U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eConnect
(Name of Small Business Issuer in its charter)
Nevada 541990 43-1239043
(State or jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification
Classification Code Number) Number
2500 Via Cabrillo Marina Suite 112, San Pedro, California 90731; (310) 514-9482
(Address and telephone number of Registrant's principal executive offices and
principal place of business)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport Beach, Ca
(949) 975-0544
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered Maximum Aggregate Registration
to be Offering Offering Fee
Registered Price Per Price
Share (1)
Common
Stock 90,893,389 $0.4325 $39,311,390 $9,827.85
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Pursuant to Rule 416, such additional amounts to prevent
dilution from stock splits or similar transactions.
Calculated in accordance with Rule 457(c): The average of the
bid and ask price as of December 20, 2000.
PROSPECTUS
eConnect
90,893,389 Shares *
Common Stock
eConnect, a Nevada corporation, is hereby offering shares of
common stock on a delayed basis under a shelf registration under
Rule 415 pursuant to the terms of this prospectus. A total of
90,893,389 shares of common stock are to be registered, as
follows (maximum amounts):
The company's public offering consists of 75,971,428 shares of
common stock, par value $0.001 (of this amount, up to 40,000,000
shares will be sold for cash). This offering is being made on a
best-efforts basis by the company, with no minimum purchase
required. The company's common stock trades on the Over the
Counter Bulletin Board under the trading symbol "ECNC".
Concurrent with this public offering, is an offering by certain
selling shareholders of the company, in the total amount of
14,921,961 shares of common stock. These selling shareholders
may offer their stock through public or private transactions, on
or off the Over the Counter Bulletin Board, at prevailing market
prices, or at privately negotiated prices.
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 9).
These securities have not been approved or disapproved by the
securities and exchange commission or any state securities
commission nor has the securities and exchange commission or any
state securities commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
Price to Public Underwriting Discounts Proceeds to
And Commissions (2) Issuer (3)
Per Share $ (1) $(2) $(3)
Total Maximum $ (1) $(2) $(3)
Information contained herein is subject to completion or
amendment. The registration statement relating to the
securities has been filed with the U.S. Securities and Exchange
Commission. The securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject to Completion, Dated: _____________, 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 price per share, the maximum amount to be raised under this
offering and the proceeds to the issuer will be dependent on the
market price at the times that drawdowns are taken under a
common stock purchase agreement.
Alpha Venture Capital, Inc. will receive a commission of 8% of
the amount of each drawdown under the common stock purchase
agreement; the amount of commissions will be dependent on the
amount taken under such drawdowns.
The proceeds to the company will be dependent on the amount sold
under the common stock purchase agreement, and is before the
payment of certain expenses in connection with this offering.
Table Of Contents
PROSPECTUS SUMMARY 5
RISK FACTORS 6
USE OF PROCEEDS 13
DETERMINATION OF OFFERING PRICE 14
SELLING SHAREHOLDERS 14
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 25
DESCRIPTION OF SECURITIES 27
INTEREST OF NAMED EXPERTS AND COUNSEL 28
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 29
ORGANIZATION WITHIN LAST FIVE YEARS 34
DESCRIPTION OF BUSINESS 35
PLAN OF OPERATION 51
DESCRIPTION OF PROPERTY 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 53
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 56
EXECUTIVE COMPENSATION 58
FINANCIAL STATEMENTS 60
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 85
AVAILABLE INFORMATION 85
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each
prospective investor is urged to read this prospectus in its
entirety.
The Company.
The Company is made up of two divisions: The first, the
transactions division has a 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 company has
named PERFECT (personal encrypted remote financial electronic
card transactions).
The first aspect is the development of the "Bank Eyes Only"T
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"T
transactions refers to a direct Internet connection between the
consumer's terminal and the company'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"T 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"T 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
company's proprietary hardware placed in public locations for
self serviced bill payments by ATM card with PIN entry.
The second division is eGaming. The company currently owns a
99% interest in Top Sports S.A., a series of 12 walk in
Dominican Republic sportsbooks. The company's interest in
gaming two fold:
the generation of revenues
the establishment of a base for the usage of "Bank Eyes Only"T
eCashPads for global ATM card with PIN entry gaming.
The principal offices of the company's are located at 2500 Via
Cabrillo Marina, Suite 112, San Pedro, California 90731. The
telephone number for the company is (310) 514-9482.
The Offering.
90,893,389 shares of common stock of the company will be sold on
a delayed basis under a shelf registration under Rule 415
(shares outstanding prior to this offering: 215,364,897) [as of
Decemer 8, 2000] (shares to be outstanding after this offering,
assuming a full subscription: 291,336,325), as follows:
Selling shareholders: 14,921,961.
Shares to be sold for cash under a common stock purchase agreement:
40,000,000.
Shares to be issued upon the exercise of warrants issued in
connection with the common stock purchase agreement: 4,571,428.
Shares to be issued upon the exercise of warrants exercisable at
$1.00 per share at various dates through October 21, 2003: 9,500,000.
Shares to be issued upon the exercise of warrants exercisable at
$0.50 per share for a period of five years from May 24, 2000: 500,000.
Shares to be issued upon the exercise of options exercisable at $1.00
per share through July 12, 2002: 4,400,000.
Shares for future acquisitions by the company of other companies
and/or assets: 15,000,000.
Shares to be issued for consulting services: 2,000,000.
Use of Proceeds: The amount of proceeds from this offering will
depend on the offering price per share and the number of shares
sold for cash. The proceeds of the cash offering, less the
expenses of the offering (estimated at $77,327), will be used to
provide working capital for the company.
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.
Development Stage of Products.
The company has completed all aspects of the eCashPad consumer
and bank network support services and is presently offering the
eCashPad for sale at $59.95; the company has received initial
orders for approximately 100 eCashPad. However, the company has received
limited revenues from operations. The company's PocketPay will
require significant additional investment in research and
development and will require substantial additional resources.
The eCashPad has met all necessary regulatory approvals (Federal
Communications Commission and Underwriters Laboratories) and is
now ready for mass market consumer sales. The company is
confident that, based on the approvals of the eCashPad, that the
new product line such as the PocketPay will also meet similar
approvals for market usage.
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.
If the company is unable to obtain customers and generate
sufficient revenues so that it can profitably operate, the
company's business will not succeed. In such event, investors
in the shares may lose their entire cash investment. Also the
company and its management do not have significant experience in
the internet business, and in particular the on-line gaming
business.
As a result of the fixed nature of many of the
company's expenses, the company may be unable to adjust spending
in a timely manner to compensate for any unexpected delays in
the development and marketing of the company's products or any
capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on the
company's business, operations and financial condition.
Limited Revenues, History of Operating Loss and Accumulated
Deficit.
The company has had limited revenue to date. Although the
company has been involved with e-commerce since 1999, it has
been primarily engaged in research and development. The company
has incurred significant operating losses: $19,026,744 for the
fiscal year ended December 31, 1999, $776,138 for the four
months ended December 31, 1998, and $196,968 for the fiscal year
ended August 31, 1998. At September 30, 2000, the company had
an accumulated deficit of $69,355,788 (the majority of which resulted
from stock issued for services). The future growth and profitability of
the company will be principally dependent upon its ability to
successfully complete development and testing of, obtain
regulatory approvals for, and market or license its primary
products. Accordingly, the company's prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered in connection with the establishment of a
new business in a highly competitive industry, characterized by
new product introductions.
The company anticipates that it will incur substantial operating
expenses in connection with the research, development, testing
and approval of its proposed products and expects these expenses
to result in continuing and significant losses until such time
as the company is able to achieve adequate revenue levels.
There can be no assurance that the company will be able to
significantly increase revenues or achieve profitable
operations. Failure to obtain additional capital, if needed,
would have a material adverse effect on the company's
operations.
Additional Financing Will Be Required.
The company 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 company is meeting its
funding requirements through financing provided by the Alpha
Venture Capital, Inc. through a common stock purchase agreement
between the company and this firm, dated September 28, 1999. On
The company has since received a new commitment from Alpha
for an initial $5,000,000 and is confident that additional
funding will be available from Alpha. In addition, the
company intends to receive financing in the future through a new
common stock purchase agreement between the parties, dated
December 8, 2000, in the commitment amount of $15,000,000.
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 company 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.
Risks Associated with eCashPad Production.
The agreement under which the eCashPad was originally
manufactured for the company only calls for an initial
production run of 5,000 units, at a total cost of $80,000. The
company has since concluded an order for 100,000 eCashPads from Asia
Pacific Micro, Inc. at a favorable cost per unit. Initial eCashPads are
being delivered to the company on an as needed basis.
This agreement offers the company 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 company is presently seeking additional suppliers.
Risks in Connection with Approval of Regional ATM Networks.
Within the United States market, the company 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"T
Internet payment. Such network currently permit the usage of
credit cards on their systems. Thus, a substantial part of the
company's strategy is based on ATM card with PIN entry Internet
payments, and the company 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.
Acceptance and Effectiveness of Internet Electronic Commerce.
The company's success in e-commerce will be dependent on
consumer acceptance of e-retailing and an increase in the use of
the Internet for e-commerce. If the markets for e-commerce do
not develop or develop more slowly than the company expects, its
e-commerce business may be harmed. If Internet usage does not
grow, the company may not be able to increase revenues from
Internet advertising and sponsorships which also may harm both
our retail and e-commerce business. Internet use by consumers is
in an early stage of development, and market acceptance of the
Internet as a medium for content, advertising and e-commerce is
uncertain. A number of factors may inhibit the growth of
Internet usage, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and limited
availability of cost-effective, high-speed access. If these or
any other factors cause use of the Internet to slow or decline,
our results of operations could be adversely affected.
Competition in Internet Commerce.
The company anticipates substantial competition in the
development of the PERFECT industry and the "Bank Eyes Only"T
internet application in particular. The company 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 company which is
the processing of transactions.
Increased competition from e-commerce could result in reduced
margins or loss of market share, any of which could harm both
our retail and e-commerce businesses. Competition is likely to
increase significantly as new companies enter the market and
current competitors expand their services. Many of the
company's present and potential competitors are likely to enjoy
substantial competitive advantages, including larger numbers of
users, more fully-developed e-commerce opportunities, larger
technical, production and editorial staffs, and substantially
greater financial, marketing, technical and other resources. If
the company does not compete effectively or if it experiences
any pricing pressures, reduced margins or loss of market share
resulting from increased competition, the company's business
could be adversely affected.
Unreliability of Internet Infrastructure.
If the Internet continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements,
the Internet infrastructure may not be able to support these
increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face
additional outages and delays in the future. These outages and
delays could reduce the level of Internet usage and traffic. In
addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols to
handle increased levels of activity. If the Internet
infrastructure is not adequately developed or maintained, use of
the company website may be reduced. Even if the Internet
infrastructure is adequately developed, and maintained, the
company may incur substantial expenditures in order to adapt its
services and products to changing Internet technologies. Such
additional expenses could severely harm the company's financial
results.
Transactional Security Concerns.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks.
Any breach in security could cause interruptions and have an
adverse effect on the company's business.
Governmental Regulation of the Internet.
There are currently few laws that specifically regulate
communications or commerce on the Internet. Laws and
regulations may be adopted in the future, however, that address
issues including user privacy, pricing, taxation and the
characteristics and quality of products and services sold over
the Internet. Possible future consumer legislation, regulations
and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities undertaken in
connection with the party planning business, the extent of which
cannot be predicted. The exact affect of such legislation cannot
be predicted until it is in final form.
Influence of Other External Factors on Prospects for Company.
The industry of the company in general 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 a commercially profitable business. The marketability
of its products 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 companies' spending. Factors which leave less money in
the hands of potential customers 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.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. None of the company's officers,
directors, and key employees have an employment agreement with
the company; therefore, there can be no assurance that these
personnel will remain employed by the company after the
termination of such agreements. Should any of these individuals
cease to be affiliated with the company for any reason before
qualified replacements could be found, there could be material
adverse effects on the company's business and prospects. In
addition, management has no experience is managing companies in
the same business as the company.
In addition, all decisions with respect to the management
of the company will be made exclusively by the officers and
directors of the company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the company. The success of the company,
to a large extent, will depend on the quality of the directors
and officers of the company. Accordingly, no person should
invest in the shares unless he is willing to entrust all aspects
of the management of the company to the officers and directors.
Control of the Company by Officers and Directors.
The company's officers and directors beneficially own
approximately 8% of the outstanding shares of the company's
common stock. As a result, such persons, acting together, have
the ability to exercise influence over all matters requiring
stockholder approval. Accordingly, it may be difficult for the
investors hereunder to effectuate control over the affairs of
the company. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control the
majority of voting rights will be able, by virtue of their stock
holdings, to control the affairs and policies of the company.
Limitations on Liability, and Indemnification, of Directors and Officers.
The bylaws of the company provide for indemnification
of officer or directors of the company. In addition, the Nevada
Revised Statutes provide for permissive indemnification of
officers and directors and the company may provide
indemnification under such provisions. Any limitation on the
liability of any director, or indemnification of directors,
officer, or employees, could result in substantial expenditures
being made by the company in covering any liability of such
persons or in indemnifying them.
Potential Conflicts of Interest Involving Management.
Some of 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, 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.
Non-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.
Offering Price.
The offering price of the shares will be determined in relation
to the then current market price of the shares on the Over the
Counter Bulletin Board. Because of market fluctuations, there
can be no assurance that the shares will maintain market values
commensurate with the offering price.
"Shelf" Offering.
The shares are offered directly by the company on a delayed
basis. 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.
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.
No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
The common stock of the company is currently quoted on the
Over the Counter Bulletin Board; it was relisted on October 30,
2000 after trading on the National Quotation Bureau's Pink
Sheets since being delisted from the Over the Counter Bulletin
Board after the SEC trading suspension on March 13, 2000. In
addition, the common stock is subject to the low-priced security
or so called "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such
securities. The Securities Enforcement and Penny Stock Reform
Act of 1990 ("Reform Act") requires additional disclosure in
connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the
U.S. Securities and Exchange Commission, any equity security
that has a market price of less than $5.00 per share, subject to
certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. The
regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell the company's common stock
and thus, ultimately, the ability of the investors to sell their
securities in the secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association
of Securities Dealers, Inc. member broker/dealers as market
makers after relisting on the Bulletin Board, the liquidity of
the common stock could be impaired, not only in the number of
shares of common stock which could be bought and sold, but also
through possible delays in the timing of transactions, and lower
prices for the common stock than might otherwise prevail.
Furthermore, the lack of market makers could result in persons
being unable to buy or sell shares of the common stock on any
secondary market. There can be no assurance the company will be
able to maintain such market makers.
