U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2 POS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eConnect
(Name of Small Business Issuer in its charter)
Nevada 454390 43-1239043
(State or jurisdiction (Primary (I.R.S.
of incorporation Standard Employer
or organization) Classification Identification
Code Number) No.)
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 St. Suite 113,
Newport Beach, California 92660; (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
each class registered maximum maximum reg. fee
of offering aggregate
securities price per offering
to be unit price
registered
Common
Stock 61,000,000 $0.19 $11,590,000 $3,222.02
The registrant hereby amends this registration
statement on such date or dates as may be necessary
to delay its effective date until the registrant
shall file a further amendment which specifically
states that this registration statement shall
thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on
such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Pursuant to Rule 416, such additional amounts to
prevent dilution from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(c): The
average of the bid and asked price as of August 18, 1999.
PART I. INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
eConnect
61,000,000 Shares *
Common Stock
Offering Price $1.00 per Share
eConnect, a Nevada corporation ("Company"), is hereby offering up
to 61,000,000 shares and warrants of its $0.001 par value common
stock ("Shares") at an offering price of $1.00 per Share on a
delayed basis under Rule 415 pursuant to the terms of this
Prospectus for the purpose of providing working capital for the
Company.
The Shares offered hereby are highly speculative and involve a
high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 4)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Public Underwriting Proceeds to
Discounts and Issuer (3)
Commissions (2)
Per Share $1.00 $0 $1.00
Total Maximum
(1) $16,377,625 $0 $16,377,625
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.
Dated: January 28, 2000
* Pursuant to SEC Rule 416, there will be a change in the
amount of securities being issued to prevent dilution resulting
from stock splits, stock dividends, or similar transaction.
THE SHARES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL TO THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OPEN OFFER TO BUY INTO SECURITIES OFFERED HEREBY A
STATE IN WHICH, OR TO A PERSON TRUE, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONTAINED HEREIN SUBSEQUENT TO THE DATE THEREOF. HOWEVER, IF A
MATERIAL CHANGE OCCURS, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY FOR ALL EXISTING SHAREHOLDERS, AND FOR
ALL PROSPECTIVE INVESTORS WHO HAVE NOT YET BEEN ACCEPTED AS
SHAREHOLDERS IN THE COMPANY.
THIS PROSPECTUS DOES NOT INTENTIONALLY OMIT ANY MATERIAL FACT OR
CONTAIN ANY UNTRUE STATEMENT OF MATERIAL FACT. NO PERSON OR
ENTITY HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION
OR MAKE A REPRESENTATION, WARRANTY, COVENANT, OR AGREEMENT WHICH
IS NOT EXPRESSLY PROVIDED FOR OR CONTAINED IN THIS PROSPECTUS; IF
GIVEN OR MADE, SUCH INFORMATION, REPRESENTATION, WARRANTY,
COVENANT, OR AGREEMENT MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
THE COMPANY IS A REPORTING COMPANY. EACH PERSON WHO RECEIVES A
PROPSECTUS WILL HAVE AN OPPORTUNITY TO MEET WITH REPRESENTATIVES
OF THE COMPANY, DURING NORMAL BUSINESS HOURS UPON WRITTEN OR ORAL
REQUEST TO THE COMPANY, IN ORDER TO VERIFY ANY OF THE INFORMATION
INCLUDED IN THIS PROSPECTUS AND TO OBTAIN ADDITIONAL INFORMATION
REGARDING THE COMPANY. IN ADDITION, EACH SUCH PERSON WILL BE
PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF
ANY OF THE INFORMATION THAT IS INCORPORATED BY REFERENCE IN THE
PROSPECTUS AND THE ADDRESS (INCLUDING TITLE OR DEPARTMENT) AND
TELEPHONE NUMBER TO WHICH SUCH REQUEST IS TO BE DIRECTED.
ALL OFFEREES AND SUBSCRIBERS WILL BE ASKED TO ACKNOWLEDGE IN
WRITING THAT THEY HAVE RECEIVED A COPY OF THIS PROSPECTUS.
(1) A maximum of 61,000,000 shares may be sold on a delayed basis
under Rule 415 under the Securities Act of 1933, as amended. The
Price to Public only shows the Shares and warrants for common
stock that will be offered to the public for cash and which has
not already been sold under this offering (a total of 9,922,375
Shares). 8,000,000 of the total Shares will be set aside for
employees stock options and 5,200,000 of the shares are being
registered by certain shareholders of the Company: Ranco
Plasticos, a Costa Rica corporation, and Menhur Azul, S.A., a
Costa Rica corporation. The offering will remain open until
September 7, 2001, which is a date which two years from the
effective date of this Registration Statement (September 7,
1999).
(2) No commissions will be paid in connection with the sale of
the Shares on this delayed basis.
(3) The Net Proceeds to the Company is before the payment of
certain expenses in connection with this offering. See "Use of
Proceeds."
TABLE OF CONTENTS
PROSPECTUS SUMMARY 5
RISK FACTORS 8
USE OF PROCEEDS 14
DETERMINATION OF OFFERING PRICE 15
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 18
DESCRIPTION OF SECURITIES 19
INTEREST OF NAMED EXPERTS AND COUNSEL 21
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 21
ORGANIZATION WITHIN LAST FIVE YEARS 22
DESCRIPTION OF BUSINESS 22
PLAN OF OPERATION 28
DESCRIPTION OF PROPERTY 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 30
EXECUTIVE COMPENSATION 31
FINANCIAL STATEMENTS 32
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 32
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus
("Prospectus"). Each prospective investor is urged to read this
Prospectus, and the attached Exhibits, in their entirety.
The Company.
(A) Background.
eConnect was originally organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP, INC. On
April 20, 1983, the Articles of Incorporation were amended to
change the name of the corporation to HTI Corporation. On May
28, 1993, the Articles of Incorporation were amended to change
the name of the corporation to Leggoons, Inc. In addition to
changing the company's name, the May 28,1993, amendment to the
Articles of Incorporation increased the number of authorized
shares of common stock from 40,000 to 10,000,000 and decreased
the par value of the common stock from $1.00 per share to $.01
per share. Also on May 28, 1993, Leggoons, Inc., declared a 14-
for-1 stock split.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the
brands Leggoons, CPO by Leggoons, John Lennon Artwork Apparel,
and Snooggel. On January 19, 1996, Leggoons, Inc., entered into
a Licensing Agreement with Robert Tamsky, a former director and
employee of the Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr. Tamsky
effective January 1, 1996, the right to use the LEGGOONS
trademark in connection with the design, production, marketing,
sales and sublicensing of all clothing, wearing apparel and
accessories bearing the "LEGGOONS" symbol. This right will
continue until December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration for the
license, Mr. Tamsky, according to the Licensing Agreement, shall
pay to the Leggoons, Inc. a royalty of five percent of the net
sales of "LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within twelve
months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its assets
and liabilities to a third party assignee, under an "Assignment
for the Benefit of Creditors" (the "Assignment"). An Assignment
is a business liquidation device available as an alternative to
bankruptcy. The third party assignee, a Nebraska corporation,
also named Leggoons, Inc. (the "Assignee"), will be required to
properly, timely, and orderly dispose of all remaining assets for
the benefit of creditors. Included in the Assignment were the
rights and obligations of the Licensing Agreement. Leggoons,
Inc. continued to maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales, Inc.(now
know as Electronic Transactions & Technology - "ET&T")) for the
purpose of licensing certain technology for the development of
Personal Encrypted Remote Financial Electronic Card Transactions
("PERFECT"). ET&T is a privately held corporation 70% owned by
Thomas S. Hughes, President of the Company. This technology
provides consumers with the option to instantly pay bills or
impulse purchase from home with real time cash transactions.
Management believes the proprietary technology and the large
demand for wagering opportunities in today's marketplace will
combine to generate substantial sales for the Company over the
medium term.
Thomas S. Hughes, Chairman of ET&T, became Chairman and
President of Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act
as the bank host processing for all Betting, Inc.'s transactions
that are sent by terminal s that read credit cards or ATM cards.
On March 27, 1998, the Company entered into a License Agreement
with ET&T for the purpose of licensing additional technology for
processing electronic banking transactions. This licensing
supplements the technology licensed under the Agreement dated
February 18, 1997.
On May 17, 1999, an Agreement and Plan of Merger between
Betting, Inc., a Missouri corporation, into Betting, Inc., a
Nevada corporation ("Company") was executed by an authorized
signatory of each company. At a duly called meeting of
shareholders on May 21, 1999, the merger of the two companies was
approved by a majority of the shareholders appearing in person or
by proxy. Effective on June 1, 1999, Articles of Merger were
filed with the Nevada Secretary of State, which formally resulted
in the redomicile to the State of Nevada. On June 4, 1999, a
Certificate of Amendment to Articles of Incorporation was filed
with the Nevada Secretary of State changing the name of the
Company to "eConnect" and increasing the number of authorized
common shares to 100,000,000. On August 23, 1999, a Certificate
of Amendment to Articles of Incorporation was filed with the
Nevada Secretary of State increasing the number of authorized
common shares to 200,000,000.
(b) Business.
The Company is made up of two divisions: The first, eGaming, is
presently generating revenues and earnings from its eSportsbet
and 777WINS.com acquisitions (internet gaming). The second
division of eGate which is developing technology for ATM card
with PIN or smart card payments (same-as-cash - only the merchant
can reverse the transaction) using the Personal Encrypted Remote
Financial Electronic Card Transactions ("PERFECT"). Thus, the
Company is both an Internet and non Internet company, and both a
gaming and non gaming company. focused on connecting the consumer
directly to the recipient merchant... no middlepersons. See
"Description of Business."
The internet gaming industry is an industry that has
developed significantly in recent years. The internet gaming
industry as a whole is under increasing governmental scrutiny as
the industry develops. It is possible that at some point in the
future there could be legislation against gambling on the
internet or other similar methods. See "Risk Factors."
The Offering.
Shares of the Company will be offered as a shelf registration
under U.S. Securities and Exchange Commission ("SEC") Rule 415 at
$1.00 per Share (except for the subscribed shares and warrants
described below in parts (b), (c), and (d)). 9,922,375 common
Shares have already been subscribed under this offering for
various acquisitions and consulting services for the Company.
