by reference to Exhibit
4.2 of the Form S-8 filed on August 31, 1999).
4.16 Consultant Agreement between the Registrant and Dominique
Einhorn, dated August 9, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on August 31, 1999).
4.17 Consultant Agreement between the Registrant and Richard
Epstein, dated August 16, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on August 31, 1999).
4.18 Consultant Agreement between the Registrant and Jane Hauser,
dated August 16, 1999 (incorporated by reference to Exhibit
4.5 of the Form S-8 filed on August 31, 1999).
4.19 Form of Debenture issued by the Registrant to CALP II, LP,
dated June 9, 1999 (incorporated by reference to Exhibit 4.3
of the Registration Statement on Form SB-2/A filed on July
22, 1999).
4.20 Registration Rights Agreement between the Registrant and
CALP II, LP, dated June 9, 1999 (incorporated by reference
to Exhibit 4.2 of the Registration Statement on Form SB-2/A
filed on July 22, 1999).
4.21 Form of Warrant issued by the Registrant to CALP II, LP,
dated June 9, 1999 (incorporated by reference to Exhibit 4.4
of the Registration Statement on Form SB-2/A filed on July
22, 1999).
4.22 Common Stock Purchase Agreement between the Registrant and
Alpha Venture Capital, Inc., dated September 28, 1999
(incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form SB-2 POS filed on September
29, 1999).
4.23 Registration Rights Agreement between the Registrant and
Alpha Venture Capital, Inc., dated September 28, 1999
(incorporated by reference to Exhibit 4.3 of the
Registration Statement on Form SB-2 POS filed on September
29, 1999).
4.24 Warrant issued by the Registrant to Alpha Venture Capital,
Inc., dated September 28, 1999 (incorporated by reference to
Exhibit 4.4 of the Registration Statement on Form SB-2 POS
filed on September 29, 1999).
4.25 Amended and Restated Retainer Stock Plan for Non-Employee
Directors and Consultants, dated February 1, 2000
(incorporated by reference to Exhibit 4.1 of the Form S-8
filed on February 10, 2000).
4.26 Consulting Services Agreement between the Registrant and
Laurel-Jayne Yapel Manzanares, dated February 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8
filed on February 10, 2000).
4.27 Consulting Services Agreement between the Registrant and
Marcine Aniz Uhler, dated February 1, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on February
10, 2000).
4.28 Consulting Services Agreement between the Registrant and
William Lane, dated February 7, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on February
10, 2000).
4.29 Consulting Services Agreement between the Registrant and
Earl Gilbrech, dated February 7, 2000 (incorporated by
reference to Exhibit 4.5 of the Form S-8 filed on February
10, 2000).
4.30 Consulting Services Agreement between the Registrant and
Dominique Einhorn, dated February 7, 2000 (incorporated by
reference to Exhibit 4.6 of the Form S-8 filed on February
10, 2000).
4.31 Consulting Services Agreement between the Registrant and
Edward James Wexler, dated February 7, 2000 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on February
10, 2000).
10.1 Agreement to License Assets between the Registrant and Home
Point of Sales, Inc., dated February 18, 1997 (incorporated
by reference to Exhibit 10.16 to the Form 8-K filed on
February 25, 1997).
10.2 Escrow Agreement between the Registrant, Home Point of
Sales, Inc, and First National Bank of Omaha, dated February
18, 1997 (incorporated by reference to Exhibit 10.17 to the
Form 8-K filed on February 25, 1997).
10.3 Host Processing Agreement between the Registrant and
Electronic Transactions & Technologies, dated April 28, 1997
(incorporated by reference to Exhibit 10.3 of the Form 10-
KSB/A for the fiscal year ended on August 31, 1998).
10.4 Licensing Agreement between the Registrant and Electronic
Transactions & Technologies, dated March 27, 1998
(incorporated by reference to Exhibit 10.4 of the Form 10-
KSB/A for the fiscal year ended on August 31, 1998).
10.5 Promissory Note between Electronic Transactions &
Technologies and Unipay, Inc., dated April 26, 1999
(incorporated by reference to Exhibit 10.5 of the Form 10-
KSB filed on May 9, 2000, which is hereby attached to this
Form SB-2).
10.6 Joint Venture Agreement between the Registrant and First
Entertainment Holding Corp., dated April 29, 1999
(incorporated by reference to Exhibit 10.6 of the Form 10-
KSB filed on May 9, 2000, which is hereby attached to this
Form SB-2).
10.7 Letter of Commitment between the Registrant and Rogel
Technologies, dated May 6, 1999 (incorporated by reference
to Exhibit 2 to the Form 8-K filed on November 15, 1999).
10.8 Acquisition Agreement between the Registrant and eBet.com,
Inc., dated August 12, 1999 (incorporated by reference to
Exhibit 2 to the Form 8-K/A filed on November 15, 1999).