Shares Eligible For Future Sale
All of the approximate 18,000,000 shares of common stock 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. Such shares will not be available
for sale in the open market without separate registration except
in reliance upon Rule 144 under the Securities Act of 1933. 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 one year, including persons who
may be deemed affiliates of the company (as that term is defined
under that rule) 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 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.
Potential Status as a Pseudo California Corporation.
Section 2115 of the California General Corporation Law
subjects certain foreign corporations doing business in
California to various substantive provisions of the California
General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held
of record by persons residing in the State of California.
Currently, all of the sales by the company come from sources
outside the State of California; however, this may change in the
future.
Some of the substantive provisions include laws relating to
annual election of directors, removal of directors without
cause, removal of directors by court proceedings,
indemnification of officers and directors, directors standard of
care and liability of directors for unlawful distributions.
Section 2115 does not apply to any corporation which, among
other things, has outstanding securities designated as qualified
for trading as a national market security on NASDAQ if such
corporation has at least eight hundred holders of its equity
securities as of the record date of its most recent annual
meeting of shareholders. It is currently anticipated that the
company will not be subject to Section 2115 of the California
General Corporation Law which, in addition to other areas of the
law, will subject the company to Section 708 of the California
General Corporation Law which mandates that shareholders have
the right of cumulative voting at the election of directors.
USE OF PROCEEDS
The amount of cash proceeds from this offering will depend on
the offering price per share and the number of shares sold for
cash under the common stock purchase agreement with Alpha
Venture Capital, Inc. The proceeds of the offering, less the
expenses of the offering, will be used to provide working
capital for the company. The net proceeds of this offering that
are not expended immediately may be deposited in interest or
non-interest bearing accounts, or invested in government
obligations, certificates of deposit, commercial paper, money
market mutual funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The cash offering price of the shares will be determined, from
time to time, based on the current market price of the shares on
the Over the Counter Bulletin Board under the formula set forth
in the common stock purchase agreement with Alpha Venture
Capital, Inc.
SELLING SHAREHOLDERS
Selling shareholders will be offering a total of 14,921,961
shares of common stock of the company, as follows (these
restricted shares were issued in connection with consulting
services rendered to the company and various loans made to the
company):
Name of Amount Amount Offered Amount Percentage
Selling Beneficially for Selling Beneficially Ownership
Shareholders Owned Prior Shareholder's Owned After After
to Offering Account Offering Offering(1)
PowerClick, Inc. 5,316,661 5,316,661 0 0.00%
Chris Jensen 4,000,000 4,000,000 0 0.00%
Quinn Brady 2,060,300 2,060,300 0 0.00%
Alliance Equities 9,850,000(2) 1,750,000 8,100,000 3.76%
Darrell Dickson 350,000 350,000 0 0.00%
Dickson Retirement
Plan 237,500 237,500 0 0.00%
Wayne Hall 200,000 200,000 0 0.00%
GoldStake
Enterprises 200,000 200,000 0 0.00%
Roger Swanson 120,000 120,000 0 0.00%
Timothy Patrick
Murphy 100,000 100,000 0 0.00%
John Fiesbein 100,000 100,000 0 0.00%
Donald Boyd 62,500 62,500 0 0.00%
Jim Ball 57,500 57,500 0 0.00%
Richard Zobost 50,000 50,000 0 0.00%
Pamela Matthews 50,000 50,000 0 0.00%
Jeff Lichter 35,000 35,000 0 0.00%
Eric Braghurst 30,000 30,000 0 0.00%
Matthew Lee 25,000 25,000 0 0.00%
Lori Lane 25,000 25,000 0 0.00%
Karen & Wayne
Gruninger 25,000 25,000 0 0.00%
Patrick Passarella 25,000 25,000 0 0.00%
John Hogle 25,000 25,000 0 0.00%
Matthew Ospeck 20,000 20,000 0 0.00%
John Kostecki 20,000 20,000 0 0.00%
Richard Holt 12,200 12,500 0 0.00%
Tim Bradlee 10,000 10,000 0 0.00%
Marvin Graberman 10,000 10,000 0 0.00%
Paul Brunn 5,000 5,000 0 0.00%
Total 23,021,961 (2) 14,921,961 8,100,000 3.76%
(1) Based on the total issued and outstanding common stock of 215,364,89
as of December 8, 2000.
(2) This represents the combined holdings of Alliance Equities and
Richard Epstein, who controls this firm.
PLAN OF DISTRIBUTION
Registration under this Offering.
90,893,389 shares of common stock of the company will be sold on
a delayed basis under a shelf registration under Rule 415
(shares outstanding prior to this offering: 215,364,897) (shares
to be outstanding after this offering, assuming a full
subscription: 291,336,325), as follows:
Selling shareholders: 14,921,961.
Shares to be sold for cash under a common stock purchase
agreement: 40,000,000.
Shares to be issued upon the exercise of warrants issued in
connection with the common stock purchase agreement: 4,571,428.
Shares to be issued upon the exercise of warrants exercisable at
$1.00 per share at various dates through October 21, 2003: 9,500,000
Shares to be issued upon the exercise of warrants exercisable at
$0.50 per share for a period of five years from May 24, 2000:
500,000.
Shares to be issued upon the exercise of options exercisable at $1.00
per share through July 12, 2002: 4,400,000.
Shares for future acquisitions by the company of other companies
and/or assets: 15,000,000.
Shares to be issued for consulting services: 2,000,000.
Use of Proceeds: The amount of proceeds from this offering will
depend on the offering price per share and the number of shares
sold for cash. The proceeds of the cash offering, less the
expenses of the offering (estimated at $77,327), will be used to
provide working capital for the company.
There can be no assurance that all of these shares will be
issued or that any of them will be sold for cash. The gross
proceeds to the company will depend on the amount actually sold
for cash and the sales price per share. 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 except for a placement fee
in the amount of 8% is being paid to Alpha Venture Capital, Inc.
in connection with the funds provided under the common stock
purchase agreement. These securities are offered by the company
subject to prior issue and to approval of certain legal matters
by counsel.
Selling Shareholders.
(a) Manner of Sales; Broker-Dealer Compensation.
The selling shareholders, or any successors in interest to the
selling shareholders, may sell their shares of common stock in
one or more of the following methods:
Ordinary brokers' transactions;
Transactions involving cross or block trades or otherwise on the
Bulletin Board;
Purchases by brokers, dealers or underwriters as principal and
resale by these purchasers for their own accounts pursuant to
this prospectus;
"At the market" to or through market makers or into an existing
market for the company's common stock;
In other ways not involving market makers or established
trading markets, including direct sales to purchases or sales
effected through agents;
Through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise);
In privately negotiated transactions;
To cover short sales; or
Any combination of the foregoing.
The selling shareholders also may sell their shares in reliance
upon Rule 144 under the Securities Act at such times as they
are eligible to do so. The company has been advised by the
selling shareholders that they have not made any arrangements
for the distribution of the shares of common stock. Brokers,
dealers or underwriters who effect sales for the selling
shareholders may arrange for other brokers, dealers or
underwriters to participate. Brokers, dealers or underwriters
engaged by the selling shareholders will receive commissions or
discounts from them in amounts to be negotiated prior to
the sale. These brokers, dealers or underwriters may act as
agent or as principals.
From time to time, one or more of the selling shareholders may
pledge, hypothecate or grant a security interest in some or all
of the shares of common stock being offered for sale, and the
pledgees, secured parties or persons to whom these securities
have been pledged shall, upon foreclosure in the event of
default, be considered a selling shareholder hereunder. In
addition, a selling shareholders may, from time to time, sell
short their common stock. In these instances, this prospectus
may be delivered in connection with these short sales and the
shares of the common stock may be used to cover these short
sales.
From time to time one or more of the selling shareholders may
transfer, pledge, donate or assign shares of their common stock
to lenders or others and each of these persons will be
considered a selling shareholder for purposes of this
prospectus. The number of shares of the company's common stock
beneficially owned by those selling shareholders who so
transfer, pledge, donate or assign shares of their common stock
will decrease as and when they take these actions. The plan of
distribution for the company's common stock by the selling
shareholders set forth herein will otherwise remain unchanged,
except that the transferees, pledgees, donees or other
successors will be considered selling shareholders hereunder.
Subject to the limitations discussed above, a selling
shareholder may enter into hedging transactions with broker-
dealers and the broker-dealers may engage in short sales of the
company's common stock in the course of hedging the positions
they assume with this selling shareholders, including in
connection with distributions of the common stock by these
broker-dealers. A selling shareholder may also enter into
option or other transactions with broker-dealers that involve
the delivery of the company's common stock to the broker-
dealers, who may then resell or otherwise transfer these
shares. A selling shareholder also may loan or pledge the
company's common stock to a broker-dealer and the broker-dealer
may sell the common stock so loaned or upon a default may sell
or otherwise transfer the pledged common stock.
(b) Filing of a Post-Effective Amendment In Certain Instances.
If any selling shareholders notifies the company that he, she,
or it has entered into a material arrangement (other than a
customary brokerage account agreement) with a broker or dealer
for the sale of shares of common stock under this prospectus
through a block trade, purchase by a broker or dealer or similar
transaction, the company will file a post- effective amendment
to the registration statement for this offering. The post-
effective amendment will disclose:
The name of each broker-dealer involved in the transaction.
The number of shares of common stock involved.
The price at which those shares of common stock were sold.
The commissions paid or discounts or concessions allowed to the
broker-dealer(s).
If applicable, that these broker-dealer(s) did not conduct any
investigation to verify the information contained or
incorporated by reference in this prospectus, as supplemented.
Any other facts material to the transaction.
(c) Certain Persons May Be Deemed to Be Underwriters.
The selling shareholders and any broker-dealers who execute
sales for them may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 because of the number of
shares of common stock to be sold or resold by these persons or
entities or the manner of sale of these shares, or both. If a
selling shareholder or any broker-dealer or other holders were
determined to be underwriters, any discounts, concessions or
commissions received by them or by brokers or dealers acting on
their behalf and any profits received by them on the resale of
their shares of common stock might be deemed to be underwriting
discounts and commissions under the Securities Act.
(d) Regulation M.
The company has informed the selling shareholders that
Regulation M promulgated under the Securities Exchange Act of
1934 may be applicable to them with respect to any purchase or
sale the company's common stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution
of the company's common stock from directly or indirectly
bidding for, or purchasing for any account in which it has a
beneficial interest, any of the common stock or any right to
purchase this stock, for a period of one business day before and
after completion of its participation in the distribution.
During any distribution period, Regulation M prohibits the
selling shareholders and any other persons engaged in the
distribution from engaging in any stabilizing bid or purchasing
the company's common stock except for the purpose of preventing
or retarding a decline in the open market price of the common
stock. None of these persons may effect any stabilizing
transaction to facilitate any offering at the market. As the
selling shareholders will be reoffering and reselling the
company's common stock at the market, Regulation M will prohibit
them from effecting any stabilizing transaction in contravention
of Regulation M with respect to this stock.
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 purchase Shares 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.
LEGAL PROCEEDINGS
Other than as stated below, the company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the company has been
threatened:
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:
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
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)
Form 10-QSB for the transition period ended December 31, 1998
(due by July 5, 1999) - filed with the SEC on September 3, 1999
Form 8-K to reflect a certain acquisition by the company (due by
May 21, 1999) - filed with the SEC on November 15, 1999
Form 8-K to reflect two acquisitions by the company (due by
September 15, 1999) - filed with the SEC on November 16, 1999
Form 10-KSB for the period ended on December 31, 1999 (due by
April 14, 2000) - filed with the SEC on May 9, 2000
Form 10-QSB for the quarter ended March 31, 2000 (due by May 22,
2000). The Form 10-QSB's for the quarters ended June 30, 2000
and September 30, 2000 were timely filed.
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 company issued false and misleading press releases
claiming: (1) the company and its joint venture partner had a
unique licensing arrangement with PalmPilot; and (2) a
subsidiary of the company 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 company'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
company'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 company and Mr. Hughes
continued to issue false and misleading statements concerning
the company's business opportunities. In addition to the
interim relief granted, the Commission seeks a final judgment
against the company 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 company and Mr.
Hughes, from committing violations of the antifraud provisions
of the federal securities laws. The company and Mr. Hughes
consented to the temporary restraining order.
On April 6, 2000, without admitting or denying the allegations
contained in said complaint, the company 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
company and Mr. Hughes consented to prohibits the company 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 company and/or Mr. Hughes.
Shareholder Class Action Lawsuits.
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);
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);
Bernstein, et al. v. eConnect, Inc., et al., Case No. 00-02703
FMC (BQRx);
Colangelo, et al. v. eConnect, Inc., et al., Case No. 00-02743
SVW (SHx);
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);
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);
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);
Weisblum, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
02770 MRP (CTx);
Mazda, et al. v. eConnect, et al., Case No. 00-02776 LGB (Mcx);
Pirraglia, et al. v. eConnect, et al., Case No. 00-02875 SVW
(CWx);
Hershkop and Hershkop, et al. v. eConnect and Thomas S. Hughes,
Case No. 00-03095 MRP (RNRx);
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);
Fine, et al. v. eConnect, Inc. and Thomas Hughes, Case No. 00-
03290 SVW (BQRx);
Smith, et al. v. eConnect, Thomas Hughes, Case No. 00-03301 DT
(Mcx);
Reimer, et al. v. eConnect, Thomas Hughes, Case No. 00-03405
JSL;
Tepper, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
03444 WJR (CTx);
Bury, et al. v. eConnect, Thomas Hughes, Case No. 00-03446 ABC;
Villari, et al. v. eConnect, Thomas Hughes, Case No. 00-03447
LGB (SHx);
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);
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);
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);
Schneyer, et al. v. eConnect, Case No. CV-00-03783 MMM (JWJx);
Ginocchi, et al. v. eConnect, Case No. 00-04003 MMM (JWJx);
Matrisciani, et al. v. eConnect, Case No. 00-04181 MMM (JWJx);
Dutton, et al. v. eConnect, Case No. 00-04505 LGB (Ex);
Shaw, et al. v. eConnect, Case No. 00-04637 LGB (Ex);
Gowrie, et al. v. eConnect, Case No. 00-04686 LGB (Ex);
Belcher, et al. v. eConnect, Case No.00-04792 LGB (Ex);
Lively, et al. v. eConnect, Case No. 00-03112 MMM (JWJx);
Levine, et al. v. eConnect, Case No. 00-03649 MMM (JWJx); and
Berkowitz, et al. v. eConnect, Case No. 00-04152 MMM (JWJx).
The foregoing thirty-one actions were filed on various
dates between March 14, 2000 and early May 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 company'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 company 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 company'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.
No class has yet been certified in connection with any of these
actions. All cases have been combined into one case before the
Honorable Margaret M. Morrow, entitled In Re eConnect, Inc.