See "Plan of Distribution." The remaining offering will be used
for the following purposes (maximum amounts): (a) sales to the
general public for cash, in connection with certain acquisitions
by the Company, and in connection with certain consulting
services for the Company, of the following: (i) 5,877,625 Shares;
and (ii) 10,500,000 warrants (exercisable at $0.40 per Share from
the effective date of this Prospectus to December 31, 2001); (b)
20,000,000 Shares in connection with the registration of
restricted shares issued in connection with a Common Stock
Purchase Agreement ("Purchase Agreement"), dated September 28,
1999; (c) 1,000,000 Shares to cover the exercise of warrants to
purchase these Shares in connection with the Purchase Agreement
(exercisable at a price equal to 80% of the closing bid price of
the common stock on the effective date of the Purchase Agreement
from said date until a date which is five years thereafter); (d)
500,000 Shares to cover the exercise of warrants to purchase
these Shares in connection with certain drawdowns under the
Purchase Agreement (exercisable at the closing bid price on the
date of each draw from the effective date of the Purchase
Agreement until a date which is five years thereafter); (e)
5,000,000 Shares to cover options to be issued in the future to
employees of the Company, exercisable at $0.40 per Share; (f)
3,000,000 Shares to cover options to be issued in the future to
Thomas S. Hughes, President of the Company, exercisable at $0.40
per Share; and (g) 5,200,000 of restricted shares being
registered by certain shareholders of the Company: Ranco
Plasticos, a Costa Rica corporation, and Menhur Azul, S.A., a
Costa Rica corporation. See "Plan of Distribution."
If all the Shares being offered to the public under the current
offering are sold for cash, this will represent net proceeds of a
maximum of $16,377,625, less certain costs associated with this
offering. See "Use of Proceeds." This balance will be used as
working capital for the Company.
Liquidity of Investment.
Although the Shares will be "free trading," there has been only a
limited public market for the Shares. Therefore, an investor may
not be able to sell is Shares when he or she wishes; therefore,
an investor may consider his or her investment to be long-term.
See "Risk Factors."
Risk Factors.
And investment in the company involved risks due in part to a
limited previous financial and operating history of Company, as
well as competition in the internet gaming industry. Also,
certain potential conflicts of interest arise due to the
relationship of the Company to management and others. See "Risk
Factors."
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE
AND INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY
BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE,
CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS AMONG OTHER
THINGS, AS WELL AS ALL OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS.
Limited Prior Operations and Experience.
The Company is newly reorganized, has only limited revenues from
its new internet operations, and has only limited assets. There
can be no assurance that the Company will generate significant
revenues in the future; and there can be no assurance that the
Company will operate at a profitable level. See "Description of
Business." If the Company is unable to obtain customers and
generate sufficient revenues so that it can profitably operate,
the Company's business will not succeed. In such event,
investors in the Shares may lose their entire cash investment.
Also the Company and its management do not have significant
experience in the internet business, and in particular the on-
line gaming business. See "Directors, Officers, Promoters, and
Control Persons."
Dependence on the Internet Industry
The Company's business is influenced by the rate of use and
expansion in the internet industry. Although this industry, and
in particular on-line gaming, have been expanding at a rapid
rate in recent years, there is no guarantee that it will continue
to do so in the future. Declines in these industries may
influence the Company's revenues adversely.
Influence of Other External Factors.
The internet industry, and internet gaming in particular, is a
speculative venture necessarily involving some substantial risk.
There is no certainty that the expenditures to be made by the
Company will result in commercially profitable business. The
marketability of internet gaming will be affected by numerous
factors beyond the control of the Company. These factors include
market fluctuations, and the general state of the economy
(including the rate of inflation, and local economic conditions),
which can affect peoples' discretionary spending. Factors which
leave less money in the hands of potential clients of the Company
will likely have an adverse effect on the Company. The exact
effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not
receiving an adequate return on invested capital.
Regulatory Factors.
Existing and possible future consumer legislation,
regulations and actions could cause additional expense, capital
expenditures, restrictions and delays in the activities
undertaken in connection with the party planning business, the
extent of which cannot be predicted. The U.S. Senate is
presenting discussing a proposed bill by Senator Jon Kyl of
Arizona which would ban internet gaming in the United States.
The passage of such a bill may adversely affect the operation of
the Company, including increased costs if certain of the Company
operations are then moved to a foreign jurisdiction. The exact
affect of such legislation cannot be predicted until it is in
final form. If, however, a federal statute was passed into
legislation making Internet gambling illegal, eSportsbet.com is
prepared to make the necessary adjustments to continue to operate
legally.
Competition.
The Company may experience substantial competition in its
efforts to locate and attract clients. Many competitors in the
internet industry, and in particular internet gaming, have
greater experience, resources, and managerial capabilities than
the Company and may be in a better position than the Company to
obtain access to attractive clientele. There are a number of
larger companies which will directly compete with the Company.
Such competition could have a material adverse effect on the
Company's profitability.
Success of Management.
Any potential investor is strongly cautioned that the purchase of
these securities should be evaluated on the basis of: (i) the
limited diversification of the venture capital opportunities
afforded to the Company, (ii) the high-risk nature and limited
liquidity of the Company, and (iii) the Company's ability to
utilize funds for the successful development and distribution of
revenues as derived by the revenues received by the Company's yet
undeveloped portfolio of clients, and any new potentially
profitable ventures, among other things. The Company can offer no
assurance that any particular client and/or property under its
management contract will become successful.
Reliance on Management.
The Company's success is dependent upon the hiring of key
administrative personnel. None of the officers or directors, or
any of the other key personnel, has any employment or non-
competition agreement with the Company. Therefore, there can be
no assurance that these personnel will remain employed by the
Company. Should any of these individuals cease to be affiliated
with the Company for any reason before qualified replacements
could be found, there could be material adverse effects on the
Company's business and prospects. In addition, management has no
experience is managing companies in the same business as the
Company.
In addition, all decisions with respect to the management of
the Company will be made exclusively by the officers and
directors of the Company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the Company. The success of the Company,
to a large extent, will depend on the quality of the directors
and officers of the Company. Accordingly, no person should
invest in the Shares unless he is willing to entrust all aspects
of the management of the Company to the officers and directors.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only generally.
Proceeds from the offering have been allocated generally to legal
and accounting, and working capital. Accordingly, investors will
entrust their funds with management in whose judgment investors
may depend, with only limited information about management's
specific intentions with respect to a significant amount of the
proceeds of this offering. See "Use of Proceeds."
Lack of Diversification.
The size of the Company makes it unlikely that the Company will
be able to commit its unds to diversify the business until it has
a proven track record, and the Company may not be able to achieve
the same level of diversification as larger entities engaged in
this type of business.
No Cumulative Voting
Holders of the Shares are not entitled to accumulate their votes
for the election of directors or otherwise. Accordingly, the
holders of a majority of the Shares present at a meeting of
shareholders will be able to elect all of the directors of the
Company, and the minority shareholders will not be able to elect
a representative to the Company's board of directors.
Absence of Cash Dividends
The Board of Directors does not anticipate paying cash dividends
on the Shares for the foreseeable future and intends to retain
any future earnings to finance the growth of the Company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the Company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Conflicts of Interest.
The officers and directors have other interests to which they
devote substantial time, either individually or through
partnerships and corporations in which they have an interest,
hold an office, or serve on boards of directors, and each will
continue to do so notwithstanding the fact that management time
may be necessary to the business of the Company. As a result,
certain conflicts of interest may exist between the Company and
its officers and/or directors which may not be susceptible to
resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Company. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
Board of Directors to the Company, any proposed investments for
its evaluation.
Investment Valuation Determined by the Board of Directors.
The Company's Board of Directors is responsible for valuation of
the Company's investments. There are a wide range of values which
are reasonable for an investment for the Company's services.
Although the Board of Directors can adopt several methods for an
accurate evaluation, ultimately the determination of fair value
involves subjective judgment not capable of substantiation by
auditing standards. Accordingly, in some instances it may not be
possible to substantiate by auditing standards the value of the
Company's investments. The Company's Board of Directors will
serve as the valuation committee, responsible for valuing each of
the Company's investments. In connection with any future
distributions which the Company may make, the value of the
securities received by investors as determined by the Board may
not be the actual value that the investors would be able to
obtain even if they sought to sell such securities immediately
after a distribution. In addition, the value of the distribution
may decrease or increase significantly subsequent to the
distributee shareholders' receipt thereof, notwithstanding the
accuracy of the Board's evaluation.
Additional Financing May Be Required.
Even if all of the Shares offered to the public and in connection
with the acquisition hereby are sold, the funds available to the
Company may not be adequate for it to be competitive in the areas
in which it intends to operate. See "Plan of Distribution."
There is no assurance that additional funds will be available
from any source when needed by the Company for expansion; and, if
not available, the Company may not be able to expand its
operation as rapidly as it could if such financing were
available. The proceeds from this offering are expected to be
sufficient for the Company to become develop and market it line
of services. Additional financing could possibly come in the form
of debt/preferred stock. If additional shares were issued to
obtain financing, investors in this offering would suffer a
dilutive effect on their percentage of stock ownership in the
Company. However, the book value of their shares would not be
diluted, provided additional shares are sold at a price greater
than that paid by investors in this offering. The Company does
not anticipate having within the next 12 months any cash flow or
liquidity problems
Purchases by Affiliates.
Certain officers, directors, principal shareholders and
affiliates may purchase, for investment purposes, a portion of
the Shares offered hereby, which could, upon conversion, increase
the percentage of the Shares owned by such persons. The purchases
by these control persons may make it possible for the Offering to
meet the escrow amount.
No Assurance Shares Will Be Sold.
The Shares being offered to the public and in connection with the
acquisition are to be offered directly by the Company, and no
individual, firm, or corporation has agreed to purchase or take
down any of the shares. No assurance can be given that any or
all of the Shares will be sold.
Offering Price.
The offering price of the Shares bears no relation to book value,
assets, or earnings. There can be no assurance that the Shares
will maintain market values commensurate with the offering price.
See "Determination of Offering Price."
"Shelf" Offering
The Shares are offered directly by the Company on a delayed basis
pursuant to certain exercise rights of warrants and conversion
rights of debentures. No individual, firm or corporation has
agreed to elect such exercise or conversion of any of the offered
Shares. No assurance can be given that any or all of the Shares
will be issued. No broker-dealer has been retained as an
underwriter and no broker-dealer is under any obligation to
purchase any of the Shares. In addition, the officers and
directors of the Company, collectively, have limited experience
in the offer and sale of securities on behalf of the Company.
See "Plan of Distribution."
Limited Public Market for Company's Securities.
Prior to the Offering, there has been only a limited public
market for the Shares being offered. There can be no assurance
that an active trading market will develop or that purchasers of
the Shares will be able to resell their securities at prices
equal to or greater than the respective initial public offering
prices. The market price of the Shares may be affected
significantly by factors such as announcements by the Company or
its competitors, variations in the Company's results of
operations, and market conditions in the retail, electron
commerce, and internet industries in general. The market price
may also be affected by movements in prices of stock in general.
As a result of these factors, purchasers of the Shares offered
hereby may not be able to liquidate an investment in the Shares
readily or at all.
Penny Stock Regulations.