10.9 Consulting Agreement between the Registrant and eMarkit,
Incorporated, dated August 16, 1999 (incorporated by
reference to Exhibit 10.9 of the Form 10-KSB filed on May 9,
2000, which is hereby attached to this Form SB-2).
10.10 Stock Exchange Agreement between the Registrant, La Empresa
Ranco Plasticos Limitada, Michael Lanes, and Jamie Ligator,
dated August 31, 1999 (incorporated by reference to Exhibit
2.1 to the Form 8-K filed on November 16, 1999).
10.11 Agreement and Plan of Acquisition between the Registrant and
PowerClick, Inc., dated September 9, 1999 (incorporated by
reference to Exhibit 10.11 of the Form 10-KSB filed on May
9, 2000, which is hereby attached to this Form SB-2).
10.12 Consulting Agreement between the Registrant and
International Investor Relations Group, Inc., dated
September 24, 1999 (incorporated by reference to Exhibit
10.12 of the Form 10- KSB filed on May 9, 2000, which is
hereby attached to this Form SB-2).
10.13 Agreement between the Registrant and Kanakaris
Communications, dated October 21, 1999 (incorporated by
reference to Exhibit 10.13 of the Form 10-KSB filed on May
9, 2000, which is hereby attached to this Form SB-2).
10.14 Letter of Commitment between the Registrant and Rogel
Technologies, dated October 23, 1999 (incorporated by
reference to Exhibit 10.14 of the Form 10-KSB filed on May
9, 2000, which is hereby attached to this Form SB-2).
10.15 Capital Contribution Agreement between the Registrant and
SafeTPay.com, dated November 5, 1999 (incorporated by
reference to Exhibit 10.15 of the Form 10-KSB filed on May
9, 2000, which is hereby attached to this Form SB-2).
10.16 Agreement between the Registrant and Rogel Technologies
dated November 23, 1999 (incorporated by reference to
Exhibit 10.16 of the Form 10-KSB filed on May 9, 2000, which
is hereby attached to this Form SB-2).
10.17 Contract of Partnership between the Registrant and Top
Sports, S.A., dated November 20, 1999 (incorporated by
reference to Exhibit 10.17 of the Form 10-KSB filed on May
9, 2000).
10.18 Agreement between the Registrant and Alliance Equities,
dated November 29, 1999 (incorporated by reference to
Exhibit 10.18 of the Form 10-KSB filed on May 9, 2000, which
is hereby attached to this Form SB-2).
10.19 Secured Promissory Note issued to the Registrant by
Electronic Transactions & Technologies and Thomas S. Hughes,
dated December 1, 1999 (incorporated by reference to Exhibit
10.19 of the Form 10-KSB filed on May 9, 2000, which is
hereby attached to this Form SB-2).
10.20 Security Agreement between the Registrant, Electronic
Transactions & Technologies, and Thomas S. Hughes, dated
December 1, 1999 (incorporated by reference to Exhibit 10.20
of the Form 10-KSB filed on May 9, 2000, which is hereby
attached to this Form SB-2).
10.21 Business Cooperation Agreement between the Registrant and
Top Sports, S.A., dated December 9, 1999 (incorporated by
reference to Exhibit 10.21 of the Form 10-KSB filed on May
9, 2000, which is hereby attached to this Form SB-2).
10.22 Consulting Agreement between the Registrant and Michael
Leste, dated December 10, 1999 (incorporated by reference to
Exhibit 10.22 of the Form 10-KSB filed on May 9, 2000, which
is hereby attached to this Form SB-2).
10.23 Consulting Agreement between the Registrant and Michael
Kofoed, dated December 10, 1999 (incorporated by reference
to Exhibit 10.23 of the Form 10-KSB filed on May 9, 2000,
which is hereby attached to this Form SB-2).
10.24 Agreement between the Registrant and Top Sports S.A., dated
December 16, 1999 (incorporated by reference to Exhibit
10.24 of the Form 10-KSB filed on May 9, 2000, which is
hereby attached to this Form SB-2).
10.25 Agreement between the Registrant and eMarkit, Incorporated,
dated December 29, 1999 (incorporated by reference to
Exhibit 10.25 of the Form 10-KSB filed on May 9, 2000, which
is hereby attached to this Form SB-2).
10.26 Fee Agreement between the Registrant and Red Iguana Trading
Company, Inc., dated January 2, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.27 Assignment of eSportsbet between the Registrant and
PowerClick, Inc., dated January 7, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.28 Letter of Intent of Negotiation and Information Exchange
between eConnect2Trade.com, Incorporated, and Empire
Financial Holdings, Incorporated, dated January 21, 2000
(incorporated by reference to the Form 10-QSB filed on May
30, 2000, which is hereby attached to this Form SB-2).