Securities Litigation, Master File No. 00-02674 MMM (JWJx).
Negotiations are underway regarding the settlement of these
actions.
Additionally, a shareholder of the company named John P.
Maloney, filed an individual action for "securities fraud and
misrepresentation" against the company and Mr. Hughes on May 12,
2000 in small claims court in Torrance, California. The company
subsequently removed the action to the United States District
Court for the Central District of California, and requested that
it be consolidated with In Re eConnect, Inc. Securities
Litigation. However, on September 11, 2000, the Honorable
Margaret M. Morrow ruled that Mr. Maloney's action should be
remanded to the state small claims court. Subsequently, Mr.
Maloney's action was settled amicably and dismissed.
Quantum Leap Litigation
On September 16, 1999, Quantum Leap Media, Inc. filed a
complaint in United States District Court, Central District of
California against Greg Maxwell (Case No. CZ 00-10279 HM). This
action alleged fraud in connection with certain technology in
dispute between the parties. On October 16, 2000, a
counterclaim was filed in this action by Mr. Maxwell against
PowerClick and its shareholders, including the company. This
counterclaim also alleged fraud. The company is unable at this
time to express an opinion as to the probable outcome of this
matter, but intends to defend this matter vigorously.
Short-Swing Trading Complaint.
On September 6, 2000, Richard Morales, a purported
shareholder of the company, filed an action in the United States
District Court for the Southern District of New York against the
company and Mr. Hughes. This action, Richard Morales v.
eConnect and Thomas Hughes, Case No. 00 CIVIL 6695 (AKH),
alleges that short-swing trading of common stock issued by the
company to Mr. Hughes in violation of Section 16(b) of the
Securities Exchange Act of 1934. On November 29, 2000, the
plaintiff voluntarily dismissed this action.
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
this Form 10-QSB). 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 should litigation be
initiated in the future.
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
this Form 10-QSB). 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 should litigation be initiated in the future.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,AND CONTROL PERSONS
The names, ages, and respective positions of the directors,
executive officers, and key employee of the company are set
forth below. The directors named below will serve until the
next annual meeting of the company'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 company's affairs. There
are no other promoters or control persons of the company. There
are legal proceedings involving the directors of the company.
Directors and Executive Officers.
(a) Thomas S. Hughes, Chief Executive Officer/Director.
Mr. Hughes, Age 52, has been President and a Director of the
company since March 1997. From 1993 to the present, he has also
served as the President of Electronic Transactions &
Technologies, a privately held Nevada corporation which
developed terminals for wireless home and internet applications.
(b) 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
company. Mr. Hall joined the company as Secretary and a Director
in March 1997.
(c) Laurence B. Donoghue, Director.
Mr. Donoghue, age 55, is an attorney as well as a computer
professional. He was awarded a Juris Doctor degree at George
Washington University in Washington, D.C. in 1971. In December
1997, Mr. Donoghue founded and incorporated an Internet
marketing consulting business call Adweb Communications. 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 to 1998, Mr. Donoghue worked as an Adjunct
Professor at Law at Trinity University School of Law.
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. Bayne 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 company in his current
position on April 27, 2000.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of shares of the company's common stock as
of December 8, 2000 (215,359,897 issued and outstanding) by (i)
all stockholders known to the company to be beneficial owners of
more than 5% of the outstanding common stock; and (ii) all
directors, executive officers, and key employees of the company,
individually and as a group:
Title of Name and Address of Amount and Percent
Class Beneficial Owner Nature of of
Beneficial class
Owner (1)
Common Hughes Net Income Charitable 8,522,500 (2) 3.96%
Stock Remainder Unitrust,
c/o Anthony J. Bayne, Esq.
2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Thomas S. Hughes 8,850,000 (3) 4.11%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Laurence B. Donoghue 210,000 (4) 0.10%
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Anthony J. Bayne 210,000 (5) 0.10%
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Jack M. Hall 300,000 (6) 0.09%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Shares of all directors, 17,992,500 8.35%
Stock executive officers,
and key employees
as a group (4 persons)
(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. Other than as set forth
below, none of these security holders has the right to acquire
any amount of common stock within 60 days from options,
warrants, rights, conversion privilege, or similar obligations.
(2) The creator 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 company'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.
(3) 8,400,000 of this amount is owned by Electronic
Transactions & Technologies. This ownership is attributed to Mr.
Hughes by virtue of his 70% ownership of this company. In
addition, 300,000 of this amount is represented by options
issued in December 2000 under the company's stock incentive plan
which are exercisable within 60 days (the total options granted
was 600,000). These options are exercisable at $0.40 per share
for those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
(4) 200,000 of this amount is represented by options issued in
December 2000 under the company's stock incentive plan which are
exercisable within 60 days (the total options granted was
400,000). These options are exercisable at $0.40 per share for
those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
(5) 200,000 of this amount is represented by options issued in
December 2000 under the company's stock incentive plan which are
exercisable within 60 days (the total options granted was
400,000). These options are exercisable at $0.40 per share for
those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
(6) 200,000 of this amount is represented by options issued in
December 2000 under the company's stock incentive plan which are
exercisable within 60 days (the total options granted was
400,000). These options are exercisable at $0.40 per share for
those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
authorized capital of the company consists of 300,000,000 shares
of common stock, $0.001 par value per share. The holders of
common stock shall:
have equal ratable rights to dividends from funds legally
available therefore, when, as, and if declared by the board of
directors of the company
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
are entitled to one non-cumulative vote per share on all matters
on which shareholders may vote at all meetings of shareholders.
The shares of common stock do not have any of the following
rights:
special voting rights
preference as to dividends or interest
preemptive rights to purchase in new issues of Shares
preference upon liquidation, or
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. As of December 8,
2000, the company had 215,359,897 shares of common stock issued
and outstanding. The company does not have any preferred stock
authorized in its articles of incorporation.
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.
Transfer Agent.
The company has engaged the services of Corporate Stock
Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver,
Colorado 80209, to act as transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
Other than as set forth below, 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 company.
Brian F. Faulkner, A Professional Law Corporation, counsel
for the company named in this registration statement as giving
an opinion on the validity of the securities, will be receiving
1,150,000 shares of common stock pursuant to the company's
Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan under a Form S-8 in exchange for legal
services previously rendered, and to be rendered in the future,
to the company (400,000 of which have already been issued). In
addition, Mr. Faulkner has received options to purchase 500,000
shares of common stock under the company's stock incentive plan
in connection with this work. These legal services consist of
advice and preparation work in connection with reports of the
company filed under the Securities Exchange Act of 1934, and
other general corporate and securities work for the company.
Marc R. Tow, Esq. has received 150,000 shares of common stock
under this Plan for assistance provided to Mr. Faulkner in his
work for the company. George Brenner, the former independent
certified public accountant for the company, who now does per
diem accounting work for the company, has received 100,000
shares of common stock under this Plan for past work for the
company subsequent to his resignation.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Limitation of Liability.
The articles of incorporation of the company provide that
no Director or Officer of this company shall be liable to the
company or its stockholders for any breach of fiduciary duty as
Officer or Director of this company. This provision shall not
affect liability for acts or omissions which involve intentional
misconduct, fraud, a knowing violation or law, or the payment of
dividends in violation of NRS 78.300.
Indemnification.
(a) Articles of Incorporation.
The articles of incorporation of the company provide the
following with respect to indemnification:
"All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this company as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of a Director or Officer to repay
the amount if it is ultimately determined by a court of
competent jurisdiction, that he or she did not act in good
faith, and in the manner he or she reasonably believed to be or
not opposed to the best interests of this company."
(b) Bylaws.
The bylaws of the company provide the following with respect to
indemnification:
"Section 1. Definitions. For purposes of this Article,
"Indemnitee" shall mean each Director or Officer who was or is a
party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a Director or
Officer of this Corporation or is or was serving in any capacity
at the request of this Corporation as a Director, Officer,
employee, agent, partner, or fiduciary of, or in any other
capacity for, another corporation, partnership, joint venture,
trust, or other enterprise. The term "Proceeding" shall mean any
threatened, pending or completed action or suit (including,
without limitation, an action, suit or proceeding by or in the
right of this Corporation), whether civil, criminal,
administrative or investigative.
Section 2. Indemnification. Each Indemnitee shall be
indemnified and held harmless by this Corporation for all
actions taken by him or her, and for all omissions (regardless
of the date of any such action or omission), to the fullest
extent permitted by Nevada law, against all expense, liability
and loss (including, without limitation, attorney fees,
judgments, fines, taxes, penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding. Indemnification
pursuant to this Section shall continue as to an Indemnitee who
has ceased to be a Director or Officer and shall inure to the
benefit of his or her heirs, executors and administrators. This
Corporation may, by action of its Board of Directors, and to the
extent provided in such action, indemnify employees and other
persons as though they were Indemnitees. The rights to
indemnification as provided in this Article shall be non-
exclusive of any other rights that any person may have or
hereafter acquire under an statute, provision of this
Corporation's Articles of Incorporation or Bylaws, agreement,
vote of stockholders or Directors, or otherwise.
Section 3. Financial Arrangements. This Corporation may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a Director,
Officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in such capacity,
whether or not this Corporation has the authority to indemnify
him or her against such liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating a
trust fund; (b) establishing a program of self-insurance; (c)
securing its obligation of indemnification by granting a
security interest or other lien on any of this Corporation's
assets, and (d) establishing a letter of credit, guarantee or
surety. No financial arrangement made pursuant to this section
may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for intentional misconduct, fraud, or a
knowing violation of law, except with respect to advancing
expenses or indemnification ordered by a court. Any insurance
or other financial arrangement made on behalf of a person
pursuant to this section may be provided by this Corporation or
any other person approved by the Board of Directors, even if all
or part of the other person's stock or other securities is owned
by this Corporation. In the absence of fraud:
(a) the decision of the Board of Directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section, and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(b) the insurance or other financial arrangement is not void or
voidable; does not subject any Director approving it to personal
liability for his action; and even if a Director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
Section 4. Contract of Indemnification. The provisions of this
Article relating to indemnification shall constitute a contract
between this Corporation and each of its Directors and Officers,
which may be modified as to any Director or Officer only with
that person's consent or as specifically provided in this
section. Notwithstanding any other provision of the Bylaws
relating to their amendment generally, any repeal or amendment
of this Article which is adverse to any Director or Officer
shall apply to such Director or Officer only on a prospective
basis and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act
occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal
or amendment of these Bylaws shall affect any or all of this
Article so as to limit or reduce the indemnification in any
manner unless adopted by (a) the unanimous vote of the Directors
of this Corporation then serving, or (b) the stockholders as set
forth in Article XII hereof; provided that no such amendment
shall have retroactive effect inconsistent with the preceding
sentence.
Section 5. Nevada Law. References in this Article to Nevada
law or to any provision thereof shall be to such law as it
existed on the date these Bylaws were adopted or as such law
thereafter may be changed; provided that (a) in the case of any
change which expands the liability of an Indemnitee or limits
the indemnification rights or the rights to advancement of
expenses which this Corporation may provide, the rights to
limited liability, to indemnification and to the advancement of
expenses provided in this Corporation's Articles of
Incorporation, these Bylaws, or both shall continue as
theretofore to the extent permitted by law; and (b) if such
change permits this Corporation, without the requirement of any
further action by stockholders or Directors, to limit further
the liability of Indemnitees or to provide broader
indemnification rights or rights to the advancement of expenses
than this Corporation was permitted to provide prior to such
change, liability thereupon shall be so limited and the rights
to indemnification and advancement of expenses shall be so
broadened to the extent permitted by law."
The board of directors may from time to time adopt further
bylaws with respect to indemnification and may amend these
bylaws to provide at all times the fullest indemnification
permitted by the Nevada Revised Statutes.
(c) Nevada Revised Statutes.
"NRS 78.7502 Discretionary and mandatory indemnification of
officers, directors, employees and agents: General provisions.
(1) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable
cause to believe that his conduct was unlawful.
(2) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred
by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made
for any claim, issue or matter as to which such a person has
been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems
proper.
(3) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
subsections 1 and 2, or in defense of any claim, issue or matter
therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
NRS 78.751 Authorization required for discretionary
indemnification; advancement of expenses; limitation on
indemnification and advancement of expenses.
(1) Any discretionary indemnification under NRS 78.7502 unless
ordered by a court or advanced pursuant to subsection 2, may be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so
orders, by independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or
on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the corporation.
The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
(3) The indemnification and advancement of expenses authorized
in NRS 78.7502 or ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either
an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to or for the advancement of
expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
NRS 78.752 Insurance and other financial arrangements against
liability of directors, officers, employees and agents.
(1) A corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is
or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability
and expenses incurred by him in his capacity as a director,
officer, employee or agent, or arising out of his status as
such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
(2) The other financial arrangements made by the corporation
pursuant to subsection 1 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(iv) The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
(3) Any insurance or other financial arrangement made on behalf
of a person pursuant to this section may be provided by the
corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
(4) In the absence of fraud:
(i) The decision of the board of directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(ii) The insurance or other financial arrangement:
(A) Is not void or voidable; and
(B) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
(5) A corporation or its subsidiary which provides self-
insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of
Title 57 of NRS."
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in
the opinion of the U.S. Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the company are the officers
and directors as disclosed elsewhere in this Form SB-2. None of
the promoters have received anything of value from the company
in such capacity.
DESCRIPTION OF BUSINESS
Business Development
The company was originally organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP, INC. On
April 20, 1983, the Articles of Incorporation were amended to
change the name of the corporation to HTI Corporation. On May
28, 1993, the Articles of Incorporation were amended to change
the name of the corporation to Leggoons, Inc. 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" (an assignment is a business
liquidation device available as an alternative to bankruptcy).
The third party assignee, a Nebraska corporation, also named
Leggoons, Inc., 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 & Technologies)) for the
purpose of licensing certain technology for the development of
Personal Encrypted Remote Financial Electronic Card Transactions
("PERFECT"). Electronic Transactions & Technologies is a privately
held corporation 70% owned by Thomas S. Hughes, president of the company.
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 Electronic Transactions & Technologies, 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 Electronic Transactions & Technologies for the
purpose of having this firm 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 company entered into a
License Agreement with Electronic Transactions & Technologies 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 was executed by an authorized signatory of
each company. 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 company 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 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. On November 22, 2000, a Certificate of Amendment of
Articles of Incorporation was filed with the Nevada Secretary of State
increasing the number of authorized common shares to 300,000,000.
Business of the Company.
(a) Transactions Division.
The business of the company 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 company has
named PERFECT (personal encrypted remote financial electronic
card transactions).