The Company's Shares are quoted on the Over the Counter Bulletin
Board maintained by the National Association of Securities
Dealers, Inc., which reports quotations by brokers or dealers
making a market in particular securities. In view of the fact
that no broker will be involved in this offering, it is likely to
be difficult to find a broker who is willing to make an active
market in the stock. The SEC has adopted regulations which
generally define "penny stock" to be any equity security that has
a market price less than $5.00 per share. The Company's shares
will become subject to rules that impose additional sales
practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, broker-dealers
must make a special suitability determination for the purpose of
such securities and must have received the purchaser's written
consent to the transaction prior to the purchase.
Additionally, for any transaction effected involving a penny
stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the
Commission relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker--
dealer and the registered representative, and current quotations
for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in
the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of
broker-dealers to sell the Company's Shares and may affect the
ability of purchasers in the Offering to sell the Company's
securities in the secondary market. There is no assurance that a
market will develop for the Company's Shares.
Shares Eligible For Future Sale
All of the 9,900,000 Shares which are currently held, directly or
indirectly, by management have been issued in reliance on the
private placement exemption under the Securities Act of 1933, as
amended ("Act"). See "Security Ownership of Certain Beneficial
Owners and Management." Such Shares will not be available for
sale in the open market without separate registration except in
reliance upon Rule 144 under the Act. In general, under Rule 144
a person (or persons whose shares are aggregated) who has
beneficially owned shares acquired in a non-public transaction
for at least on year, including persons who may be deemed
affiliates of the Company (as that term is defined under the Act)
would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock, or the average weekly
reported trading volume on all national securities exchanges and
through NASDAQ during the four calendar weeks preceding such
sale, provided that certain current public information is then
available. If a substantial number of the Shares owned by these
shareholders were sold pursuant to Rule 144 or a registered
offering, the market price of the Common Stock could be adversely
affected.
Forward-Looking Statements.
This Prospectus contains "forward looking statements" within
the meaning of 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 those factors described
under "Risk Factors" and elsewhere herein In light of these
risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Prospectus will in
fact transpire or prove to be accurate. All subsequent written
and oral forward-looking statements attributable to the Company
or persons acting on its behalf are expressly qualified in their
entirety by this section.
Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant system failure which
could affect the Company's ability to conduct normal business
operations. This creates potential risk for all companies, even
if their own computer systems are Year 2000 compliant. It is not
possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and
products may contain undetected errors or defects with Year 2000
date functions that may result in material costs. Although
management is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year
2000, the Company may experience serious unanticipated negative
consequences (such as significant downtime for one or more of
its web site properties) or material costs caused by undetected
errors or defects in the technology used in its internal systems.
Furthermore, the purchasing patterns of advertisers may be
affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000
compliance. The Company does not currently have any information
about the Year 2000 status of its advertising customers.
However, these expenditures may result in reduced funds available
for web advertising or sponsorship of web services, which could
have a material adverse effect on its business, results of
operations, and financial condition. The Company's Year 2000
plans are based on management's best estimates.
USE OF PROCEEDS
Following the issuance of the Shares and warrants for common
stock offered for sale by the Company to the public (assuming
they are sold for cash), as well as $1,333,000 already raised in
connection with the issuance of Shares under the Common Stock
Purchase Agreement, this will represent gross proceeds to the
Company of approximately $17,710,625 (less certain expenses of
this offering). See "Plan of Distribution." These proceeds, less
the expenses of the offering, will be used to provide working
capital for the Company.
The following table sets forth the use of proceeds from this
offering (based on the minimum and maximum offering amounts):
Use of Proceeds Maximum Offering
Amount Percent
Transfer Agent Fee $1,000 0.006%
Printing Costs $1,000 0.006%
Legal Fees $50,000 0.28%
Accounting Fees $1,500 0.008%
Working Capital $17,657,125 99.70%
Total $17,710,625 100.00%
Management anticipates expending these funds for the purposes
indicated above. To the extent that expenditures are less than
projected, the resulting balances will be retained and used for
general working capital purposes or allocated according to the
discretion of the Board of Directors. Conversely, to the extent
that such expenditures require the utilization of funds in excess
of the amounts anticipated, supplemental amounts may be drawn
from other sources, including, but not limited to, general
working capital and/or external financing. The net proceeds of
this offering that are not expended immediately may be deposited
in interest or non-interest bearing accounts, or invested in
government obligations, certificates of deposit, commercial
paper, money market mutual funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The offering price is not based upon the Company's net worth,
total asset value, or any other objective measure of value based
upon accounting measurements. The offering price was determined
by viewing the current prospects for the company, as well as
expressions on interest in purchasing the Shares from potential
investors.
PLAN OF DISTRIBUTION
Shares of the Company will be offered as a shelf registration
under SEC Rule 415 at $1.00 per Share, except for the Subscribed
Shares and Warrants and Further Warrants (as defined below) (the
public offering price of the Shares will be modified, from time
to time, by amendment to this Prospectus, in accordance with
changes in the market price of the Company's common stock).
9,922,375 of the common Shares have already been subscribed under
this offering for various acquisitions and consulting services
for the Company. The remaining offering will sold under the
following categories (maximum amounts): (a) sales to the general
public, in connection with certain acquisitions by the Company,
and in connection with certain consulting services for the
Company, of the following: (i) 5,877,625 Shares; and (ii)
10,500,000 warrants (exercisable at $0.40 per Share from
effective date of this Prospectus to December 31, 2001); (b)
20,000,000 Shares in connection with the registration of
restricted shares issued in connection with a Common Stock
Purchase Agreement ("Purchase Agreement"), dated September 28,
1999 (as of January 5, 2000, 9,392,578 issued for a total
consideration of $1,333,000); (c) 1,000,000 Shares to cover the
exercise of warrants to purchase these Shares in connection with
the Purchase Agreement (exercisable at a price equal to 80% of
the closing bid price of the common stock on the effective date
of the Purchase Agreement from said date until a date which is
five years thereafter); (d) 500,000 Shares to cover the exercise
of warrants to purchase these Shares in connection with certain
drawdowns under the Purchase Agreement (exercisable at the
closing bid price on the date of each draw from the effective
date of the Purchase Agreement until a date which is five years
thereafter); (e) 5,000,000 Shares to cover options to be issued
in the future to employees of the Company, exercisable at $0.40
per Share; (f) 3,000,000 Shares to cover options to be issued in
the future to Thomas S. Hughes, President of the Company,
exercisable at $0.40 per Share; and (g) 5,200,000 of restricted
shares being registered by certain shareholders of the Company:
Ranco Plasticos, a Costa Rica corporation, and Menhur Azul, S.A.,
a Costa Rica corporation. See "Plan of Distribution."
As set forth in the Registration Rights Agreement and based
upon the terms and subject to the conditions of the Subscription
Agreement, the Company has agreed to issue and sell to the
subscriber up to $5,000,000 of the common stock of the Company,
which will be converted into free trading shares of the common
stock of the Company upon the terms and subject to the conditions
of the Subscribed Shares (the number of Shares to be issued in
connection with any drawdown under the Subscription Agreement
will equal the dollar amount of such drawdown divided by 80% of
the lowest closing reported bid price of the Shares for the five
trading days immediately preceding the drawdown date). In
addition, under the Registration Rights Agreement, the Company
will register 1,500,000 Shares to cover the exercise of the
Warrants and Further Warrants, as set forth above. The
Subscription Agreement, Registration Rights Agreement, and
Warrant are incorporated herein by reference, and are set forth
in their entirety as Exhibits 4.2, 4.2, and 4.4 to this Form SB-2/A.
Under the Registration Rights Agreement, the Company is
obligated to prepare and file with the SEC, no later than ten
(10) days after the effective date of the Subscription Agreement,
a post-effective amendment to the Registration Statement on Form
SB-2/A declared effective by the SEC on September 7, 1999,
covering a sufficient number of shares of common stock to cover
the registration of the maximum of $5,000,000 of the Subscribed
Shares and the conversion of a maximum of 1,500,000 Warrants and
Further Warrants. If at any time the number of Shares of into
which such Subscribed Shares and Warrants and Further Warrants
issued in this offering may be converted exceeds the aggregate
number of shares of common stock then registered, the Company is
obligated to, within ten business days after receipt of written
notice from any subscriber, file with the SEC an additional
Registration Statement on Form SB-2 or any other applicable
registration statement, to register the shares of common stock
into which the Subscribed Shares may be converted that exceed the
aggregate number of shares of common stock already registered.
There can be no assurance that all of these Shares will be issued
or that any of them will be issued for cash. The gross proceeds
to the Company represented by issue of all the Shares and
warrants for Shares for cash under this amended offering to the
public (16,377,625) will be $16,377,625; this does not include
the Subscribed Shares and the Warrants and Further Warrants since
the amount raised from these sales will fluctuate depending on
the current market price of the Shares (to January 5, 2000,
9,392,578 were issued for a total consideration of $1,333,000).
No commissions or other fees will be paid, directly or
indirectly, by the Company, or any of its principals, to any
person or firm in connection with solicitation of sales of the
shares. The public offering price of the Shares will be
modified, from time to time, by amendment to this Prospectus, in
accordance with changes in the market price of the Company's
common stock. These securities are offered by the Company
subject to prior issue and to approval of certain legal matters
by counsel.
Opportunity to Make Inquiries.
The Company will make available to each Offeree, prior to any
issue of the Shares, the opportunity to ask questions and receive
answers from the Company concerning any aspect of the investment
and to obtain any additional information contained in this
Prospectus, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or
expense.
Execution of Documents.
Each person desiring to be issued Shares, either as a conversion
of a debenture, or an exercise of a warrant, must complete,
execute, acknowledge, and delivered to the Company certain
documents, By executing these documents, the subscriber is
agreeing that such subscriber will be, a shareholder in the
Company and will be otherwise bound by the articles of
incorporation and the bylaws of the Company in the form attached
to this Prospectus.
LEGAL PROCEEDINGS
On August 19, 1999, counsel for Thomson Kernaghan threatened
to file suit against the Company in connection with certain funds
provided to the Company in the amount of $500,000 by CALP II, LP
under a debenture agreement. On November 15, 1999, the Company
was served with a federal district court complaint in this matter
seeking damages in the amount of $1,233,889, as well as an
application for various orders. The Company has reached a
settlement with CALP, dated December 3, 1999, which calls for the
payment of $200,000 and 5,000,000 free trading shares of the
Company in accordance with the terms of the debenture agreement.
This settlement fully and finally resolves that litigation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The names, ages, and respective positions of the directors,
officers, and significant employees of the Company are set forth
below. There are no other persons which can be classified as a
promoter or controlling person of the Company.