10.29 Manufacturing Agreement between the Registrant and Asia
Pacific Micro, Inc., dated January 21, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.30 Consulting Services Agreement between the Registrant and
Boardwalk Associates, Inc., dated January 26, 2000
(incorporated by reference to the Form 10-QSB filed on May
30, 2000).
10.31 Consulting Services Agreement between the Registrant and
Coldwater Capital L.L.C., dated January 26, 2000
(incorporated by reference to the Form 10-QSB filed on May
30, 2000, which is hereby attached to this Form SB-2).
10.32 Consultant Agreement between the Registrant and Harvey M.
Burstein, dated February 2, 2000 (incorporated by reference
to the Form 10-QSB filed on May 30, 2000, which is hereby
attached to this Form SB-2).
10.33 Consultant Agreement between the Registrant and Terrie Pham,
dated February 2, 2000 (incorporated by reference to the
Form 10-QSB filed on May 30, 2000, which is hereby attached
to this Form SB-2).
10.34 Software License, Development, and Maintenance Agreement
(Dominican Republic) between the Registrant and eFunds
Corporation, dated February 3, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.35 Agreement between the Registrant and Burbank Coach Works,
dated February 3, 2000 (incorporated by reference to the
Form 10-QSB filed on May 30, 2000).
10.36 Software License, Development, and Maintenance Agreement
(Ireland) between the Registrant and eFunds Corporation,
dated February 4, 2000 (incorporated by reference to the
Form 10-QSB filed on May 30, 2000, which is hereby attached
to this Form SB-2).
10.37 Acquisition Agreement between the Registrant and PowerClick,
Inc., dated February 9, 2000 (incorporated by reference to
the Form 10-QSB filed on May 30, 2000, which is hereby
attached to this Form SB-2).
10.38 Loan Agreement between the Registrant and Richard Epstein,
dated February 15, 2000 (incorporated by reference to the
Form 10-QSB filed on May 30, 2000, which is hereby attached
to this Form SB-2).
10.39 PocketPay Joint Venture Agreement between the Registrant and
Pilot Island Publishing, Inc., dated March 1, 2000
(incorporated by reference to the Form 10-QSB filed on May
30, 2000, which is hereby attached to this Form SB-2).
10.40 Letter of Intent between the Registrant and Real Solutions,
Ltd., dated March 9, 2000 (incorporated by reference to the
Form 10-QSB filed on May 30, 2000, which is hereby attached
to this Form SB-2).
10.41 Consulting Agreement between the Registrant and Ryan
Kavanaugh, dated March 10, 2000 (incorporated by reference
to the Form 10-QSB filed on May 30, 2000, which is hereby
attached to this Form SB-2).
10.42 Amended Employment Agreement between the Registrant and
Stephen E. Pazian, dated March 21, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.43 Amended and Restated Employment Agreement between the
Registrant and Stanley C. Morris, dated March 22, 2000
(incorporated by reference to the Form 10-QSB filed on May
30, 2000, which is hereby attached to this Form SB-2).
10.44 China-Singapore-Hong Kong-Macao Joint Venture Agreement
between the Registrant, and Raymond Kessler and Li-Wang
Kessler, dated March 27, 2000 (incorporated by reference to
the Form 10-QSB filed on May 30, 2000, which is hereby
attached to this Form SB-2).
10.45 Amended and Restated Secured Promissory Note issued to the
Registrant by Electronic Transactions & Technologies and
Thomas S. Hughes, dated March 31, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.46 Amended and Restated Security Agreement between the
Registrant, Electronic Transactions & Technologies, and
Thomas S. Hughes, dated March 31, 2000 (incorporated by
reference to the Form 10-QSB filed on May 30, 2000, which is
hereby attached to this Form SB-2).
10.47 Letter of Intent With Respect to Proposed Purchase of Shares
of National Data Funding Corporation
10.48 Shares Sales Contract
10.49 Amended Agreement with Top Sports, dated June 20, 2000
13.1 Form 10-QSB filed on May 30, 2000
13.2 Form 10-KSB filed on May 9, 2000
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Form 10-KSB filed on May 9, 2000, which is
hereby attached to this Form SB-2).
23 Consent of Independent Certified Public Accountants
99.1 Patents: dated August 9, 1994, May 19, 1998, and September
15, 1998 (incorporated by reference to Exhibit 99.1 of the
Form 10-KSB filed on May 9, 2000, which is hereby attached
to this Form SB-2).
99.2 Trademarks: filed March 31, 1997, February 16, 1999, May 6,
1999, May 24, 1999, June 3, 1999, June 4, 1999, August 12,
1999, and September 28, 1999 (incorporated by reference to
Exhibit 99.2 of the Form 10-KSB filed on May 9, 2000, which
is hereby attached to this Form SB-2).
99.3 Trademark filed on March 15, 2000 (incorporated by reference
to Exhibit 99.3 on the Form 10-QSB filed on May 30, 2000,
which is hereby attached to this Form SB-2).