The first aspect is the development of the "Bank Eyes
Only"T 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"T transactions refers to a direct Internet connection
between the consumer's terminal and the company'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"T 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"T 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 company'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 company's "Bank Eyes Only"T 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"T bill, tax, mortgage, or premium payments from
home, to "reserve your seat"T for entertainment purposes.
The company 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 company'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 company has contracted exclusive 20 year 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. These three patents broadly cover the
implementation of what the company is now calling "Bank Eyes
Only"T 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 company will generate revenues from fees paid
by the home service merchant to receive real cash in real time,
and the company will also generate revenue from the sales of the
EzyDepot.
Patent No. 5,809,143 has developed into what the company is
calling the eCashPad, and the specific focus is for Internet
"Bank Eyes Only"T usage. This device connects directly to a
personal computer and runs on the Windows operating system. The
eCashPad is now commercially available for sale at $59.95.
Patent No. 5,754,655 covers 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"T Internet ATM card with
PIN entry transactions. This product is called the ePocketPay
and is in the development stage.
The present "Bank Eyes Only"T system consists of the
proprietary company eCashPad, the proprietary company EzyDepot,
the eConnect/RGTecq Linux Transaction Server, and the company
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 company 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 company.
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 now
being commercially distributed. This unit attaches to the
consumer's computer keyboard and enables the consumer to affect
Internet "Bank Eyes Only"T transactions, from the consumer's
home or office. The company will receive a fee from the
merchant per transaction. The company 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 company'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 company will
receive a projected fee of $1.00 per transaction.
The ePocketPay prototype which will effect hand held
wireless "Bank Eyes Only"T transactions plus act as a wireless
voice phone, is now scheduled for mid 2001.
The first country outside of the United States that is now
on line with completed eCashPad links is the Dominican
Republic. Initial host equipment is scheduled to be installed
in Ireland before the end of January 2001. A letter of intent has been
signed by Huaxia Bank of Shanghai China to implement the
eCashPad solution with specific emphasis on ATM card with PIN on
line debit in the first quarter of 2001.
The company has recently formed eConnect Caribbean, S.A.
(the name was changed from eConnect Dominican Republic, S.A. in
July 2000) to develop its gaming and other operations in the
Dominican Republic. This firm will act 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. The company owns 75% of the outstanding capital
shares with the remaining 25% owned by the company's president.
Within the countries of China, Ireland, Australia, and the
Dominican Republic, the company recognizes that the eCashPad
within those countries will naturally evolve into ATM card with
PIN cash games, and the company 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, China, Ireland and the Dominican Republic whereby
the eCashPad is used with ATM card and PIN entry and processed
by the company's host systems.
The company is now presently working on spinning off Top
Sports into the new company of Global Internet Cash Games.
The specific goal of the company is to establish global
"Bank Eyes Only"T 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 China, Ireland, the
Dominican Republic and Australia in the first quarter of 2001.
The long term strategic goal of company is to position its
global host systems to offer "Bank Eyes Only"T processing
services for both competitors' terminal solutions and for the
company's terminal solutions. This places the company 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 company to handle Business to
Business transactions and country to country transactions.
Revenue generation from "Bank Eyes Only"T transactions is
expected to begin in the first quarter of 2001 when the eCashPad
is freely distributed by the company and is also aggressively
deployed by the industries of telecommunications, insurance,
collection, network marketing, charity and utilities.
Within the United States market, the company is closely
working with National Data Funding Corporation to secure the go
ahead for regional ATM card networks for an eCashPad ATM card
with PIN entry "Bank Eyes Only"T internet payment.
The company'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 company entered into in
February 2000. The company is currently using the eFunds CONNEX
software to provide the company Host support system outside of
the United States.
The company is confident that the ATM card network will
accept "Bank Eyes Only"T transactions. A targeted pilot program
began in the fourth quarter of 2000. Since this is a new
endeavor, the company cannot guarantee that such United States
"Bank Eyes Only"T with ATM card and PIN entry transactions will
become a reality. The usage of ATM card with PIN entry "Bank Eyes
Only"T transactions is directly dependent on the acceptance by
bank networks such as STAR or MAC.
The company expects the industry of "Bank Eyes Only"T
Internet transactions to develop substantially by the first and
second quarter 2001, and anticipates numerous "Bank Eyes Only"T
product devices to be introduced by various companies. It is
the intention of the company to provide support services for
such hardware devices and to gain a service fee from the
processing of "Bank Eyes Only"T transactions. The company
encourages the introduction of different types of "Bank Eyes
Only"T devices.
The company anticipates a strong effort by competitors to
seize the "Bank Eyes Only"T space on an Internet merchant site
and the company recognizes that there are a finite number of top
100 web merchants per category.
In summary, the company intends to build host systems in
such countries as the Dominican Republic, China, Australia and
Ireland, plus numerous other countries, whereby the company'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 company 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.
(b) Gaming Division.
Effective as of April 1, 2000, the company owns a 99.94%
interest in Top Sports S.A., a series of 12 walk in Dominican
Republic sportsbooks. The company's interest in gaming is two
fold: (1) the generation of revenues; (2) the establishment of a
base for the usage of "Bank Eyes Only"T eCashPads for global ATM
card with PIN entry gaming.
It is anticipated that 777WINS.com, as explained in more
detail below, will generate revenue in 2001. 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
eConnect Caribbean 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.
(c) General.
The company presently has 12 full time employees and
contracts with multiple independent contractors. To meet the
company's service launch requirements, it expects to hire
additional financial, technical, administrative and sales
staff.
In addition to the patents set forth above, the company
currently has 8 filed applications for trademarks.
Acquisitions by the Company.
(a) Rogel Technologies.
According to an agreement dated May 6, 1999, the company
acquired all of the assets of Rogel Technologies, a sole
proprietorship. These assets consisted of the following:
Proposed secure e-mail service
Perfect Merchant Response Software (MRS)
Global Market Place Mall (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)
The consulting services of Rogel Patawaran for the purpose of
creating and writing new software products for the company.
The company agreed to make the following payments under this
agreement:
2,750,000 free trading shares
2,500,000 restricted shares of common stock
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
Options to purchase 500,000 shares of common stock at an
exercise price of $1.00, which options expire on June 30, 2001
Options to purchase 250,000 shares of common stock at an
exercise price $2.00 per share, which options expire on June 30,
2002
$200,000 per year management fee payable from the gross revenues
of RT
12.5% of the remaining net profits of Rogel Technologies 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 company 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. 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 company would have the right to
utilize this software and provide instruction in its use.
Based on the main focus of this agreement being the consulting
services of Mr. Patawaran in research and development activities
of the company, the shares issued under this agreement are being
accounted for as research and development costs in the financial
statements of the company. The company has not as yet made any
determination regarding further development of the other items
set forth in the agreement.
(b) eBet.com, Inc.
According to an agreement dated August 12, 1999, the company
intended to acquire all of the stock of eBet.com, Inc., a Nevada
corporation; one of the assets of eBet is the eSportsbet.com
website. The assets of the company consisted of certain
technology in connection with on-line wagering. As part of this
transaction, the company also agreed to assume all of the
liabilities of eBet. This compensation specified for this
acquisition was as follows:
400,000 free trading shares, and 1,000,000 restricted shares,
paid to the shareholders of eBet
1,200,000 free trading shares paid to the principal of this firm
(Edward James Wexler).
In addition, the company agreed to pay a total of $225,000 to
satisfy the creditors of eBet and for other development costs in
connection with the acquisition.
However, this agreement was never consummated, and the
eSportsbet.com website therefore stayed under the ownership of
eBet.com, Inc.
(c) Isla Escondida, S.A.
La Empressa 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 company purchased
the Stock under a Stock Exchange Agreement.
Under this agreement the company paid the following amounts for
the Stock: 7,000,000 shares of free trading common stock of the
company, to be deposited into an escrow account. These share
were all released by December 31, 1999 under the provisions of
an accompanying escrow agreement. Subsequent to this agreement,
the company 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 are still in need of
cancellation). In addition to the above amounts paid, the
company 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 company since
its acquisition. Due to various problems with the 777WINS
operation in Costa Rica, this website was closed shortly after
the acquisition by the company 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 (5) below, the company now
owns only a 50% interest in 777WINS.com in connection with the
agreement with Top Sports, S.A.
(d) TheArtAuction.com
Effective on September 9, 1999, the company acquired the website
known as "theArtAuction.com" from PowerClick, Inc., a Nevada
corporation, through an Agreement and Plan of Acquisition
Agreement. Under this agreement, company paid the following:
(a) 1,000,000 shares of free trading common stock of the
company; and (b) 1,000,000 shares of restricted common stock of
the company. In addition, the company 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.
The company has been upgrading theArtAuction.com into artaste.com,
which began operations in the fourth quarter of 2000.
(e) Top Sports S.A.
By a Contract of Partnership dated November 20, 1999, the
company acquired a 50% interest in Top Sports S.A., a Dominican
Republic corporation. The company 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.
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 company is to 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 company agreed to give-up a 50% interest
in its website 777WINS.com. The company paid the following:
U.S. $35,000
1,000,000 of restricted common stock of the company.
The company also agreed to pay options to purchase 2,000,000
shares of common stock of the company, 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 company entered into a Shares Sale
Contract to acquire the remaining approximately 50% interest of
Top Sports from Paul Egan. Under the terms of the agreement, the
company 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.
Effective on April 1, 2000, the company acquired 4,94 shares of the
remaining 5,000 capital shares outstanding. Of the 10,000 shares
outstanding, the company owns 9,994 shares (Dominican Republic Law,
where Top Sports, S.A. is incorporated, requires that there be seven
stockholders in a company). The 4,994 shares of Top Sports, S.A.
were acquired for 2,800,000 shares of the company's common stock
valued at $2,786,000 (these shares have not yet been issued).
In order to help fund the operation of Top Sports, S.A., this
firm and the company entered into an agreement dated December
16, 1999, whereby the company is to provide that firm with
100,000 free trading shares of the company per month beginning
January 2000 and ending December 2000. Top Sports will sell
such shares in the marketplace and will use the resulting
proceeds to fund the continued expansion plans of Top Sports SA,
specifically the acquisition of 20 targeted Dominican Republic
Sports Books.
(f) PowerClick, Inc.
On February 9, 2000, the company acquired 50% of the
outstanding capital stock of PowerClick, Inc., a Nevada
corporation, in consideration of $1,200,000 cash (of which
$450,000 is still due and payable) and 8,000,000 shares of the
company's common stock valued at $1,300,000 for an aggregate 50%
investment of $2,500,000, which is principally comprised of
goodwill. 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"T system.
On October 21, 2000, the company and PowerClick agreed to a
settlement of the actions between the parties and a mutual
release (which is in the process of being implemented), as follows:
The company shall purchase an additional 30% of PowerClick (giving a total
ownership to the company of 80%) in exchange for:
conversion of the 6,000,000 restricted shares of company's
common stock currently held by PowerClick into freely trading
shares of the company
the issuance to PowerClick of warrants for the purchase of
4,000,000 shares of freely trading common stock of the company
(exercisable at $1.00 per share until October 21, 2003.
(g) National Data Funding Corporation.
On May 22, 2000, the company entered into a non-binding letter
of intent with National Data Funding Corporation to acquire 100%
of this company's common stock and later spin it off in a
publicly trading company and retaining a 25% ownership.
National Data Funding Corporation is a company that will
provide eCashPad distribution, encryption, and maintenance. National
Data Funding Corporation will also provide full merchant processing for
all credit and debit cards in support of eFunds-United States.
In connection with the letter of intent, the company has
deposited (non-refundable) $250,000. The letter of intent
requires the company to pay the stockholders of National Data
Funding Corporation $10,000,000 and 10,000,000 restricted shares
of the company's common stock in exchange for 100% ownership,
and contribute to National Data Funding Corporation $1,000,000 and 1,000,000
shares of the company's common stock for working capital. The Letter of
Intent, dated June 2, 2000, originally expired on September 1,
2000 but was extended by oral agreement of the parties to a
closing date of October 31, 2000.
On October 29, 2000, the company and National Data Funding
Corporation entered into a definitive agreement for sale and
plan of reorganization, which replaced the letter of intent.
This agreement specified that in exchange for purchasing 50% of
the issued and outstanding common stock of National Data Funding
Corporation, the company will pay the following:
$10,000,000
10,000,000 shares of restricted common stock of company.
This transaction is anticipated to close December 31, 2000 (under the
terms of this agreement, the company is required to pay a total
of $600,000 in order to extend this agreement to January 2,
2001). In addition, the company is required to do the following
under this agreement: (a) enter into a consulting agreement with
the current executive vice president of National Data Funding
Corporation, R. Scott Hatfield, for a period of three years
following the closing to serve as president of this company and
provide other consulting services; (b) provide operating capital
to National Data Funding Corporation in the amount of
$1,000,000; and (c) transfer 1,000,000 shares of restricted
common stock of the company to National Data Funding
Corporation, with the right to sell upon compliance with Rule
144. It is the intent of the parties under this agreement that
an initial public offering of common stock of National Data
Funding Corporation be completed within one year from the date
of closing, with the company maintaining an approximate 31%
interest (should all projected 55,000,000 shares be sold in this
offering).
Other Material Contracts.
(a) First Entertainment Holding Corp.
On April 29, 1999, the company 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. 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.
(b) Cash2Trade.
In September 1999, the company entered into an oral joint
venture agreement with Robert Bragg and Michael Rice to develop
an online investment trading website. The company issued a
total of 1,650,000 shares of free trading common stock in this
transaction. As of December 31, 1999, the company'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.
(c) International Investor Relations Group.
The company entered into a Consulting Agreement with
International Investor Relations Group, Inc. ("IRG"), dated
September 24, 1999. Under the terms of this agreement, this
firm provided certain services for the company, 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 company paid the following amounts for
the services of IRG:
$85,000.00
167,000 free trading shares based on a .21 cent per share price
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.
(d) Kanakaris Communications.
On October 21, 1999, the company 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 company 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). 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 company 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 company 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 company paid a total of 3,000,000 shares of free
trading common stock for the research and development to be done
under this agreement.
(e) SafeTPay.com.
On November 5, 1999, the company entered into a Capital
Contribution Agreement with SafeTPay.com, a Nevada corporation.
Under the terms of this agreement, the company agreed to
creation and management of a business unit focused on the
processing of secure internet transactions.
Under this agreement, the company agreed to contribute the
following assets to this newly formed company:
Software. All ownership and rights to the software that have
been developed by Rogel Technologies per specifications provided
by SafeTPay ("System"). SafeTPay is to have access to this
software as needed for the operation of its business.
Computer Hardware. The server which has been procured by Rogel
Technologies for use as the SafeTPay internet server, and
installed in St. Petersburg, Florida.
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.
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.
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:
Common Stock: SafeTPay will initially authorize 20 million
shares of common stock. In return for the capital contributions
listed above, the company 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.