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company since
March 1997. From 1993 to the present, he has also served as the
President of Electronic Transactions & Technologies, a privately
held Nevada corporation which developed terminals for wireless
home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President of Hall
Developments, a real estate development company he founded in
1991, which employs a staff of 10 people. Mr. Hall spends
approximately 20 hours per week searching out strategic alliances
for the Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer since
1991. Currently she owns and manages her own firm, D. Diane
Hewitt Designs. This firm's expertise is churches and employs a
staff of five people. Ms. Hewitt currently devotes approximately
25 hours per week in working with the Company's image development
and consulting with the Company's advertising firm.
Anthony L. Hall, Vice President, Director of Technology.
Mr. Hall, age 34, has been Vice President and Director of
Technology of the Company since inception. Mr. Hall has been the
creative mind behind the state of the art advancements made by
the company. Mr. Hall is responsible for all technological
decisions including but not limited to telephone call center, web
site design and in- house software implementation and computer
systems engineering and support. Mr. Hall is a unique individual
within the technological community. A technological savante who
combines incomparable knowledge of the computer world with the
savvy of a successful businessman. Mr. Hall learned his trade
over the last six years with such renowned institutions as the
Kraft Group (owners of International Forest Products and the New
England Patriots), Fidelity Investments, Partners Health Care and
most recently as Managing Director of the firm he founded, Isis
Technology Group.
Kevin J. Lewis, Vice President, Sports Book Operations.
Mr. Lewis, age 36, has been Vice President and Senior Manager of
Sports Book Operations of the Company since it was founded.
After a long and exhaustive process, Mr. Lewis was selected from
a select group of candidates to lead the operations and sports
handicapping management of the company. He has 19 years
experience as a sports book manager with several of the largest
and most profitable sports books in the world. He has worked in
Las Vegas, the Domincan Republic, Antigua, Costa Rica and Canada
with such respected sports books as Tradewinds, Grand Prix Sports
Book and WWTS. Mr. Lewis is known as a sage amongst his peers
and is, with little doubt, the best sports book and betting line
manager in the industry.
Over the next few months, James Wexler, will phase into the
position as CEO of the Company. Presently, Thomas S. Hughes is
fulfilling that role. Hughes will remain as the chairman of the
Company once James Wexler has taken the CEO position.
Mr. Wexler is a highly motivated professional with almost six
years experience in the investment banking industry primarily
with the firms of Morgan Stanley Dean Witter and Bear Stearns &
Co., Inc. In addition, Mr. Wexler has more than twelve years
experience in the gambling and sports handicapping fields and is
considered a knowledgeable expert within the industry. For many
years, he has served as a consultant to off shore sports books,
handicappers and sports bettors. Mr. Wexler's visionary
leadership creates the ideal union between fundamental business
theory, state of the art technology and the necessary knowledge
of sports gambling.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 13, 1999, the
outstanding Shares of common stock of the Company owned of record
or beneficially by each person who owned of record, or was known
by the Company to own beneficially, more than 5% of the Company's
Common Stock, and the name and share holdings of each officer and
director and all officers and directors as a group (out of a
total issued and outstanding shares of 60,523,775 as of that
date):
Title of Name and Address of Amount and Percent of
Beneficial Owner (1) Nature of Class
Beneficial Owner (2)
Common
Stock Thomas S. Hughes 4,500,000 7.35%
31310 Eaglehaven Circle
Rancho Palos Verdes
California 90275
Common
Stock Electronic Transactions 5,400,000 8.92%
& Technologies
2500 Via Cabrillo
Marina, Suite 112
San Pedro, Ca 90731
Common
Stock Rogel Technologies 5,000,000 8.26%
3399 East 19th St.
Signal Hill, Ca 90804
(1) Other than the Shares owned by Mr. Hughes directly and
indirectly through Electronic Transactions & Technologies, none
of the other officers or directors of the Company own any of the
Shares.
(2) Neither Mr. Clinton nor Mr. Hughes have the right to acquire
any amount of the Shares within sixty days from options,
warrants, rights, conversion privilege, or similar obligations.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
Articles of Incorporation authorize the issuance of 200,000,000
shares of common stock, with a par value of $0.001. The holders
of the Shares: (a) have equal ratable rights to dividends from
funds legally available therefore, when, as, and if declared by
the Board of Directors of the Company; (b) are entitled to share
ratably in all of the assets of the Company available for
distribution upon winding up of the affairs of the Company; (c)
do not have preemptive subscription or conversion rights and
there are no redemption or sinking fund applicable thereto; and
(d) are entitled to one non-cumulative vote per share on all
matters on which shareholders may vote at all meetings of
shareholders. These securities do not have any of the following
rights: (a) cumulative or special voting rights; (b) preemptive
rights to purchase in new issues of Shares; (c) preference as to
dividends or interest; (d) preference upon liquidation; or (e)
any other special rights or preferences. In addition, the Shares
are not convertible into any other security. There are no
restrictions on dividends under any loan other financing
arrangements or otherwise. See a copy of the Articles of
Incorporation, and amendments thereto, and Bylaws of the Company,
attached as Exhibit 3.1, Exhibit 3.2, and Exhibit 3.3,
respectively, to this Form SB-2.
Non-Cumulative Voting.
The holders of Shares of Common Stock of the Company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding Shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining Shares
will not be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends. The
Company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the Company's Board of
Directors deems such distributions appropriate. Because the
Company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the Company.
A distribution of revenues will be made only when, in the
judgment of the Company's Board of Directors, it is in the best
interest of the Company's stockholders to do so. The Board of
Directors will review, among other things, the investment quality
and marketability of the securities considered for distribution;
the impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of
an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
Upon the completion of this Offering, assuming the maximum
offering of 61,000,000 is sold, the Company's authorized but
unissued capital stock will consist of 78,476,225 shares of
common stock (based on the issued and outstanding Shares of
60,523,775 as of August 13, 1999). One effect of the existence
of authorized but unissued capital stock may be to enable the
Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby to protect
the continuity of the Company's management. If, in the due
exercise of its fiduciary obligations, for example, the Board of
Directors were to determine that a takeover proposal was not in
the Company's best interests, such shares could be issued by the
Board of Directors without stockholder approval in one or more
private placements or other transactions that might prevent, or
render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder or stockholder group,
by creating a substantial voting block in institutional or other
hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Corporate Stock Transfer,
370 17th Street, Suite 2350, Denver, Colorado 80202, to act as
transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis,
will receive a direct or indirect interest in the small business
issuer, or was a promoter, underwriter, voting trustee, director,
officer, or employee of the small business issuer.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
No director of the Company will have personal liability to the
Company or any of its stockholders for monetary damages for
breach of fiduciary duty as a director involving any act or
omission of any such director since provisions have been made in
the Articles of Incorporation limiting such liability. The
foregoing provisions shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable
Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes or, (v) for any transaction from which the director
derived an improper personal benefit.
The By-laws provide for indemnification of the directors,
officers, and employees of the Company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the Company if they were
not engaged in willful misfeasance or malfeasance in the
performance of his or her duties; provided that in the event of a
settlement the indemnification will apply only when the Board of
Directors approves such settlement and reimbursement as being for
the best interests of the Corporation. The Bylaws, therefore,
limit the liability of directors to the maximum extent permitted
by Nevada law (Section 78.751).
The officers and directors of the Company are accountable to the
Company as fiduciaries, which means they are required to exercise
good faith and fairness in all dealings affecting the Company.
In the event that a shareholder believes the officers and/or
directors have violated their fiduciary duties to the Company,
the shareholder may, subject to applicable rules of civil
procedure, be able to bring a class action or derivative suit to
enforce the shareholder's rights, including rights under certain
federal and state securities laws and regulations to recover
damages from and require an accounting by management..
Shareholders who have suffered losses in connection with the
purchase or sale of their interest in the Company in connection
with such sale or purchase, including the misapplication by any
such officer or director of the proceeds from the sale of these
securities, may be able to recover such losses from the Company.
The registrant undertakes the following:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the registrant are the
officers and directors as disclosed elsewhere in this Form SB-2.
None of the promoters have received anything of value from the
registrant.
DESCRIPTION OF BUSINESS
In its' aggressive pursuit to deliver diverse, leading-edge
solutions, the Company has created a wide range of customer-
driven service programs and patent-pending products that are
technologically proven, accepted by consumers and endorsed by
businesses of every size. The Company is made up of two
divisions: The first, eGaming, is presently generating revenues
and earnings from its eSportsbet and 777WINS.com acquisitions.
The second division of eGate which is developing technology for
ATM card with PIN or smart card payments (same-as-cash - only the
merchant can reverse the transaction) using the Personal
Encrypted Remote Financial Electronic Card Transactions
("PERFECT"). Thus, the Company is both an Internet and non
Internet company, and both a gaming and non gaming company.
focused on connecting the consumer directly to the recipient
merchant... no middlepersons.
eGaming Division.
This division of of the Company consists of 777WINS.com and
eSportsbetcom. These recent acquisitions are generating revenues
and earnings for the Company. eSportsbet and 777WINS.com are
both located in Costa Rica. eSportsbet is projecting $1 million
in revenue by the fourth quarter of 1999 and 777WINS.com is
projecting $500,000 in revenue by the same time period.
It is intended that eSportsbet will have a web presence shortly.
777WINS.com is increasing their band width and is the first
Internet casino to offer a Tournament whereby the winners travel
to a real Casino in Costa Rica. eGaming will be creating the
sites of Bingo and Slots over the next several months.
The Company is presently generating about $150,000 per month in
revenues from this division. A new business unit will be
EzyGame,which will be the on site or off site usage of the
Company's equipment to effect Lottery and Powerball transactions
by ATM card or EzyCard.
(a) Business Strategy.
There are currently less than 50 off shore sports books servicing
an average less than 1000 clients each. In fact, there are less
than 10 Internet sites that are fully operational for on-line
wagering. In concise terms, less than 0.06 % of bettors are
wagering off shore. More significantly, less than 0.0125% of
bettors are wagering through the Internet. The off shore
gambling market is a virgin industry with over 80 million
potential customers and virtually no place for these people to
bet. We are in a position to exploit this opportunity and have
already begun the process.
eSportsbet.com was founded in early 1998 and has recently emerged
from its development stage. The sports book has been fully
operational since September 1, 1998. Development of on-line
sports wagering services is now complete. This division of the
company can best be described as being in the business of
providing a legal, reliable, and secure home or bank to place
wagers. Our key strengths include state-of-the-art-technology,
customer service and innovative marketing. Our management team is
in place. We have hired a sports book manager to complete our
team. We are currently hiring ten employees to answer phone calls
from prospective customers and current clients who wish to place
wagers.
The marketplace has been expanding rapidly. The Company is now
poised to capitalize on the convergence increased Internet
access, ease of web site operability and security with a
flourishing demand to place wagers in this form. Current
customers of offshore sports books are requesting that the
Company provide the ability to place wagers on-line much in the
same way that individual investors can enact stock transactions
on-line with companies such as Fidelity, Schwabb and E-Trade.
To assure the best possible service decisions are made, the
Company has implemented the following criteria for servicing the
most important asset, the Company's clients: Service assistance
for customers with opening new accounts, reducing time, effort
and expense by delineating responsibilities by department.
Service will be implemented using six separate departments: new
accounts, accounts payable and receivable, customer service,
phone clerks to accept wagers and the executive office.
Advertising and marketing will be the Company's largest expense;
the focus on attaining customers and keeping clients is the
Company's foremost goal. The idea is to keep customers
indefinitely by continually offering them a valuable service,
thereby diminishing the Company's costs of continually reaching
and appealing to them. In order to separate the Company from
others in this field, wise selection of service offerings is
therefore critical to eSportsbet.com's success.
(b) Marketing and Advertising Strategy.
eSportsbet.com's marketing strategy is to enhance, promote and
support the fact that the Company's product is unique in terms of
ease of operability, reliability, security. Most importantly,
from a bettor's perspective it is the opinion of management that
the Company's product offer the highest odds pay outs in the
entire industry.
eSportsbet.com's marketing strategy incorporates plans to sell
its product through several channels. These distribution channels
include: Friday, Saturday and Sunday sports sections of regional
newspapers; print media in direct market sports and male
dominated periodicals; thirty and sixty second radio spots on
popular sports talk radio shows; printed flyers and brochures
handed out at major sporting events. The determining factors in
choosing these channels are customer profile; i.e., age, gender,
sports enthusiast, etc. Key competition uses only print media in
industry publications and word of mouth as distribution channels.
The Company's mix of distribution channels will give the
advantages of complete market saturation, not limiting the
Company to region or sports specific publications versus the
competition.
eSportsbet.com recognizes the key to success at this time
requires extensive promotion. This must be done aggressively on
a wide scale. To accomplish the Company's sales goals, an
extremely capable advertising agency and public relations firm
will be required.
The Company will develop an advertising campaign built around
ease of operability, reliability, security, instant pay outs if
requested and most importantly from a bettor's perspective, and,
in the opinion of the Company, the highest pay out odds available
anywhere in the industry. Further, the Company will develop a
consistent reach and frequency with advertising throughout the
year. In addition to standard advertising practices,
eSportsbet.com will gain considerable recognition through grass
roots, guerrilla marketing campaigns. This strategy will include
flyers handed out to spectators of the four major sporting events
and boxing, promotions made available to local sports bars in
Boston and other metropolitan areas.
eSportsbet.com's overall advertising and promotional objectives
are to: Position eSportsbet.com as the leader in the market;
increase company awareness and brand name recognition; generate
qualified sales leads and potential new distributors; create
product-advertising programs supporting our market dominant
position; coordinate sales literature, materials, telemarketing
programs; and direct response promotions in order to continually
saturate the market with our name and logo. Establish the proper
image of eSportsbet.com which in our opinion is the "bank" of the
betting world and indicates that association with security,
safety and stability.
The Company is building its capabilities in database marketing.
Registration cards and periodic customer surveys will help the
Company understand the customer, and help to measure the success
of the marketing, sales and product activities. The Company
plans to develop a customer information system that will help
make sound decisions by providing historical answers to the
marketing questions that are posed.
The Company will use in house telemarketing service to perform
the following functions:
Address customer complaints
Respond to inquiries
Generate new business
(c) Direct Response Mail.
The Company will be exploring the benefits of incremental,
coordinated direct mail programs in the next several months. The
Company will be approaching this quantitatively, as customer
targeting ability is improved. The Company has purchased mailing
lists from sports gambling magazines and newsletters and sports
bettors from Las Vegas casinos. In addition, the direct mail
activities will be continually directed to the existing customer
base to ask for referrals. A $100 betting voucher will be
provided to these clients for every referral that signs up.
(d) Internal/External Newsletter.
The Company is currently planning to produce a newsletter to
serve as an informational piece for internal personnel, the sales
force, and customers. It will include sections covering each
major department or organization within eSportsbet.com, useful
trade information and the latest updates. Importantly, these
newsletters will provide incentives and promotions for clients
and new customers.
eGate Division.
EzyLink Consumer Sales Group:
(a) EzyDepot Transaction Terminal.
The EzyDepot is a low-cost terminal that can be used as a
consumer activated shopping and pay-station kiosk. The EzyDepot
is an intelligent and programmable device, and features a 4-line
display, qwerty keyboard, modem, and built-in receipt printer.
New programming and data can be remotely loaded to units already
in the field. In terms of flexibility for consumer operation, any
functions that a kiosk or ATM is able to perform, can also be
achieved by the EzyDepot
(b) EzyShop Shopping System.
EzyShop is an exciting new service that allows people to shop for
goods while in waiting rooms and other public areas. Catalogs
from leading merchandisers and an EzyDepot unit, a compact
terminal designed to process credit card transactions, is placed
at all EzyShop locations. Consumers browse the catalogs and then
place their orders using the EzyDepot. The process simply
involves keying in a product code, typing in a delivery address
and swiping a major credit card through the EzyDepot's built in
credit card reader. A printed receipt confirms the transaction.
By using a small, low-cost device, rather than a traditional PC-
based kiosk, an EzyDepot can be profitably placed in locations
where a traditional kiosk could not, such as waiting rooms in
doctors' offices, car washes, etc
EzyShop is not a catalog merchandising company. Instead, we work
with some of the nation's leading catalog retailers, providing
our client's the flexibility to promote demographically targeted
merchandise to their own customers. Therefore, any product or
service can be easily sold through EzyShop.
Companies featuring the EzyShop service, called EzyRetailers,
earn a percentage of all sales generated through the EzyDepot.
EzyRetailers carry no inventory and have no overhead, yet benefit
from the profits generated by this revolutionary new distribution
channel.
(c) EzyPay.
Recent reports from the U.S. Federal Reserve state that an
estimated 70+ billion checks are written every year. Overall
costs incurred by a merchant or financial institution to process
each consumer check can be as high as $3.50. This adds up to
more than $40 billion spent each year by retailers to accept
check payments.
The Company's EzyPay eliminates the ongoing inconvenience of
accepting, processing and handling payments by check, cash or
other paper instruments. Designed to dramatically improve
customer service and reduce the inherent cost of processing paper
transactions, EzyPay is the means by which pre-authorized debits
are electronically transmitted from a customer's credit card
account to the businesses' accounts.
EzyPay Benefits
- - Simple to use
- - Simple implementation
- - 100% electronic: no physical handling
- - Proven technology
- - Flexible
- - Automatic collection and deposit
- - Pre-authorized payments
- - Provides faster funds availability
- - Reduces costs of accepting paper checks
- - Improves customer retention
EzyPay Applications
- - Mortgage or medical payments
- - Dues or subscriptions
- - Utility bills
- - Cable companies
- - Telephone companies
- - Insurance premiums
eSecure Internet Group:
(a) eSecure Systems.
One of the Company's most exciting concepts is the use of a
traditional ATM card to make purchases over the Internet. The
use of an ATM card with PIN ID offers a cost advantage to the
retailer, and security advantages to both the consumer and
retailer. In the ever expanding world of e-commerce, it is
imperative that card based business transactions be safe and
secure. The Company's patented eSecure "Same-As-Cash" technology
enabling encrypted remote financial transactions is our solution
for providing secure ATM-card transactions via the Internet.
These ATM card with PIN or smart card payments are the same-as-
cash in that only the merchant can reverse the transaction. The
Company has positioned itself as a "processor", or "gateway", for
these transactions and work with banks and ISOs to sign up web
merchants for debit acceptance, just as store fronts are signed
up for on-line debit acceptance today.
For users of major credit cards, the Company's eSecure "SafeTpay"
system allows people to make purchases and payments on-line. By
simply swiping a major credit card through any of the Company's
eSecure hardware products, the encryption processing systems
provide the ultimate in current anti-piracy technology.
(b) ePINpad.
At the heart of our new ePINpad product is eSecure technology.
This system enables the consumer to utilize his or her PC to make
on-line purchases and payments with an ATM or credit card! Plug-
in software enables the ePINpad to work seamlessly with your
current web browser.
(c) ePocketPay.
For the busy consumer in today's world, desktop or counter top
convenience is not enough. The ultimate solution is a portable
device, carried with the conumer, which can transact business at
any tine. That device is the "ePocketPay".
The ePocketPay looks and works like a cell phone. But, because a
card reader with processing capabilities is built into it, it
represents a whole new class of device. While walking down the
street, riding in a cab, or sitting in your office, someone can
order flowers for a spouse, pay a bill, book airplane
tickets.and simply swipe the card to pay. The transaction is
done and the merchandise or service provider can proceed without
risk of non-payment; a risk that is always present in a
traditional phone order.
The Company has been granted a broad patent for the ePocketPay,
and is seeking strategic alliance(s) with cellular equipment
and/or service providers to develop working prototypes.
(d) eKeys.
For good reason, many consumers have a strong desire to make
internet based payments with an ATM or credit card, but don't
want any additional hardware cluttering their desktops. As a
solution to that dilemma, the Company has patented "eKeys", a
simple, integrated and elegant keyboard / credit card reader.
eKeys simply attaches to a PC or Macintosh computer. Finally, an
integrated ATM / credit card compatible encrypting keyboard /
reader is at the consumer's fingertips. eKeys also features a
built in modem so that the consumer can bypass the internet to
make direct secure payments to a vendor or service provider.
Company Staff.
The Company staff consists of 7 employees at 777WINS.com, 11
employees at eSportsbet.com, 4 employees at EzyShop, 6 employees
at Rogel Technologies and 5 corporate staff. The staff expertise
ranges from sportsgaming specialists to transaction processing
specialists to encryption specialists.
PLAN OF OPERATION
A discussion of the Company's plan of operation over the
next 12 months in incorporated into the discussion of the
Company's business. See "Description of Business."
DESCRIPTION OF PROPERTY
The Company currently owns the following property in connection
with its operations:
(a) Four servers for the operation of eSportsbet.com and
777WINNS.com, valued at $15,000 each.
(b) Approximately $50,000 of various office equipment, including
personal computers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, certain transactions which occurred
between the Company and its officers and directors are set forth
below. With respect to each such transaction, the Company
believes that the terms of each transaction were approximately as
favorable to the Company as could have been obtained from an
unrelated third party:
(1) The Company utilized cash accounts maintained by ET&T to
fund day to day operations of the Company over the period of
March 1998 through September 1998. At August 31, 1998, the net
result of these transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of restricted common
stock to Thomas S. Hughes during May 1997 in exchange for service
rendered to the Company. The Company did not receive any cash
consideration for this common stock issuance and has treated this
as an expense to the Company of $375,000.