Options.
The company 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.
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.
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.
Additional common stock in return for capitalization: The
company 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 company no litigation has
been threatened with regard to this agreement with SafeTPay.com,
the principals of SafeTPay now claim that the company 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 company has
contributed a total of $62,500 to SafeTPay.com. The company
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 company entered into
a separate consulting agreement with Michael Leste and Michael
Kofoed for their services in connection with this agreement.
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.
(f) eMarkit (eConnect2Trade.com).
(1) August 16, 1999 Agreement.
On August 16, 1999, the company entered into a consulting
agreement with eMarkit Incorporated, a Nevada corporation,
whereby this company would provide certain consulting services
for the company in connection with introductions to the
brokerage industry. Such introductions would be for the purpose
of developing the "Bank Eyes Only"T system for use in the
financial services industry.
Under the terms of this agreement, the company agreed to
pay 1,000,000 free-trading shares of company'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 company 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.
(2) December 29, 1999 Agreement.
On December 29, 1999, the company entered into an agreement with
eMarkit for the purpose of a joint venture, whereby the company
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"). The business of ET is
to be the marketing and sales of the company'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 the signing of this agreement, of the company agreed to issue
1,000,000 "free-trading" shares of the company'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 company 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 company 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 company to seek other contacts within
the brokerage industry.
(g) REAL Solutions.
The company 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. On April 13,
2000, the company entered into a formal Master Services
Agreement with Real Solutions in connection with this matter.
Under this agreement, the company will pay Real Solutions based
on a Statement of Work to be developed between the parties.
(h) Peters Entertainment.com, Inc.
On April 14, 2000, the company entered into an agreement with
Peters Entertainment.com, Inc., an independent motion picture
production affiliate of Time Warner Inc. Under this agreement,
there will be a 50/50 revenue-sharing arrangement to develop an
on-line media portal that would combine a consumer entertainment
environment with e-services designed to meet the needs of
production studios. The company will be acting as a consultant
to Peters Entertainment under this agreement. To date, there has
been no revenue generated under this agreement.
(i) Broadband Video, Inc.
On October 4, 2000, the company entered into an agreement
with Broadband Video, Inc. for that firm to sell all of its
assets to the company. These assets consist of all right, title
and interest of Broadband Video in and to Zoom-TV software
technology. The consideration for this purchase is 10,000,000
restricted shares of common stock of the company and a warrant
to purchase 3,000,000 shares of company common stock for $1.00
per share, from the date of the agreement until 5:00 pm December
31, 2001. The parties are currently conducting a due diligence
review, and the transaction is anticipated to close in the first
quarter of 2001. When this consideration has been paid, then
Broadband Video will deliver the source code for the Zoom-TV technology
to the company.
Zoom Technology will offer the company the ability to deliver
downloaded film content on a web cast basis to thousands of
viewers watching the same pre-theatrical viewing window at the
same time across the country. Additionally, this technology
will expand the picture to full size on the monitor screen. The
eCashPad can send ATM card with PIN cash payments directly to
the film producer with no middleman. This will be a fee per
transaction of the eCashPad and may open up the film industry to
a whole new economic window that will precede the theatrical
release.
Contracts Made in the Ordinary Course of Business.
(a) Sunset Marketing Group.
On November 15, 2000, the company entered into an agreement
under which Sunset Marketing Group will market the company's
eCashPad to the insurance, mortgage and other financial
industries. Sunset has agreed to provide to the company ten
"Bank Eyes Only"T web merchants each month, following the first
three months of the contract. Sunset Mortgage LP, parent
company of Sunset Marketing, becomes the company's first
mortgage-industry merchant. Sunset Marketing also expects to
announce one insurance and one financial-industry "Bank Eyes
Only"T merchant within the next three months.
(b) SBN.com, Inc.
On December 7, 2000, the company entered into two agreements
with SBN.COM, a market affliate-independent contractor agreement
and a charter industry company agreement. SBN's online yellow
pages, one of the world's largest, contains 1.5 million pages
and more than 75 million business listings worldwide. Within
the US, this includes the listings of every phone book in every
area code in all 50 states, every business-to-business listing,
and the entire database for toll-free numbers, as well as every
Yellow Pages protocol worldwide. Published in both English and
Spanish, the online yellow pages are accessible from the
websites of several hundred internet service providers and other
Internet hosts accounting for in excess of 3 million
subscribers, and at more than 850 affiliate e-commerce sites.
These agreement will allow for the marketing of the
company's "Bank Eyes Only" T as a secure online payment system
to existing and future clients. These agreements also call for
SBN.COM's online yellow pages to be directly accessible from the
company's website, via the Walking Fingers Mouse T icon. Under
the agreements, the company and SBN.COM will share revenues from
banner advertising by listees at www.eConnectholdings.com, as
well as online yellow pages advertising sold directly by the
company. The company will also share revenues resulting from
new listees who sign up via the company's website. Online
yellow pages listees who wish to accept these "Bank Eyes Only" T
payments will require proprietary software; once equipped,
however, these merchants will still be able to make non-"Bank
Eyes Only"T transactions with customers who do not yet own an
eCashPad.
PLAN OF OPERATION
Twelve Month Plan of Operation.
In the year 2000, the company 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"T Internet aspect of the
PERFECT transaction.
"Bank Eyes Only"T refers to a direct Internet connection between
the consumer's terminal and the company's 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 company'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 company believes that "Bank Eyes Only"T transaction
processing system will effectively address Internet consumers'
concerns regarding personal and financial information
security. The company will receive a projected flat fee of
$1.00 for each "Bank Eyes Only"T transaction which will be paid
by the merchant, not the consumer.
The company has begun initial sign ups of web Merchants for this
service and based on responses, will now expend substantial
dollars for an aggressive sign up campaign to begin
simultaneously on several fronts. To launch the service of
Internet "Bank Eyes Only"T transactions, the company has
implemented the following initiatives:
The company is now beginning a national roll-out of eCashPads.
The company has completed all aspects of the eCashPad consumer
and bank network support services and is presently offering the
eCashPad for sale at $59.95; the company has received initial
orders for approximately 100 eCashPads.
Development of "bankeyesonly.com" web sites in the United
States, Dominican Republic, Ireland, Australia and Shanghai.
China (this requires obtaining office space in each country for the
Location of the individual website server). These web sites will be used
to register web merchants within the above listed countries to be able to
receive a "Bank Eyes Only"T transaction by an eCashPad. A consumer will be
able to go the company's website and with the use of his/her eCashPad
will be able to safely order merchandise on line.
Aggressive recruiting of web merchants to the company "Bank
Eyes Only"T network. Registration of "Bank Eyes Only"T 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"T applications for that industry and who will develop
strategic alliances within their specific industry. In
addition, the company has structured a networking approach for
mass market consumer participation in finding "Bank Eyes Only"T
merchants along with sales teams to sign on local web merchants.
Using a revenue sharing plan from the flat fee, the company 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.
Establishment of strategic alliances with a substantial partner
in each country. The partner will then proceed to develop the
business of "Bank Eyes Only"T transactions by usage of the
simple and proprietary eCashPad which has been developed by the
company.
Establishment of the "International," which will be a four
Country, real time, "Bank Eyes Only" (trademark) with ATM card and PIN
entry game among 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 company intends to spin off eGaming and its PowerClick
subsidiary as separate publicly traded companies in the future.
Forward Looking Statements.
This prospectus 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
company's business strategies, continued growth in the company's
markets, projections, and anticipated trends in the company's
business and the industry in which it operates. The words
"believe," "expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-looking
statements. These forward-looking statements are based largely
on the company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the
company's control. The company cautions that these statements
are further qualified by important factors that could cause
actual results to differ materially from those in the forward
looking statements, including, among others, the following:
reduced or lack of increase in demand for the company's
products, competitive pricing pressures, changes in the market
price of ingredients used in the company's products and the
level of expenses incurred in the company's operations. In
light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein
will in fact transpire or prove to be accurate. The company
disclaims any intent or obligation to update "forward looking
statements."
DESCRIPTION OF PROPERTY
At its executive offices in San Pedro, California, which the
company leases, it owns approximately $20,000 of miscellaneous
office furniture and equipment, including computers. In the
Dominican Republic, the company 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. In San Pedro, the company leases a total of 8,777 square
feet of office space, with leases expiring on various dates between
September 30, 2001 and April 30, 2003. In the Dominican Republic,
the company leases 9,000 square feet of office space on a lease
expiring in August 2005.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two fiscal years, certain transactions which
occurred between the company and its officers and directors are
set forth below. With respect to each such transaction, the
company believes that the terms of each transaction were
approximately as favorable to the company as could have been
obtained from an unrelated third party:
(a) On February 18, 1997, Leggoons, Inc. entered into an
agreement to license assets from Home Point of Sales, Inc. (now
known as Electronic Transactions & Technologies). Electronic
Transactions & Technologies is a privately held corporation 70%
owned by Mr. Hughes, President of the company, which is focused
on the emergence of the personal encrypted remote financial
electronic card transactions industry (although this agreement
was entered into prior to Mr. Hughes becoming affiliated with
the company, it is included here since certain of the conditions
under that agreement have not been completely fulfilled, as
discussed below). 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 license agreement are the
following:
The name "Betting, Inc.", as trademarked by Electronic
Transactions & Technologies
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 Electronic
Transactions & Technologies secure computer keyboard or over the
telephone through the Electronic Transactions & Technologies
stand alone Infinity unit)
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)
The Electronic Transactions & Technologies developed merchant
response software for the specific application only of
transacting off site ATM and Smart card wagering through the
Wagering Gate
Electronic Transactions & Technologies's interest in the use of
and revenue from the personal encrypted remote financial
electronic card transaction relating to the wagering business.
Under terms of this license agreement, the company is to issue
2,900,000 shares of restricted common stock to as the total
consideration in exchange for licensing home ATM card and SMART
card wagering technology developed by Electronic Transactions &
Technologies. Of this amount, 2,755,000 shares were placed in
escrow subject to cancellation on February 10, 1998, in the
event the bid price of the common stock of the company is not at
least $3.00 per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board or NASDAQ's
Small Cap Market from the date of the agreement through February
10, 1998.
As of the date of this prospectus, the terms of the license
agreement have not been met by the company. However, under an
amendment dated September 1, 1999 the cancellaton date of the
shares, as set forth above, has been extended to September 1,
2001, subject to certain conditions specified in the amendment.
The license agreement also provides that in the event that the
bid price for the common stock of the company is more than $3.00
per share for any twenty consecutive day period, then Electronic
Transactions & Technologies shall have the option to purchase up
to 13,822,000 additional shares of the company common stock at
an exercise price of $.30 per share. To date, the conditions of
this provision have not been met.
(a) 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 company) are
issued to the public or any employees, ownership interest in the
company 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%. Electronic
Transactions & Technologies has never sought to enforce this
provision in this license agreement. However, between June 9,
1999 and February 2, 2000, the company has issued a total of
2,950,000 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 company 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 company entered into a host
processing agreement with Electronic Transactions & Technologies
for the purpose of having this firm act as the bank host
processing for all company transactions that are sent by
terminals that read credit cards or ATM cards. Electronic
Transactions & Technologies is to charge the company a fee of
$0.25 per transaction or 2.5% of the wager being sent by the
company to gaming operators. These transactions are to
originate from globally placed company equipment and/or company
licensed operators.
(c) On March 27, 1998, the company entered into a lcense
agreement with Electronic Transactions & Technologies for the
purpose of licensing additional technology for processing
electronic banking transactions. This agreement states that
Electronic Transactions & Technologies licenses the following
products to the company 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 Electronic Transactions & Technologies product is
exclusively licensed to the company on a global basis for the
application of PERFECT wagering at a licensing fee of $2,000,000
each. The duration of the exclusive license is 20 years. The
licensing fee is to be paid by the company at the rate of
$30,000 per month; however, under the terms of this license
agreement, this fee is not due and payable until the technology
for a particular product covered by the license has been
perfected and is ready for public use. As of the date of this
prospectus, 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 company).
(d) The company, Electronic Transactions & Technologies and Mr.
Hughes entered into a promissory note, dated December 1, 1999,
to reflect the principal sum of $2,836,411 owed by the latter
two to the company for various sums paid by the company to
Electronic Transactions & Technologies, as follows:
The sum resulting from the credit to Mr. Hughes and Electronic
Transactions & Technologies of the license fee owed by the
company to Electronic Transactions & Technologies, as set forth
above, and the charge to Electronic Transactions & Technologies
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
The oral assumption by the company of payment of a promissory
note in favor of Unipay, Inc. whereby Electronic Transactions &
Technologies 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 (through December 31, 1999, the company 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 company owned by Mr. Hughes and
Electronic Transactions & Technologies as reflected in an
accompanying security agreement.
(e) On August 2, 2000, the company issued 3,000,000 restricted
shares of common stock to Electronic Transactions & Technologies
in connection with certain consulting services to be rendered by
this firm to the company.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Market Information.
The company's common stock is currently traded in the Over-the-
Counter Bulletin Board, under the symbol "ECNC". On March 13,
2000, the SEC ordered a ten trading day suspension in the
trading of the company's common stock on the Over the Counter
Bulletin Board. This trading suspension was taken in
connection with an investigation of the company by the SEC. The
company's common stock resumed trading on March 27, 2000;
however, from that date through October 31, 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 OTCBB due to the trading
suspension.
In August, 2000, a market maker, on behalf of the company, filed
with the NASD Stock Market, Inc. an application for the
company's common stock to be relisted on the Over the Counter Bulletin
Board. Together with that application was a packet of information required
by Rule 15c2-11 promulgated under the Securities and Exchange Act
of 1934. That rule specifies that certain information and
documents must be in the records of a broker or dealer before
such person may publish any quotation for the company's common
stock. The packet sent to the NASD contains all such information
and related documents.
Under NASD Rule 6530, an NASD member (i.e. the market maker) is
permitted to quote a domestic equity security that is not listed
on NASDAQ or a registered national securities exchange in the
United States, by an issuer that is required to file reports
(e.g. quarterly and annual reports on Forms 10Q-SB and 10K-SB,
and periodic reports on Form 8-K) pursuant to Section 13 or
15(d) of the Act, and if the issuer is current in those
reporting obligations (subject to a thirty calendar day grace
period). The company met these requirements, and, upon
completion of the application with the NASD, the company's
common stock was accepted for quotation on the Over the Counter
Bulletin Board; it commenced trading on that exchange on November 1, 2000.