(3) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales,
Inc.("HPOS") (now know as Electronic Transactions & Technology -
"ET&T")) (this agreement is incorporated by reference at Exhibit
10.1 to this Form SB-2). ET&T is a privately held corporation
70% owned by Thomas S. Hughes, President of the Company, which is
focused on the emergence of the Personal Encrypted Remote
Financial Electronic Card Transactions industry (although this
agreement was entered into prior to Mr. Hughes becoming
affiliated with the Company, it is included here since certain of
the conditions under that agreement have not been completely
fulfilled, as discussed below).
The assets included under this agreement are the following: (a)
The name "Betting, Inc.", as trademarked by HPOS; (b) The
Wagering Gate (receive incoming data transfer commands from the
Host Center and other competitive Host Centers who have received
ATM and SMART card wagering payment from off site home or office
locations and then who command the Wagering GATE to alert the
recipient gaming companies that they have been paid and to
respond back with an acknowledgement of such payment; and, the
general promotion and education of home ATM and SMART card
wagering over the Internet through the HPOS Secure Computer
Keyboard or over the telephone through the HPOS stand alone
Infinity unit); (c) the specific application of Wagering with an
ATM card or SMART card with the Secure Computer Keyboard (any
other uses of the Secure Computer Keyboard, such as Bill Pay or
Impulse Purchase that are not Wagering transactions, are not
included); (d) the HPOS developed Merchant Response Software for
the specific application only of transacting Off Site ATM and
Smart card Wagering through the Wagering Gate; and (e) HPOS'
interest in the use of and revenue from the HPOS Personal
Encrypted Remote Financial Electronic Card transaction relating
to the Wagering Business in all HPOS partner countries.
Under terms of this licensing agreement, the Company is to issue
2,900,000 shares of restricted common stock to HPOS in exchange
for licensing home ATM card and SMART card wagering technology
developed by HPOS. Of this amount, 2,755,000 shares were placed
in escrow subject to cancellation on February 10, 1998, in the
event the bid price of the common stock of the Company is not at
least $3.00 per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board or NASDAQ's
Small Cap Market from the date of the agreement through February
10, 1998 (this escrow agreement is incorporated by reference at
Exhibit 10.2 to the Form SB-2).
As of the date of this Prospectus, the terms of the Licensing
Agreement have not been met by the Company. However, the Company
has entered into amendment(s) of the original agreement that
provide for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to certain
conditions specified in the agreement. All conditions set forth
in the original agreement need to be met on or before September
1, 1999. The Company is currently negotiating an extension of
the agreement.
The License Agreement also provides that in the event that the
bid price for the common stock of the Company is more than $3.00
per share for any twenty consecutive day period, then HPOS shall
have the option to purchase up to 13,822,000 additional shares of
the Company common stock at an exercise price of $.30 per share.
(4) On April 28, 1997, the Company entered into a Host
Processing Agreement with ET&T for the purpose of having ET&T act
as the bank host processing for all Company transactions that are
sent by terminals that read credit cards or ATM cards (this
agreement is incorporated by reference at Exhibit 10.3 to this
Form SB-2). ET&T is to charge the Betting, Inc. a fee of $0.25
per transaction or 2.5% of the wager being sent by Betting, Inc.
to gaming operators. These transactions are to originate from
globally placed Betting, Inc. equipment and/or Betting, Inc.
licensed operators.
(5) On March 27, 1998, the Company entered into a
License Agreement with ET&T for the purpose of licensing
additional technology for processing electronic banking
transactions (this agreement is incorporated by reference at
Exhibit 10.4 to this Form SB-2). This licensing supplements the
technology licensed under the Agreement date February 18, 1997.
This agreement states that ET&T licenses the following ET&T
products to Betting, Inc. for the exclusive global usage of
wagering by PERFECT originated ATM cards, credit cards, and smart
cards:
The PayMaster, defined as a stand alone terminal that attaches to
phone lines and which calls the ET&T host processing center with
bank data.
The SLICK, defined as a stand alone keyboard terminal that
attaches to phone lines and call the ET&T host processing center
with bank data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone
that sends bank data by wireless transmission to the ET&T host
processing center.
The TV Pin Pad Remote, defined as a set top box and TV remote
that sends bank data by landline dial up transmission to the ET&T
host processing center.
Each ET&T product is exclusively licensed to Betting, Inc. on a
global basis for the application of PERFECT wagering at a
licensing fee of $2,000,000 each. The duration of the exclusive
license is 20 years. The licensing fee is to be paid by the
Company at the rate of $30,000 per month; however, under the
terms of this License Agreement, this fee is not due and payable
until the technology for a particular product covered by the
license has been perfected and is ready for public use. As of
the date of this Form SB-2, 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).
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information.
The Company's Shares are traded in the over-the-counter market
and the range of closing bid prices shown below is as reported
by the OTC Bulletin Board. The quotations shown reflect inter-
dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 1999
High Low
First Quarter 1.0625 0.375
Second Quarter 0.85 0.41
Per Share Common Stock Bid Prices by Quarter
For the Transition Period Ended on December 31, 1998 *
High Low
Transition Period 0.98 0.05
* Due to a change in the fiscal year end of the Company from
August 31 to December 31 as a result of the merger of the Company
with Betting, Inc. (Missouri).
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter ** 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
** The Shares did not trade from February 18, 1998 through
February 28, 1998
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter *** 8.125 7.625
Third Quarter *** 0.8125 0.0625
Fourth Quarter 0.5625 0.06
*** The Shares did not trade from December 13, 1996 through
April 24, 1997
(b) Holders of Common Equity.
As of August 13, 1999, there were 415 shareholders of record of
the Company's common stock.
(c) Dividends.
The Company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation on November 18,
1993. The Board of Directors presently intends to retain any
earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment
of cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
EXECUTIVE COMPENSATION
(a) No officer or director of the Company is receiving any
remuneration at this time, except as follows: Thomas S. Hughes
received a salary payment in June 1999 of $50,000. He had not
previously received any salary from the Company.
(b) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
corporation in the event of retirement at normal retirement date
pursuant to any presently existing plan provided or contributed
to by the corporation or any of its subsidiaries.
(c) No remuneration is proposed to be in the future directly or
indirectly by the corporation to any officer or director under
any plan which is presently existing.
FINANCIAL STATEMENTS
The Financial Statements required by Item 310 of Regulation S-B
(in the form of the latest Annual Report on Form 10-KSB and
Quarterly Report on Form 10-QSB) are incorporated by reference in
this Prospectus, and are set forth in their entirety as Exhibits
13.1 and 13.2 to this Form SB-2.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) On August 1, 1998, the Company engaged the services of
George Brenner, C.P.A. of Beverly Hills, California, to provide
an audit of the Company's financial statements for the fiscal
years ended August 31, 1997 and 1998. The former accountant for
the Company, BDO Seidman L.L.P. of St. Louis Missouri declined
the stand for re-election for the 1997 engagement. The
independent auditor's reports for August 31, 1996 and 1995, were
modified as to the uncertainties about the Company's ability to
continue as a going concern. The decision to change accountants
was approved by the Company's Board of Directors with the
selection of the successor accountant. The Company and its former
accountants had no disagreement during the fiscal years ended
August 31, 1996 and 1995, and through the date they declined to
stand for re-election.
(b) Effective on July 19, 1999, the independent accountant
who was previously engaged as the principal accountant to audit
the registrant's financial statements, resigned. This
accountant's report on the financial statements for the past two
years neither contained an adverse opinion or a disclaimer of
opinion, nor was qualified or modified as to uncertainty, audit
scope, or accounting principles. The decision to change
accountants was approved by the Board of Directors.
During the registrant's two most recent fiscal years and any
subsequent interim period preceding such resignation, there were
no disagreements with the former accountant on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, there
were no "reportable events" as described in Item 304(a)(1)(v)(A)
through (D) of Regulation S-K that occurred within the
registrant's two most recent fiscal years and the subsequent
interim period preceding the former accountant's resignation.
(c) Effective on July 22, 1999, the firm of Farber & Hass has
been engaged to serve as the new principal accountant to audit
the registrant's financial statements. During the registrant's
two most recent fiscal years, and the subsequent interim period
prior to engaging that accountant, neither the registrant (nor
someone on its behalf) consulted the newly engaged accountant
regarding any matter.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in Propsectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the Prospectus
under the heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
None.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding
the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation From the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(d) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of San Pedro, State of California, on September 28, 1999.
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form SB-2 Registration
Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and
Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
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 September 28, 1999
Thomas S. Hughes Officer, Director
/s/ Jack M. Hall Secretary, Director September 28, 1999
/s/ Diane Hewitt Treasurer (Principal September 28, 1999
Diane Hewitt Financial and Accounting
Officer), Director
EXHIBIT INDEX
Exhibit Method of
Number Description Filing
3.1 Articles of Incorporation (incorporated Incorporated
by reference to Exhibit 3.1 to the by
Registration Statement on Form SB-2 filed Reference
on July 2, 1999)
3.2 Certificate of Amendment of Articles of Incorporated
Incorporation (incorporated by reference by
to Exhibit 3.2 to the Registration Reference
Statement on Form SB-2 filed on July 2, 1999)
3.3 Certificate of Amendment of Articles of See Below
Incorporation
3.4 Bylaws (incorporated by reference to Incorporated
Exhibit 3.3 to the Registration Statement by
on Form SB-2 filed on July 2, 1999) Reference
4.1 Class A Warrant Agreement (incorporated Incorporated
by reference to Exhibit 4.2 of Leggoons, by
Inc.'s Registration Statement on Form S-1 Referenced
filed on October 28, 1993).
4.2 Common Stock Purchase Agreement See Below
4.3 Registration Rights Agreement See Below
4.4 Warrant See Below
5,23.1 Opinion Re: Legality; Consent of Counsel See Below
10.1 Agreement to License Assets (incorporated Incorporated
by reference to Exhibit 10.16 to the Form by
8-K filed on February 25, 1997) Reference
10.2 Escrow Agreement (incorporated by reference Incorporated
to Exhibit 10.17 to the Form 8-K filed on by
February 25, 1997) Reference
10.3 Host Processing Agreement (incorporated by Incorporated
reference to Exhibit 10.3 of the Form by
10-KSB/A for the fiscal year ended Reference
August 31, 1998)
10.4 Licensing Agreement (incorporated by Incorporated
reference to Exhibit 10.4 of the Form by
10-KSB/A for the fiscal year ended Reference
August 31, 1998)
10.5 Letter of Commitment (incorporated by Incorporated
reference to Exhibit 10.5 to the Form by
10-QSB for the quarter ended June 30, 1999) Reference
13.1 Latest Annual Report to Security Holders on See Below
Form 10-KSB/A
13.2 Latest Quarterly Report to Security Holders See Below
on Form 10-QSB
23.2 Consent of Accountant See Below
24 Special Power of Attorney See
Signature
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF eCONNECT
I, Thomas S. Hughes, certify that:
1. The original articles were filed with the Office
of the Secretary of State on March 8, 1999.
2. The amendment set forth herein does not, in
compliance with Nevada Revised Statutes 78.207,
require the approval of the shareholders.
3. Pursuant to a Board of Directors meeting at which
in excess of two-thirds voted in favor of the
following amendment, the company hereby adopts the
following amendments to the Articles of Incorporation
of this Corporation:
Article Four:
This Corporation is authorized to issue only one
class of shares of stock, the total number of which
is 200,000,000 shares, each with a par value of
$0.001.
/s/ /s/ Thomas S. Hughes
Thomas S. Hughes, President/Director
Verification
State of California
SS
County of Los Angeles
On this 20th day of August, 1999, before me, the
undersigned, a Notary Public in and for said State,
personally appeared Thomas S. Hughes personally known
to me (or proved to me on the basis of satisfactory
evidence) to be the person who subscribed his name to
the Certificate of Amendment to Articles of
Incorporation and acknowledged to me that he executed
the same freely and voluntarily and for the use and
purposes therein mentioned.
By:/s/_______________________________
Notary Public in and for said County and State
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") by
and between eConnect, a Nevada corporation (the
"Company"), and Alpha Venture Capital, Inc., a Cook
Islands corporation ("Purchaser"), is dated as of
September 28, 1999.
Recitals
A. Purchaser desires to purchase, and the Company
desires to sell, shares of the Company's common
stock, on the terms and conditions as are set forth
below.
B. The parties intend that the issuance of the
shares as anticipated by this Agreement shall be
accomplished without registration under the
Securities Act of 1933, as amended (the "Securities
Act"), and without registration or qualification
under the securities laws of any state or other
jurisdiction in reliance on exemptions from the
registration requirements of the Securities Act,
including without limitation Regulation D under the
Securities Act and Section 4(2) of the Securities
Act, provided, however, that except as expressly
otherwise provided in this Agreement, nothing in this
Agreement shall act or be construed as a limitation
on Purchaser's right to sell any of the securities to
be acquired pursuant to this Agreement pursuant to
the registration statement contemplated by the
Registration Rights Agreement (as defined below), or
other provisions of the Registration Rights Agreement
or in accordance with applicable laws.
THEREFORE, in consideration of the mutual promises
and covenants set forth below and for other good and
valuable consideration, the receipt and sufficiency
of which the parties acknowledge by their signatures
below, the parties agree as follows (capitalized
terms shall have the meanings ascribed to such terms
in Exhibit A hereto, unless otherwise indicated):
1. Purchase of Common Stock.
1.1 Shares. Subject to the terms and conditions of
this Agreement, the Company agrees to issue and sell
to Purchaser, and Purchaser agrees to acquire from
the Company, at each Closing, a number of shares of
Common Stock determined in accordance with the
following formula (the "Shares"):
Put Amount: Eighty percent (80%) of the Lowest Market
Price on the Five (5) Business Days immediately
following the Put Notice Date.
1.2 Closings. Each Closing shall take
place at 2:00 p.m. on the eighth (8th) Business Day
after the issuance of a Put Notice as defined below,
at the offices of the Escrow Agent or at such other
place, time or date as the parties may mutually agree
to in writing. At each Closing, Purchaser shall
deliver written instructions to the Escrow Agent to
deliver to the Company (against receipt by the Share
Escrow Agent of a certificate or certificates
evidencing the Additional Shares), the Escrow Funds
in U.S. dollars by wire transfer of immediately
available funds to an account designated by the
Company.
2. Closings and Escrow.
2.1 Closing. Each closing shall occur on the Share
Payment Date at the offices of Krieger & Prager,
Esqs. ("Escrow Agent") or at such other place, time
or date as the parties may mutually agree to in
writing. At the Initial Closing,
(a) the Company shall deliver to Purchaser (i) a
certificate or certificates evidencing the Initial
Shares, (ii) the Registration Rights Agreement, duly
executed on behalf of the Company, and (iii) the
Initial Warrant, duly executed on behalf of the
Company; and
(b) Purchaser shall deliver to the Company (i) the
Initial Purchase Price times the number of Initial
Shares, in U.S. dollars by wire transfer of
immediately available funds to an account designated
by the Company, and (ii) the Registration Rights
Agreement, duly executed on behalf of Purchaser.
2.2 Purchases.
(a) The Purchaser hereby unconditionally and
irrevocably agrees to purchase from the Company up to
$5,000,000 of Common Stock ("Common Stock") in one or
more Tranches on and subject to the terms and
conditions provided this Section 2.2.
(b) Commencing on or before the Effective Date, the
Company may give a notice (a "Put Notice") to the
Purchaser, with a copy to the Escrow Agent. The date
the Put Notice is given to the Purchaser is referred
to as the "Put Notice Date" The Put Notice shall
specify the dollar amount (the "Put Amount") of the
Common Stock to be purchased by the Purchaser (which
amount shall be not be less than one hundred thousand
dollars ($100,000) and not more than five hundred
thousand dollars ($500,000) in any given Put Notice).
(c) Except as specifically provided in this Section
2.3, the purchase and sale of Additional Common Stock
effected on each Additional Closing Date shall be
conducted as if it were the transactions referred to
in the Transaction Agreements (other than this
Section 2.3). By way of illustration, and not in
limitation, of the foregoing, each of the Company and
the Purchaser shall be deemed to have made all of the
representation, warranties and covenants set forth in
the Transaction Agreements as of the Additional
Common Stock, and the terms of the Registration
Rights Agreement will apply to the Additional Common
Stock and the related Warrants. Specifically, the
Company acknowledges its obligation to register the
Registrable Securities applicable to each Additional
Put independent of any other effective registration
applicable to Registrable Securities relating to
prior Common Stock and related Warrants purchased on
any prior Closing Date.
(d) It shall be a condition to the Company's right
to issue a Put Notice that, as of the Put Notice Date
and the relevant Additional Closing Date, (A) the
Registration Statement or Statements required to be
filed under the Registration Rights Agreement for all
Registrable Securities relating to Common Stock and
related Warrants purchased prior to the Additional
Closing Date contemplated by the current Put Notice
shall have been declared effective and shall continue
to be effective, (B) the Registration Rights
Agreement shall continue to be in full force and
effect and be applicable to the filing of and
effectiveness of the registration of the sale of
shares of Common Stock issuable upon conversion of
the Additional Common Stock and upon the exercise of
the Warrants issued in connection with the closing of
the Additional Common Stock (and the Company's
issuance of the Additional Common Stock shall
constitute the Company's confirmation thereof as of
such date) , and (C) the representations and
warranties of the Company contained in Article 4
hereof shall be true and correct in all material
respects (and the Company's issuance of the
Additional Common Stock shall constitute the
Company's making each such representation and
warranty as of such date) and there shall have been
no material adverse changes (financial or otherwise)
in the business or conditions of the Company from the
Initial Closing Date through and including the
Additional Closing Date (and the Company's issuance
of the Additional Common Stock shall constitute the
Company's making such representation and warranty as
of such date).
(e) It shall be a condition to the Company's right
to issue a Put Notice that, as of each Closing Date,
the Put Amount shall not exceed two hundred percent
(200%) of the average Trading Volume for the twenty
(20) consecutive trading days ending the day before
the relevant Closing Date.
(f) Except to the extent specifically contemplated
by the provisions of this Section, the closing of
each Additional Tranche shall be conducted upon the
same terms and conditions as those applicable to the
closing held on the Initial Closing Date.
(g) The Purchaser's obligations under this Section
2.2 shall terminate eighteen (18) months after the
Initial Closing Date.
(h) The Company is only required to issue Put
Notices totaling a minimum of one million dollars
($1,000,000) of Common Stock during the term of this
Agreement. Should the Company not desire to issue any
further Put Notices under this Agreement, then it
shall give notice of such to the Purchaser, with a
copy to the Escrow Agent and the Share Escrow Agent
under this Agreement.
2.3 Escrow. Within three (3) Business Days after
the Company has delivered a written notice to
Purchaser that the SEC has approved the Post
Effective Amendment to the Registration Statement,
(a) the Company shall deliver to the Escrow Agent
the Joint Escrow Instructions and the Initial Put
Notice, duly executed on behalf of the Company; and
(b) Purchaser shall deliver to the Escrow Agent, (i)
the Joint Escrow Instructions in the form annexed
hereto as Exhibit 2, duly executed on behalf of
Purchaser, and (ii) the amount of the Initial Put
Notice, in U.S. dollars by wire transfer of
immediately available funds to such account as may be
designated by the Escrow Agent.
2.4 Share Escrow.
(a) Simultaneous with the execution of this
Agreement, the Company agrees to deliver twenty
million (20,000,000) shares of Common Stock to the
Share Escrow Agent for Escrow, pursuant to the terms
of the Securities Escrow Agreement annexed hereto as
Exhibit 2.4 (a)..
(b) Simultaneous with the effectiveness of the
Registration, the Company shall deliver to the
transfer agent and the Share Escrow Agent, the
Irrevocable Instructions in the form annexed hereto
as Exhibit 1.
(c) The Common Stock shall be maintained with the
Share Escrow Agent until the earlier of: (a) notice
is given by the Company under Section 2.2(h), or (b)
the termination of Purchaser's obligations under this
Agreement ("Escrow Period"). At such time, the Share
Escrow Agent, upon written notice from the Company,
shall release the unissued share certificates back to
Corporate Stock Transfer, Inc., the transfer agent
for the Company within five (5) business days
thereafter.
2.5 Share Issuance.
(a) Not later than two (2) business days after the
Share Valuation Date, the Company shall deliver a
letter [in the form annexed hereto as Exhibit 2.5],
to the Share Escrow Agent, advising the Share Escrow
Agent of the maximum number of shares that may be
sold by the Purchaser free of restrictive legend
pursuant to a Put Notice. Purchaser shall make
payment of the Put Notice Amount (less any applicable
legal or other fees) within three (3) business days
after delivery of such share letter to the Escrow
Agent ("Share Payment Date").
(b) In the event the Company does not deliver the
requisite instructions under Section 2.5(a) to the
Escrow Agent within two (2) business days after the
Share Valuation Date, the Purchaser may at its
option, elect to treat the Put Notice as null and
void.
(c) If the effectiveness of the Registration
Statement shall be suspended for any reason,
Purchaser shall be under no obligation to accept or
honor any Put Notice for a minimum period of fifteen
(15) days after the lifting of such terms or
suspension of such Registration Statement.