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
High Low
Quarter Ended September 30, 2000 0.69 0.30
Quarter Ended June 30, 2000 1.75 0.37
Quarter Ended March 31, 2000 * 16.50 0.49
* 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
High Low
Quarter Ended December 31, 1999 0.40 0.06
Quarter Ended September 30, 1999 0.41 0.15
Quarter Ended June 30, 1999 0.83 0.38
Quarter Ended March 31, 1999 0.81 0.37
Per Share Common Stock Bid Prices
For the Transition Period Ended December 31, 1998 **
High Low
Four Months Ended December 31, 1998 0.69 0.05
** Due to a change in the fiscal year of the company from
August 31 to December 31
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
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
Holders of Common Equity.
As of December 8, 2000, the company had 997 shareholders of
record of the company's common stock.
Dividend Information.
The company has not declared or paid a cash dividend to
stockholders since it was originally organized. The company 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
company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the company's earnings,
capital requirements and other factors.
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
Thomas S. 1999 $79,215 0 0 0 0 0 0
Hughes, 1998 0 0 0 0 0 0 0
Chief 1997 0 0 0 $750,000 0 0 0
Executive
Off.
Jack M.Hall 1999 $21,000 0 0 0 0 0 0
Secretary 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
company in the event of retirement at normal retirement date as
there is no existing plan provided for or contributed to by the
company.
(b) On November 7, 2000, the company's board of directors
approved an Amended and Restated Stock Incentive Plan (Amendment
No. 3); this will allow for stock options and restricted awards
to be made to employees and non-employees of the company. There
have been a total of 11,200,000 options granted in December 2000
made under this plan, inlcluding the officers and directors.
Other than this, there is no remuneration proposed to be paid in
the future directly or indirectly by the company to any officer
or director.
FINANCIAL STATEMENTS
eCONNECT
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
ASSETS
Current assets
Cash $ 56,244
Due from related parties 406,562
Total current assets 462,806
Fixed assets, net 783,555
Investment, net 1,486,814
Intangible assets, net 942,761
Purchased software 2,336,092
Deposit 24,819
Other assets 238,192
5,026,678
Total assets $6,275,039
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $2,678,952
Accrued liabilities 625,403
Due to related parties 3,527,324
Due to affiliate 601,221
Notes payable-stockholders 2,619,050
Note payable-current portion 544,971
Total current liabilities 10,597,521
Long-term liabilities
Note payable-long-term portion 606,019
Total liabilities 11,203,540
Stockholders' equity
Common stock; $.001 par value;200,000,000
shares authorized, 189,746,000 shares
Issued and outstanding 189,746
Additional paid-in capital 68,702,334
Minority interest in consolidated subsidiary 15,625
Due from related party-secured by
Company's common stock (4,480,418)
Accumulated deficit (69,355,788)
Total stockholders' equity (4,928,501)
Total liabilities and stockholders' equity $ 6,275,039
See Accompanying Notes to Consolidated Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
Sept 30 2000 Sept 30 1999 Sept 30 2000 Sept 30 1999
Revenue
Sports
Books(excess
payouts over
wagers) $ 6,278 $ - $ (456,295) $ -
Operating
expenses
Sports
Books 90,956 - 209,306 -
Consulting 3,056,787 3,548,979 18,573,831 4,416,594
Public
Relations 8,431 570,280 5,677,434 570,280
Research
And
Development 2,390,046 (775,146) 4,543,412 1,789,708
General
And
Administra
tive 2,549,164 2,039,157 6,893,064 2,586,254
Total
Operating
Expenses 8,095,384 5,383,270 35,897,047 9,362,836
Net loss
From
Operations (8,089,106) (5,383,270) (36,353,342) (9,362,836))
Other
Income
(expense)
Interest - - 193,885 -
Income
Loss on
Investments (2,342,616) 0 (2,342,616) 0
Equity
losses of
investees - - (280,366) -
Total
Other
Income
(expense) (2,342,616) 0 (2,429,097)0 0
Net loss
Before
Provision
for income
taxes (10,431,722) (5,383,270) (38,782,439) (9,362,836)
Provision
for income
taxes - - - -
Net loss $(10,431,722) $(5,383,270) $(38,782,439) $ (9,362,836)
Basic and
diluted loss
per common
share $(0.06) $(0.09) $(0.24) $ (0.29)
Basic and
Diluted
Weighted
average
common shares
outstanding 183,716,158 62,589,411 162,222,920 32,867,672
See Accompanying Notes to Consolidated Financial Statement
eConnect
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended Sept 30
2000 1999
Cash flows from operating activities:
Net loss $(38,782,439) $ (9,362,836)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,274,241 91,970
Common shares issued for expenses 25,450,119 8,191,967
Loss on investments 2,342,616 -
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 (156,562) -
Increase in due from related party -
secured by Company's common stock (1,499,536) -
Increase in other assets (77,336) -
Increase in accounts payable 2,153,682 79,349
Increase in accrued liabilities 534,723 -
Increase in due to related parties 291,456 (189,411)
Decrease in due to affiliate (11,789) -
Increase in minority interest in
consolidated subsidiary 15,625 -
Increase in notes payable - stockholders 2,269,650 -
Net cash used by operating activities (5,695,008) (1,188,961)
Cash flows from investing activities:
Purchase of fixed assets (831,851) (18,181)
Payments for investments (684,743) -
Payments for purchased software (2,336,092) -
Net cash used by investing activities (3,852,686) (18,181)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,124,000 636,000
Principal payments on long-term debt (973,010) (136,000)
Proceeds from issuance of common stock 8,326,776 742,926
Net cash provided by financing activities 9,477,766 1,242,926
Net increase in cash (69,928) 35,784
Cash, beginning of period 126,172 8,862
Cash, end of period 56,244 44,646
Supplemental disclosure of cash flow:
Cash paid for interest - 97,500
Cash paid for income taxes - -
Schedule of non-cash investing and
financing activities:
Remaining consideration of the second
half acquisition of Top Sports, S.A.
recorded as Due to related parties 2,785,868 -
8,000,000 common shares issued
related to the acquisition of PowerClick,
Inc. 1,300,000 -
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 -
3,756,101 common shares issued for
a 5% stock divident - 1,056,216
18,710,000 common shares issued for
the acquisition of Isla Escondida S.A. - 3,551,801
9,400,000 common shares issued in
exchange for due from related party
secured by Company's common stock - 2,836,411
2,165,000 common shares issued for
the acquisition of www.theArtAuction.
com - 963,969
Acquisition of investment in exchange
For due from related party-secured by
Company's common stock - 706,810
See Accompanying Notes to Financial Statements
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.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying financial
statements include the accounts of the Company's subsidiaries
Top Sports, S.A. (99.99% owned) and eConnect Caribbean, S.A.
(75% owned). All inter-company accounts have been eliminated and
the minority interest recorded. The Company's investment in
Powerclick, Inc. (50%) is not consolidated but reported on the
equity basis of accounting. See Note 3, "Acquisitions".
Revenue - Revenue (third quarter - July 1-September 30, 2000)
was reported from the Company's wholly-owned subsidiary, Top-
Sports, S.A. which revenue is derived from non-internet gaming
operations located in Santo Domingo, Dominican Republic. Revenue
consists of the excess of the wagers in the amount of $171,787
over payouts made in the amount of $165,509 resulting in net
gaming income of $6,278. For the year to date, negative revenue
consists of payouts of $3,541,646 over wagers made in the amount
of $3,085,351 resulting in a net gaming loss of $456,295.
The Company acquired control of Top-Sports, S.A. as of April
1,2000, consequently the above revenue is included in the
Company's consolidated operations. The Company did not have a
controlling interest during the first quarter (January 1 - March
31, 2000), consequently, Top-Sports, S.A. operating results for
this period was reported on the equity basis of accounting,
which was a loss of $200,669.
Amortization - Goodwill representing the excess of the purchase
price over the equity of the ownership percentage in the
Company's subsidiaries and the costs of the intangible assets
are amortized over a three-year period. Because the Company has
not begun its e-commerce operations and installation is in
process, no amortization has been recorded on the purchased
software. See Note 4 "Purchased Software".
Loss on Investments - During the quarter July 1, 2000 to
September 30, 2000 the Company revalued its investments writing
off net of amortization, $1,975,859 of its Top-Sports
investment, $116,757 of its ArtTaste investment and $250,000 of
its forfeited deposit (Note 5) for an aggregate investment loss
of $2,342,616.
3. ACQUISITIONS
PowerClick, Inc. - In February 2000, the Company acquired 50% of
the outstanding capital stock of PowerClick, Inc. ("the
investee") in consideration of $750,000 cash and 8,000,000
shares of the Company's common stock valued at $1,300,000 for an
aggregate 50% investment of $2,050,000 which is principally
comprised of goodwill. To date, a loss of $79,697 (first
quarter March 31,2000) and nine months goodwill amortization of
$483,389 have been recorded for a net carrying value at
September 30, 2000 of $1,486,814. During the second quarter,
5,200,000 shares of common stock valued at $1,950,000 were given
to Powerclick, Inc. stockholders for consulting services and
expensed in the accompanying "Consolidated Statement of
Operations".
Due to a dispute between the parties and unavailability of
necessary accounting records, Powerclick, Inc. did not report
its second and third quarter earnings/losses (April 1 -
September 30, 2000) to the Company's management. However, the
Company's management does not believe that such amounts, if
reported, would have a material impact to these consolidated
financial statements. Consequently, the above carrying value of
$1,486,814 has not been adjusted for the 50% share of
Powerclick, Inc.'s second and third quarters' earnings/losses.
Currently, the parties and their respective counsels are
attempting to resolve the dispute.
Top Sports, S.A. - The Company completed the second half of its
Top Sports, S.A. acquisition effective April 1, 2000 by
acquiring 4,994 shares of the remaining 5,000 capital shares
outstanding. Of the 10,000 shares outstanding, the Company owns
9,994 shares. Dominican Republic Law, where Top Sports, S.A. is
located, requires that there be seven stockholders.
The above 4,994 shares of Top-Sports, S.A. was acquired for
2,800,000 shares of the Company's common stock valued at
$2,785,868. The goodwill resulting from the acquisition of Top-
Sports, S.A. was originally $2,860,527 but because of loss
operations to date, the goodwill has been written down to
$500,000. See Note 2 "Significant Accounting Policies," "Loss On
Investments."
eConnect Caribbean, S.A. - eConnect Caribbean, S.A. was
organized under the laws of the Dominican Republic and serves as
the Company's Latin American headquarters for all e-commerce
transactions. The Company owns 75% of the outstanding capital
shares with the remaining 25% owned by the company's managing
director. eConnect Caribbean is in the start-up phase, no
revenue has been recorded and start-up costs of $253,213 have
been expensed.
4. PURCHASED SOFTWARE AND NOTE PAYABLE
Purchased software represents the Connex Software System used in
processing e-commerce transactions. The system will be installed
in the Dominican Republic (currently in process), Ireland, Hong
Kong and Australia. The licensor, E-Funds, (located in
Milwaukee, Wisconsin) and the Company have worked out a payment
plan to pay $680,000 down and $1,752,000 over three years for an
aggregate $2,432,000.
The accompanying consolidated balance sheet liability has
imputed interest at 15.031% for a present value of $2,124,000
(including the $680,000 down payment) assigning a value of
$531,000 to each of the above four geographic areas plus
$212,092 in professional service fees (installation costs billed
and in process). The balance is due in monthly installments of
$58,400 through February 2002 and monthly installments of
$29,200 from March 2002 through February 2003. Under the terms
of the license agreement the Company has a no term limitation to
use the Connex Software System, however, title to the software
remains with the licensor.
As of September 30, 2000, principal payments on the note payable
are as follows:
Three months ending December 31, 2000 $ 133,606
12 months ending December 31, 2001 587,234
12 months ending December 31, 2002 372,829
Period ending February 4, 2003 57,321
1,150,990
Less: amounts due within one year 544,971
Note payable - long-term portion $ 606,019
5. RELATED PARTY TRANSACTIONS
As of September 30, 2000, due to related parties totaled
$3,527,324. The due to related party balance is comprised of
$730,715 payable in cash and the remaining $2,785,868 payable in
2,800,000 shares of the Company's common stock. The entire
amount is due to the former sole stockholder of Top-Sports, S.A.
Electronic Transactions & Technologies is a privately held
corporation with a majority interest owned by Thomas S. Hughes,
President of the Company with which the Company conducts
business. As of September 30, 2000, the Company issued
3,000,000 shares of the Company's common stock to Electronic
Transactions & Technologies for consulting expense of
approximately $844,000.
6. NOTES PAYABLE - STOCKHOLDERS
Notes payable - stockholders are comprised of promissory notes
aggregating $1,349,950 and a loan from an individual stockholder
of $1,269,700. The promissory notes dated in May, June, July,
and August 2000 are due not later than six months from the
notes' origination dates, bearing a simple interest rate of 10%
per month on the outstanding balance. In connection with the
promissory notes, 680,454 shares of the company's common stock,
valued at $185,675, were recorded as prepaid interest. The
stockholder's bears an interest rate of 10% from the length of
the loan, which is approximately six months.
7. GOING CONCERN
The Company incurred a net loss of approximately $38,800,000 for
the nine months ended September 30, 2000. The Company's current
liabilities exceed its current assets by approximately
$10,000,000 and has a negative stockholders' equity of
approximately $5,000,000 as of September 30, 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, which includes completing the development of
technology products to generate future revenues. The Company
will also seek additional sources of capital through the
issuance of debt or 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 business plan. The financial statements do not
include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
8. SUBSEQUENT EVENT
In October 2000, the company entered into an Agreement for
Sale and Plan of Reorganization to acquire 50% of National Data
Funding Corp. ("NDFC") in exchange for $10,000,000, 10,000,000
shares of the company's common stock, and contribute $1,000,000 and
1,000,000 of the company's common stock for working capital.
Pursuant to the Agreement, the Company is required to spin-
off NDFC as a publically traded company in which the Company
will retain approximately 30% ownership. Due to the fact that
the Company failed to timely execute a prior letter of intent, a
$250,000 deposit was forfeited and recorded as a loss on
investment for the same amount in the accompanying consolidated
financial statements.
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
AUDITOR'S REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of Betting, Inc.
as of August 31, 1998 and the related statements of operations,
changes in stockholders' equity, (deficit), and cash flows for
the years ended August 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Betting, Inc. as of August 31, 1998, and the results of its
operations and its cash flows for the years ended August 31,
1998 and 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
more fully described in Note 8A ("Continued Existence") to the
financial statements, the Company's recurring losses from
operations and inability to generate sufficient cash flow from
normal operations raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to
these matters are also described in Note 8A. The financial
statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to
continue as a going concern.
As discussed in Note 8B ("Common Stock Issued in Excess of
Authorized Shares") the Company is attempting to convert excess
shares of common shares issued to preferred shares. The effect,
if any, of this uncertainty on the future operations of the
Company cannot presently be determined.
/s/ George Brenner, CPA
George Brenner, CPA
April 7, 1999
Beverly Hills, California
eCONNECT
CONSOLIDATED BALANCE SHEET
December 31, 1999
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' deficit 1,654,239
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Transition Year
Ended Period Ended
December 31 Ended August 31
1999 December 31 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
income taxes (23,273,393) (776,138) (196,968)
Provision for income taxes - - -
Net loss (23,273,393) (776,138) (196,968)
Basic and diluted loss per
common share (0.63) (0.05) (0.02)
Basic and diluted weighted
average common shares
outstanding 36,868,312 14,346,554 10,994,465
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock
Number Add'l Due Stock Accum Total
Of Paid From sub ulated Stock
Shares in Related scrip Deficit holders
Amount capital Party tion Deficit
Secured payable
by
Companys
Common
Stock
Balance
September 1
1997 7,843,234 7,843 4,926,124 - - (5,270,634) (336,667)
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
payable 350,000 350 20,650 - - - 21,000
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.theArt
Auction.com 2,165,000 2,165 961,804 - - - 963,969
Common
shares
issued for
joint
venture 1,650,000 1,650 323,700 - - - 325,350
Common
shares
issued for
acquisition
of Top
Sports,
S.A. 1,000,000 1,000 72,100 - - - 73,100
Common
shares
issued for
stock
dividend 3,756,101 3,756 1,052,460 - -(1,056,216) -
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)
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOWS
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 payable (62,251) 759,750 21,793
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 debt 500,000 - -
Principal payments on long-
term debt (200,000) - -
Proceeds from issuance of
common stock 2,820,637 12,000 -
Proceeds from issuance of
stock subscription payable 81,546 - -
Net cash provided by
financing activities 3,202,183 12,000 -
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
See Accompanying Notes to Financial Statement
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.
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.
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.
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.
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.
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:
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
The following table summarizes information about options
outstanding and exercisable at December 31, 1999:
Shares Underlying Shares Underlying
Options Outstanding Options Exercisable
Range Shares Weighted Weighted Shares Weighted
Of Exercise Underlying Average Average Under Average
Prices Options Remaining Exercise Lying Exercise
Outstanding Contractual Price Options Price
Life Exercis
able
$0.20-$1.00 15,770,000 1.0 years $ 0.40 15,770,000 $ 0.40
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:
December 31,1999
Net loss - as reported $(23,273,393)
Net loss - pro forma $(24,198,493)
Basic and diluted loss per share
- as reported $ (0.63)
Basic and diluted loss per share
- pro forma $ (0.66)
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:
December 31,1999
Average risk-free interest rates 6.50%
Average expected life (in years) 1
Volatility 80%
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.
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.
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 the Company 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 from the Over the Counter Bulletin Board ("OTCBB")
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 the Company's common stock
was delisted on that date from the OTCBB due to the trading
suspension. Subsequent to the filing of the Form 10-KSB with
the SEC, the Company intends to file a 15c2-11 through a market
maker in order to apply for relisting on the OTCBB.
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.
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 accountants for
the company, BDO Seidman L.L.P. of St. Louis Missouri declined
to 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.
(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.
(c) Effective on July 22, 1999, the firm of Farber & Hass was
engaged to serve as the new principal accountant to audit the
company's financial statements. During the company's two most
recent fiscal years, and the subsequent interim period prior to
engaging that accountant, neither the company (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 company's financial statements were dismissed. These
accountants did not issue any financial statements for the
company. The decision to change accountants was approved by the
Board of Directors.
(e) Effective on March 8, 2000, the firm of L.L. Bradford &
Company was engaged to serve as the new principal accountants to
audit the company's financial statements. During the company's
two most recent fiscal years, and the subsequent interim period
prior to engaging those accountants, neither the company (nor
someone on its behalf) consulted the newly engaged accountants
regarding any matter.
During the company's two most recent fiscal years and any
subsequent interim period preceding such changes, there have
been no disagreements with 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 company's two most recent fiscal years and the
subsequent interim period preceding such changes.
AVAILABLE INFORMATION
The company has filed with the U.S. Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules filed
with the registration statement. Certain items are omitted in
accordance with the rules and regulations of the Commission.
For further information with respect to the company and the
common stock offered by this prospectus, reference is made to
the registration statement and the exhibits and schedules filed
with the registration statement. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or
other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects
by such reference.
A copy of the registration statement, and the exhibits
and schedules filed with it, may be inspected without charge at
the public reference facilities maintained by the Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the Commission's regional offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048, and copies of all or any part of the
registration statement may be obtained from such offices upon
the payment of the fees prescribed by the Commission. The
public may obtain information on the operation of the public
reference room by calling the Commission at 1 (800) SEC-0330.
The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the
Commission, including the company. The address of the site is
http://www.sec.gov. The registration statement, including all
its exhibits and any amendments, has been filed electronically
with the Commission.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in the propsectus under
the heading "Disclosure of Commission Position on
Indemnification for Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in
connection with the issuance and distribution of the securities
being registered hereunder, all of which are being paid by the
company*:
Securities and Exchange Commission registration fee $ 7,778
Transfer agent's fees 1,000
Printing and engraving expenses 1,500
Legal fees and expenses 50,000
Accounting fees and expenses 5,000
State blue sky fees 10,000
Total $ 75,278*
* All fees, except the Securities and Exchange Commission
registration fee, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES; USE OF
PROCEEDS FROM REGISTERED SECURITIES
Sales of Unregistered Securities.
Other than as set forth below, during the last three years
there have not been any sales of unregistered securities of the
company. Except as noted below, no commissions or fees were
paid in connection with these sales. All of the these sales
were undertaken pursuant to the limited offering exemption from
registration under the Securities Act of 1933 as provided in
Regulation D as promulgated by the U.S. Securities and Exchange
Commission. In addition, all the sales were made to the
following class of persons: sophisticated investors; that is,
investor either alone or with their purchaser representative(s)
have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks
of the prospective investment, or the issuer reasonably believes
immediately prior to making any sale that such purchasers comes
within this description.
(a) On or Before December 31, 1999:
(1) During the period of September 28, 1998 through July 16,
1999, the company 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 company gave to
these individuals for no additional charge warrants to purchase
common stock of the company at $0.40 per share.
(2) During the period of April 7, 1999 through November 24,
1999, the company issued a total of 4,484,500 shares of common
stock to 14 individuals and firms in exchange for consulting and
other services to the company.
(3) In addition to the above sales, the company 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 company and Rogel
Technologies; (b) 5,200,000 shares in connection with the
acquisition of Isla Escondida, S.A. (owner of the 777WINS.com
website); (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.
(b) After December 31, 1999:
(1) During the period of January 1, 2000 through March 13,
2000, the company issued 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 company (including 6,000,000
shares issued to Ryan Kavanaugh in connection with a consulting
agreement with the company; 3,000,000 of this was later
cancelled since Mr. Kavanaugh subsequently received 3,000,000
shares out s Form S-8 filed in June 2000).
(2) In February 2000, the company issued 10,500,000 warrants,
exercisable at $0.40 per share until January 31, 2005, to
Boardwalk Associates, Inc. in connection with a consulting
agreement between the parties, dated January 26, 2000.
(3) Between March 6, 2000 and November 30, 2000, the company
sold a total of 3,566,046 shares of common stock to 132
individuals at an average price of $0.40 per share, for an
aggregate consideration of $1,426,418; 267,000 of these shares
issued in August and September 2000 had an equal number of
warrants attached to them, exercisable at $1.00 per share for a
period of one year from the date of issuance.
(4) On March 22, 2000, the company issued 6,000,000 of its
common stock to for the acquisition of PowerClick valued at
$975,000.
(5) On April 4, 2000, the company also issued 250,000 shares of
its common stock to an individual for research and development
valued at $156,250. An additional 2,500,000 shares of its
common stock were issued to two individuals for finder's fees
valued at a total of $781,250 in connection with common stock
sales.
(6) On May 24, 2000, the company entered into a warrant
agreement with GunnAllen Financial, Inc. This agreement was in
connection with this firm's services in assisting the company to
become relisted on the Over the Counter Bulletin Board. Under
this agreement, GunnAllen was issued restricted warrants to
purchase 482,500 shares of common stock of the company at an
exercise price of $0.50 share; these warrants may be exercised
for a period of five years from the date of issuance. Counsel
to GunnAllen, David Kern Peteler, was also issued restricted
warrants for 17,500 shares on the same terms for his assistance
with this transaction.
(7) On June 15, 2000, the company issued 3,000,000 shares of
common stock to an individual valued at $600,000, of which, a
portion was for consulting services valued at $100,000 and the
company received $500,000 cash for the remainder ($0.20 per
share).
(8) Between May 9, 2000 and December 4, 2000, the company
issued a total of 11,915,500 shares of its common stock to a
total of 22 individiuals and companies for consulting services
for the company.
Use of Proceeds.
The company 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 company and for settling litigation
involving a debenture and certain warrants between the company
and CALP II, LP, 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 company filed a Form SB-2 with the
SEC under Rule 415 (self 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
company, and commenced on the effective date of this
registration statement (September 7, 1999). However, shares of
common stock under this offering were also used for the sale of
shares under a common stock purchase agreement (as discussed
above) (through a post-effective amendment to this Form SB-2
filed with the SEC on September 12, 2000 and effective on
September 26, 2000 - File No. 333-79739).
The total amount of shares sold under this offering through
December 7, 2000 is 59,937,486. Out of the amount sold to date,
the company issued the following:
22,183,381 shares in connection with various acquisitions and
consulting services for the company.
23,844,012 shares in connection with the common stock purchase
agreement with Alpha Venture Capital, Inc. (to date, the company
has sold a total of $7,539,000 in shares under this agreement)
10,103,468 shares upon the exercise of warrants at $0.40 per
share granted for consulting services for the company, for a
total consideration of $4,041,459.
1,500,000 shares upon the exercise of warrants granted to Alpha
Venture Capital, Inc. in connection with the common stock
purchase agreement, for a total consideration of $120,000.
1,250,000 shares upon the exercise of a portion of the warrants
granted to Alpha Venture Capital, Inc. in connection with the
addendum to the common stock purchase agreement, for a total
consideration of $100,000.
300,000 shares upon the exercise of warrants at prices ranging
from $0.50 to $1.00 granted for consulting services to the
company, for a total consideration of $225,000.
756,625 shares for the repayment of loans made to the company
totaling $302,650.
The expenses involved with this offering to date have been
approximately $718,120 (which includes an 8% commission payable
on the sales made under the common stock purchase agreement
[totals $603,120). The net cash proceeds from this offering
(gross proceeds of $12,025,459 less offering expenses) of
approximately $11,307,339 have been used for working capital for
the company.
ITEM 27. EXHIBITS
The exhibits required by Item 601 of Regulation S-B, and an
index thereto, are attached.
ITEM 28. UNDERTAKINGS
The undersigned company 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 of 1933;
(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 U.S.
Securities and Exchange 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 of 1933,
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 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
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 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 of 1933 and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the company 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 December 27, 2000.
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President/CEO
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 U.S. 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:
Signature Title Date
/s/ Thomas S. Hughes President/Chief Executive December 27, 2000
Thomas S. Hughes Officer/ Director
/s/ Jack M. Hall Secretary/Director December 27, 2000
Jack M. Hall
/s/ Laurence Donoghue Director December 27, 2000
Laurence Donoghue
EXHIBIT INDEX
Exhibit Description
No.
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).
3.1 Articles of Incorporation of the company, March 8,
1999 (incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2/A filed on July 22, 1999).
3.2 Certificate of Amendment of Articles of Incorporation,
dated May 25, 1999 (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,
dated August 20, 1999 (incorporated by reference to
Exhibit 3.3 of the Registration Statement on Form SB-
2/A filed on September 3, 1999).
3.4 Certificate of Amendment of Articles of Incorporation,
dated November 20, 2000 (see below).
3.5 Bylaws of the company, dated May 14, 1999
(incorporated by reference to Exhibit 3.3 of the
Registration Statement on Form SB-2/A filed on July 22, 1999).
3.6 Amended and Restated Bylaws of the company, dated
September 15, 2000 (incorporated by reference to
Exhibit 3.5 of the Form 10-QSB filed on November 14, 2000).
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 company
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 company 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 company 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 company 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 company 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
company 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 company 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 company
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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company
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 company 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 company 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 company 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 company 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 company 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 company 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 company 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 company 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).
4.32 Consulting Agreement between the company and R. Scott
Hatfield, dated March 6, 2000 (incorporated by
reference to Exhibit 4.32 of the Form SB-2 POS filed
on September 12, 2000).
4.33 Consulting Services Agreement between the company and
Chris Jensen, dated April 24, 2000 (incorporated by
reference to Exhibit 4.33 of the Form SB-2 POS filed
on September 12, 2000).
4.34 Consulting Agreement between the company and Robert
Graham, dated May 11, 2000 (incorporated by reference
to Exhibit 4.34 of the Form SB-2 POS filed on
September 12, 2000).
4.35 Consulting Agreement between the company and Richard
Epstein, dated May 20, 2000 (incorporated by reference
to Exhibit 4.35 of the Form SB-2 POS filed on
September 12, 2000).
4.36 Warrant Agreement between the company, GunnAllen
Financial, Inc., and David Kern Peteler, dated May 24,
2000 (incorporated by reference to Exhibit 4.43 of the
Form 10-QSB filed on November 14, 2000).
4.37 Consulting Agreement between the company and Richard
Epstein, dated June 2, 2000 (incorporated by reference
to Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.38 Consulting Services Agreement between the company and
Rogel Patawaran, dated June 2, 2000 (incorporated by
reference to Exhibit 10.2 of the Form S-8 filed on
July 10, 2000).
4.39 Consulting Agreement between the company and Elle
Travis, dated June 2, 2000 (incorporated by reference
to Exhibit 10.3 of the Form S-8 filed on July 10, 2000).
4.40 Consulting Agreement between the company and Charles
Yourshaw, dated June 5, 2000 (incorporated by
reference to Exhibit 10.1 of the Form S-8 filed on
July 10, 2000).
4.41 Consulting Agreement between the company and Nick
Gorenc, dated June 5, 2000 (incorporated by reference
to Exhibit 10.2 of the Form S-8 filed on July 10, 2000).
4.42 Consulting Agreement between the company and Louis
Sabatasso, dated June 10, 2000 (incorporated by
reference to Exhibit 10.1 of the Form S-8 filed on
July 10, 2000).
4.43 Consulting Agreement between the company and Laurie
Belger, dated June 10, 2000 (incorporated by reference
to Exhibit 10.2 of the Form S-8 filed on July 10, 2000).
4.44 Consulting Services Agreement between the company and
Richard Epstein, dated July 21, 2000 (incorporated by
reference to Exhibit 4.1 of the Form S-8 filed on
October 10, 2000).
4.45 Amended and Restated Stock Incentive Plan, dated
September 1, 2000 (incorporated by reference to
Exhibit 4.1 of the Form S-8 filed on September 12, 2000).
4.46 Amended and Restated Non-Employee Directors and
Consultants Retainer Stock Plan (Amendment No. 2),
dated September 1, 2000 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on September 12, 2000).
4.47 Consulting Services Agreement between the company and
Richard Epstein, dated September 6, 2000 (incorporated
by reference to Exhibit 4.3 of the Form S-8 filed on
September 12, 2000).
4.48 Consulting Services Agreement between the company and
Chris Jensen, dated September 6, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on
September 12, 2000).
4.49 Consulting Services Agreement between the company and
Jim Pugh, dated September 12, 2000 (incorporated by
reference to Exhibit 4.2 of the Form S-8 filed on
September 28, 2000).
4.50 Consulting Services Agreement between the company and
Darrel Dixon, dated September 14, 2000 (incorporated
by reference to Exhibit 4.3 of the Form S-8 filed on
September 28, 2000).
4.51 Consulting Services Agreement between the company and
Robert Graham, dated September 14, 2000 (incorporated
by reference to Exhibit 4.4 of the Form S-8 filed on
September 28, 2000).
4.52 Consulting Services Agreement between the company and
David Weiler, dated September 14, 2000 (incorporated
by reference to Exhibit 4.2 of the Form S-8 filed on
October 10, 2000).
4.53 Consulting Services Agreement between the company and
Nathaniel Adams, dated September 18, 2000
(incorporated by reference to Exhibit 4.5 of the Form
S-8 filed on September 28, 2000).
4.54 Addendum To Existing Common Stock Purchase Agreement
Dated September 28, 1999 between the company and Alpha
Venture Capital, Inc., dated October 23, 2000 (see below).
4.55 Consulting Services Agreement between the company and
Chris Jensen, dated October 12, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on
October 10, 2000).
4.56 Consulting Services Agreement between the company and
Quinn Brady, dated October 12, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on
October 10, 2000).
4.57 Amended and Restated Stock Incentive Plan (Amendment
No. 2), dated November 7, 2000 (incorporated by
reference to Exhibit 4.1 of the Form S-8 filed on
November 20, 2000).
4.58 Amended and Restated Non-Employee Directors and
Consultants Retainer Stock Plan (Amendment No. 3),
dated November 1, 2000 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on November 20, 2000).
4.59 Consulting Services Agreement between the company and
Michael Sitrick, dated November 4, 2000 (incorporated
by reference to Exhibit 4.3 of the Form S-8 filed on
November 20, 2000).
4.60 Consulting Services Agreement between the company and
Paul Francis Peter Egan Pugh, dated November 4, 2000
(incorporated by reference to Exhibit 4.4 of the Form
S-8 filed on November 20, 2000).
4.61 Consulting Services Agreement between the company and
James Wong, dated November 4, 2000 (incorporated by
reference to Exhibit 4.5 of the Form S-8 filed on
November 20, 2000).
4.62 Consulting Services Agreement between the company and
Matthew Owens, dated November 4, 2000 (incorporated by
reference to Exhibit 4.2 of the Form S-8 filed on
December 12, 2000).
4.63 Consulting Services Agreement between the company and
Marisa Yance, dated November 4, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on
December 12, 2000).
4.64 Consulting Services Agreement between the company and
Tony Sandalier, dated November 8, 2000 (incorporated
by reference to Exhibit 4.6 of the Form S-8 filed on
November 20, 2000).
4.65 Consulting Services Agreement between the company and
Chi-Yuan Chiu, dated November 8, 2000 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on
November 20, 2000).
4.66 Consulting Services Agreement between the company and
Hsien-Hsiang Tsai, dated November 8, 2000
(incorporated by reference to Exhibit 4.8 of the Form
S-8 filed on November 20, 2000).
4.67 Consulting Services Agreement between the company and
Richard Epstein, dated November 8, 2000 (incorporated
by reference to Exhibit 4.9 of the Form S-8 filed on
November 20, 2000).
4.68 Consulting Services Agreement between the company and
Bill West, dated November 8, 2000 (incorporated by
reference to Exhibit 4.10 of the Form S-8 filed on
November 20, 2000).
4.69 Consulting Services Agreement between the company and
Clinton Wong, dated November 8, 2000 (incorporated by
reference to Exhibit 4.11 of the Form S-8 filed on
November 20, 2000).
4.70 Consulting Agreement between the company and Antonio
Cardenas Jr., dated November 9, 2000 (incorporated by
reference to Exhibit 4.12 of the Form S-8 filed on
November 20, 2000).
4.71 Consulting Services Agreement between the company and
William Haseltine, dated November 29, 2000
(incorporated by reference to Exhibit 4.4 of the Form
S-8 filed on December 12, 2000).
4.72 Consulting Services Agreement between the company and
Nick Gorenc, dated November 29, 2000 (incorporated by
reference to Exhibit 4.5 of the Form S-8 filed on
December 12, 2000).
4.73 Consulting Services Agreement between the company and
Peter Kokiousis, dated November 29, 2000 (incorporated
by reference to Exhibit 4.6 of the Form S-8 filed on
December 12, 2000).
4.74 Consulting Services Agreement between the company and
Kris Narayan, dated November 29, 2000 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on
December 12, 2000).
4.75 Common Stock Purchase Agreement between the company
and Alpha Venture Capital, Inc., dated December 8,
2000 (see below).
4.76 Warrant to Purchase Shares of Common Stock, issued by
the company to Alpha Venture Capital, Inc., dated
December 8, 2000 (see below).
5 Opinion Re: Legality (see below).
10.1 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).
10.2 Joint Venture Agreement between the company 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).
10.3 Letter of Commitment between the company and Rogel
Technologies, dated May 6, 1999 (incorporated by
reference to Exhibit 2 to the Form 8-K filed on
November 15, 1999).
10.4 Acquisition Agreement between the company 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).
10.5 Consulting Agreement between the company and eMarkit,
Incorporated, dated August 16, 1999 (incorporated by
reference to Exhibit 10.9 of the Form 10-KSB filed on
May 9, 2000).
10.6 Stock Exchange Agreement between the company, 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).
10.7 Amendment to Agreement to License Assets dated
February 18, 1997 between the company, Electronic
Transactions & Technologies, and James Clinton, dated
September 1, 1999 (see below).
10.8 Agreement and Plan of Acquisition between the company
and PowerClick, Inc., dated September 9, 1999
(incorporated by reference to Exhibit 10.11 of the
Form 10-KSB filed on May 9, 2000).
10.9 Consulting Agreement between the company 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).
10.10 Agreement between the company and Kanakaris
Communications, dated October 21, 1999 (incorporated
by reference to Exhibit 10.13 of the Form 10-KSB filed
on May 9, 2000).
10.11 Letter of Commitment between the company and Rogel
Technologies, dated October 23, 1999 (incorporated by
reference to Exhibit 10.14 of the Form 10-KSB filed on
May 9, 2000).
10.12 Capital Contribution Agreement between the company and
SafeTPay.com, dated November 5, 1999 (incorporated by
reference to Exhibit 10.15 of the Form 10-KSB filed on
May 9, 2000).
10.13 Agreement between the company and Rogel Technologies,
dated November 23, 1999 (incorporated by reference to
Exhibit 10.16 of the Form 10-KSB filed on May 9, 2000).
10.14 Contract of Partnership between the company 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).
10.15 Agreement between the company and Alliance Equities,
dated November 29, 1999 (incorporated by reference to
Exhibit 10.18 of the Form 10-KSB filed on May 9, 2000).
10.16 Secured Promissory Note issued to the company 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).
10.17 Security Agreement between the company, 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).
10.18 Business Cooperation Agreement between the company 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).
10.19 Consulting Agreement between the company and Michael
Leste, dated December 10, 1999 (incorporated by
reference to Exhibit 10.22 of the Form 10-KSB filed on
May 9, 2000).
10.20 Consulting Agreement between the company and Michael
Kofoed, dated December 10, 1999 (incorporated by
reference to Exhibit 10.23 of the Form 10-KSB filed on
May 9, 2000).
10.21 Agreement between the company 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).
10.22 Agreement between the company and eMarkit,
Incorporated, dated December 29, 1999 (incorporated by
reference to Exhibit 10.25 of the Form 10-KSB filed on
May 9, 2000).
10.23 Shares Sales Contract between the company and Paul
Egan, dated January 1, 2000 (incorporated by reference
to Exhibit 10.26 of the Form SB-2 POS filed on
September 12, 2000).
10.24 Fee Agreement between the company and Red Iguana
Trading Company, Inc., dated January 2, 2000
(incorporated by reference to Exhibit 10.26 of the
Form 10-QSB filed on May 30, 2000).
10.25 Assignment of eSportsbet between the company and
PowerClick, Inc., dated January 7, 2000 (incorporated
by reference to Exhibit 10.27 of the Form 10-QSB filed
on May 30, 2000).
10.26 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 Exhibit 10.28
of the Form 10-QSB filed on May 30, 2000).
10.27 Manufacturing Agreement between the company and Asia
Pacific Micro, Inc., dated January 21, 2000
(incorporated by reference to Exhibit 10.29 of the
Form 10-QSB filed on May 30, 2000).
10.28 Consulting Services Agreement between the company and
Boardwalk Associates, Inc., dated January 26, 2000
(incorporated by reference to Exhibit 10.30 of the
Form 10-QSB filed on May 30, 2000).
10.29 Consulting Services Agreement between the company and
Coldwater Capital L.L.C., dated January 26, 2000
(incorporated by reference to Exhibit 10.31 of the
Form 10-QSB filed on May 30, 2000).
10.30 Consultant Agreement between the company and Harvey M.
Burstein, dated February 2, 2000 (incorporated by
reference to Exhibit 10.32 of the Form 10-QSB filed on
May 30, 2000).
10.31 Consultant Agreement between the company and Terrie
Pham, dated February 2, 2000 (incorporated by
reference to Exhibit 10.33 of the Form 10-QSB filed on
May 30, 2000).
10.32 Software License, Development, and Maintenance
Agreement (Dominican Republic) between the company and
eFunds Corporation, dated February 3, 2000
(incorporated by reference to Exhibit 10.34 of the
Form 10-QSB filed on May 30, 2000).
10.33 Agreement between the company and Burbank Coach Works,
dated February 3, 2000 (incorporated by reference to
Exhibit 10.35 of the Form 10-QSB filed on May 30, 2000).
10.34 Software License, Development, and Maintenance
Agreement (Ireland) between the company and eFunds
Corporation, dated February 4, 2000 (incorporated by
reference to Exhibit 10.36 of the Form 10-QSB filed on
May 30, 2000).
10.35 Acquisition Agreement between the company and
PowerClick, Inc., dated February 9, 2000 (incorporated
by reference to Exhibit 10.37 of the Form 10-QSB filed
on May 30, 2000).
10.36 Loan Agreement between the company and Richard
Epstein, dated February 15, 2000 (incorporated by
reference to Exhibit 10.38 of the Form 10-QSB filed on
May 30, 2000).
10.37 PocketPay Joint Venture Agreement between the company
and Pilot Island Publishing, Inc., dated March 1, 2000
(incorporated by reference to Exhibit 10.39 of the
Form 10-QSB filed on May 30, 2000).
10.38 Letter of Intent between the company and Real
Solutions, Ltd., dated March 9, 2000 (incorporated by
reference to Exhibit 10.40 of the Form 10-QSB filed on
May 30, 2000).
10.39 Consulting Agreement between the company and Ryan
Kavanaugh, dated March 10, 2000 (incorporated by
reference to Exhibit 10.41 of the Form 10-QSB filed on
May 30, 2000).
10.40 Amended Employment Agreement between the company and
Stephen E. Pazian, dated March 21, 2000 (incorporated
by reference to Exhibit 10.42 of the Form 10-QSB filed
on May 30, 2000).
10.41 Amended and Restated Employment Agreement between the
company and Stanley C. Morris, dated March 22, 2000
(incorporated by reference to Exhibit 10.43 of the
Form 10-QSB filed on May 30, 2000).
10.42 China-Singapore-Hong Kong-Macao Joint Venture
Agreement between the company, and Raymond Kessler and
Li-Wang Kessler, dated March 27, 2000 (incorporated by
reference to Exhibit 10.44 of the Form 10-QSB filed on
May 30, 2000).
10.43 Amended and Restated Secured Promissory Note issued to
the company by Electronic Transactions & Technologies
and Thomas S. Hughes, dated March 31, 2000
(incorporated by reference to Exhibit 10.45 of the
Form 10-QSB filed on May 30, 2000).
10.44 Amended and Restated Security Agreement between the
company, Electronic Transactions & Technologies, and
Thomas S. Hughes, dated March 31, 2000 (incorporated
by reference to Exhibit 10.46 of the Form 10-QSB filed
on May 30, 2000).
10.45 Master Service Agreement between the company and REAL
Solutions, Ltd., dated April 13, 2000 (incorporated by
reference to Exhibit 10.48 of the Form SB-2 POS filed
on September 12, 2000).
10.46 Consulting and Services Agreement between the company
and Peters Entertainment.com, Inc., dated April 14,
2000 (incorporated by reference to Exhibit 10.49 of
the Form SB-2 POS filed on September 12, 2000).
10.47 Letter of Intent between the company and National Data
Funding Corporation, dated May 22, 2000 (incorporated
by reference to Exhibit 10.50 of the Form 10-QSB/A
filed on October 19, 2000).
10.48 Agreement between the company and Top Sports, S.A.,
dated June 20, 2000 (incorporated by reference to
Exhibit 10.51 of the Form 10-QSB/A filed on October
19, 2000).
10.49 Asset Purchase Agreement between the company and
Broadband Video, Inc., dated October 4, 2000 (see below).
10.50 Agreement for Sale and Plan of Reorganization between
the company and National Data Funding Corporation,
dated October 29, 2000 (see below).
16.1 Letter on change in certifying accountant
(incorporated by reference to Exhibit 16 of the Form
8-K filed on July 23, 1999).
16.2 Letter on change in certifying accountant
(incorporated by reference to Exhibit 16 of the Form
8-K filed on March 15, 2000).
21 Subsidiaries of the company (incorporated by reference
to Exhibit 21 of the Form SB-2 POS filed on September
12, 2000).
23.1 Consent of Accountant (see below).
23.2 Consent of Accountants (see below).
23.3 Consent of Counsel (see below).
27 Financial Data Schedules (see below).
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).
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).
99.3 Trademark filed on March 15, 2000 (incorporated by
reference to Exhibit 99.3 of the Form 10-QSB filed on
May 30, 2000).