3. Representations and Warranties of Purchaser. To
induce the Company's acceptance of this Agreement,
Purchaser hereby certifies, represents and warrants
to the Company and its agents and attorneys as
follows, which representations and warranties are
solely for the benefit of the Company and may be
waived in whole or in part at any time prior to
Closing by the Company:
3.1 Intent. Purchaser will be acquiring the
Securities for its own account, and Purchaser has no
present arrangement (whether or not legally binding)
to sell any of the Securities to or through any
Person; provided, however, that by making the
representations herein, Purchaser does not agree to
hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of
the Securities at any time in accordance with U.S.
federal and state securities laws applicable to such
disposition and any restrictions imposed on such
transfer by this Agreement or the instruments and
documents executed in connection with this Agreement.
Purchaser understands that the Securities must be
held indefinitely unless the Securities are
subsequently registered under the Securities Act or
an exemption from registration is available.
Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the
Securities Act.
3.2 Sophisticated Investor; Domicile. Purchaser and
each of its members is a "sophisticated investor" (as
described in Rule 506(b)(2)(ii) of Regulation D) and
an "accredited investor" (as defined in Rule 501(a)
of Regulation D), and Purchaser has such knowledge
and experience in business and financial matters that
it is capable of evaluating the merits and risks of
an investment in the Company's securities. Purchaser
was not formed exclusively for the purpose of
entering into the transactions contemplated hereby.
3.3 Ability of Purchaser to Bear Risk of Investment.
Purchaser acknowledges that the Securities are
speculative investments and involve a high degree of
risk and Purchaser is able to bear the economic risk
of an investment in the Securities, and, at the
present time, is able to afford a complete loss of
such investment.
3.4 Authority. This Agreement has been duly
authorized and validly executed and delivered by
Purchaser and (assuming due authorization and valid
execution by the Company) is a legal, valid and
binding agreement of Purchaser enforceable against
Purchaser in accordance with its terms, subject to
general principles of equity and to bankruptcy,
insolvency or similar laws relating to, or affecting
generally the enforcement of creditors' rights and
remedies or by other equitable principles of general
application. The person or persons executing this
Agreement and all exhibits to this Agreement and
documents or instruments executed in connection with
this Agreement on behalf of Purchaser have all
requisite authority to do so on behalf of Purchaser.
3.5 Brokers, Finders. Purchaser has taken no action
which would give rise to any claim by any Person for
brokerage commission, finder's fees or similar
payments by the Company relating to this Agreement or
the transactions contemplated hereby. The Company
shall have no obligation with respect to such fees or
with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this
Section 3.5 that may be due in connection with the
transactions contemplated hereby, except as expressly
provided in Section 4.14.
3.6 Organization; Authority. Purchaser is an entity
organized, validly existing and in good standing
under the laws of the jurisdiction of its
organization with the requisite power and authority
to enter into and to consummate the transactions
contemplated by this Agreement and to carry out its
obligations thereunder. The acquisition of the
Securities and the payment of the purchase price
therefor by Purchaser have been duly authorized by
all necessary action on the part of Purchaser.
3.7 Absence of Conflicts. The execution and
delivery of this Agreement and any other document or
instrument executed in connection herewith
(collectively with this Agreement, the "Transaction
Documents"), and the consummation of the transactions
contemplated by the Transaction Documents, and
compliance with the requirements thereof, will not
violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on
Purchaser, or the provision of any indenture,
instrument or agreement to which Purchaser is a party
or is subject, or by which Purchaser or any of its
assets is bound, or conflict with or constitute a
material default thereunder, or require the approval
of any third-party pursuant to any material contract,
agreement, instrument, relationship or legal
obligation to which Purchaser is subject or to which
any of its assets, operations or management may be
subject.
3.8 Disclosure; Access to Information. Purchaser
has received copies of or has had access to all
documents, records, books and other information
pertaining to Purchaser's investment in the Company
and the Securities that have been requested by
Purchaser. Purchaser has been afforded the
opportunity to ask questions of and receive answers
from the Company and its management concerning all
aspects of the Company and of this transaction.
Purchaser further acknowledges that it understands
that the Company is subject to the periodic reporting
requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Purchaser has
reviewed or received copies of any such reports that
have been requested by it. Purchaser further
acknowledges that it has been provided with copies of
the Company's certificate of incorporation, as
amended (the "Certificate"), and the Company's by-
laws (the "By-Laws").
3.9 Manner of Sale. At no time was Purchaser
presented with or solicited by or through any
leaflet, public promotional meeting, television
advertisement or any other form of general
solicitation or advertising with respect to the
Securities.
3.10 Accuracy of Other Materials. To the extent
Purchaser has received from the Company documents or
other materials which constitute summaries,
projections, forecasts or estimates, Purchaser
acknowledges the following with respect to such
documents or other materials: Such documents or other
materials are intended to illustrate projected
financial and other results based upon a set of
assumptions (in some cases based on information
obtained by the Company from outside sources) the
Company views as reasonable and obtainable; all such
summaries, projections, forecasts or estimates
pertaining to revenue growth, profitability and other
similar financial or market data are forward-looking
statements; such statements are subject to certain
risks and uncertainties that could cause actual
results to differ materially from those projected;
and no representations or warranties of future
performance by or market trends for the Company are
intended, and such are expressly disclaimed.
3.11 Accuracy of Representations and Information.
All representations made by Purchaser in this
Agreement and all documents and instruments related
to this Agreement, and all information provided by
Purchaser to the Company concerning Purchaser are
correct and complete in all material respects as of
the date hereof.
4. Representations and Warranties of the Company.
Except as otherwise set forth in the schedules
hereto, the Company hereby represents and warrants to
Purchaser as follows, which representations and
warranties are solely for the benefit of Purchaser
and may be waived in whole or in part by Purchaser at
any time prior to Closing:
4.1 Company Status. The Company has registered the
Common Stock pursuant to Section 12(g) of the
Exchange Act, is in full compliance with all
reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the
continued listing of the Common Stock, and such
Common Stock is currently listed on the Over the
Counter Bulletin Board.
4.2 Current Public Information. The Company has
furnished or made available to Purchaser true and
correct copies of all registration statements,
reports and documents, including proxy statements
(other than preliminary proxy statements), filed with
SEC by or with respect to the Company since December
31, 1997 and prior to the date of this Agreement,
pursuant to the Securities Act or the Exchange Act
(collectively, the "SEC Documents"). The SEC
Documents are the only filings made by or with
respect to the Company since December 31, 1997
pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act or pursuant to the Securities Act.
The Company has filed all reports, schedules, forms,
statements and other documents required to be filed
under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act since January 1, 1996 and prior to the
date of this Agreement. [The Company meets the
"Registrant Requirement" for eligibility to use Form
S-3 under the Securities Act in order to register the
Company's Common Stock for resales.]
4.3 No General Solicitation. Neither the Company,
nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of
general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act)
in connection with the offer or sale of the
Securities.
4.4 Valid Issuance of Common Stock. The Company has
an authorized capitalization consisting of two
hundred million (200,000,000) shares of Common Stock,
and no shares of preferred stock. As of August 31,
1999, the Company has issued and outstanding sixty-
six million seven hundred eight-three thousand seven
hundred seventy-five (66,783,775) shares of Common
Stock. The number of shares of Common Stock are
subject to issuance upon the conversion or exercise
of presently issued and outstanding warrants and
options of the Company are as set forth in Schedule
4.4. Schedule 4.4 sets forth the number of shares of
Common Stock which are reserved for issuance under
the Company's existing stock option plans. No shares
of the Company's preferred stock are issued and
outstanding. All of the shares of Common Stock
outstanding have been duly and validly authorized and
issued and are fully paid and non-assessable. Except
as set forth above or as disclosed in Schedule 4.4,
as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the
Company or any of the Subsidiaries, or contracts,
commitments, understandings or arrangements by which
the Company or any of it Subsidiaries is or may
become bound to redeem or issue additional shares of
capital stock of the Company or any of the
Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the
Company or any of the Subsidiaries, (ii) there are no
outstanding debt securities, other than indebtedness
to banks and other institutional lenders set forth on
Schedule 4.4, and (iii) there are no agreements or
arrangements under which the Company or any of the
Subsidiaries is obligated to register the sale of any
of their securities under the Securities Act. Except
as disclosed in Schedule 4.4, there are no securities
or instruments containing any anti-dilution, right of
first refusal, preemptive rights or similar
provisions that will be triggered by the issuance of
the Securities as described in this Agreement. Upon
issuance of the Securities, such securities will be
duly and validly issued, fully paid and
non-assessable.
4.5 Organization and Qualification. The Company is
a corporation duly incorporated and existing in good
standing under the laws of the Nevada and has the
requisite corporate power to own its properties and
to carry on its business as now being conducted. The
Company does not have any Subsidiaries, except for
those listed on Schedule 4.5 attached to this
Agreement (the "Subsidiaries"). The Subsidiaries are
duly incorporated and existing in good standing under
the laws of the jurisdiction of their incorporation.
The Company and each of the Subsidiaries is duly
qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which
the nature of the business conducted or property
owned by it makes such qualification necessary, other
than those in which the failure so to qualify would
not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business,
operations, properties or financial condition of the
entity or entities with respect to which such term is
used and which is material and adverse to such entity
or to other entities controlling or controlled by
such entity, and/or any condition or situation which
would prohibit or otherwise interfere with the
ability of the entity or entities with respect to
which said term is used to enter into and perform its
obligations under the Transaction Documents.
4.6 Authorization: Enforcement. (i) The Company has
the requisite corporate power and authority to enter
into and perform under the Transaction Documents and
to issue the Securities in accordance with the terms
of the Transaction Documents, (ii) the execution,
issuance and delivery of the Transaction Documents by
the Company and the consummation by it of the
transactions contemplated by the Transaction
Documents have been duly authorized by all necessary
corporate action, and no further consent or
authorization of the Company or its board of
directors or stockholders is required, (iii) the
Transaction Documents have been duly executed and
delivered by the Company, and (iv) the Transaction
Documents (assuming due authorization and valid and
legal execution by Purchaser) constitute legal, valid
and binding obligations of the Company enforceable
against the Company in accordance with their terms,
except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other
equitable principles of general application.
4.7 Corporate Documents. The Company has furnished
or made available to Purchaser true and correct
copies of the Certificate and the Bylaws.
4.8 No Conflicts. The execution, delivery and
performance of the Transaction Documents by the
Company and the consummation by the Company of the
transactions contemplated hereby, including without
limitation the issuance of the Securities, do not and
will not (i) result in a violation of the Company's
Certificate or Bylaws, or (ii) conflict with, or
result in a breach of or forfeiture of any rights (or
result in an event which with notice or lapse of time
or both would become a breach of or forfeiture of any
rights) under, or give to others any rights of
termination, amendment, acceleration or cancellation
of, any material agreement, indenture or instrument
to which the Company or any of the Subsidiaries is a
party, or (iii) result in a violation of any federal
or state law, rule, regulation, order, judgment or
decree (including federal and state securities laws
and regulations) applicable to the Company or any of
the Subsidiaries or by which any property or asset of
the Company or any of the Subsidiaries is bound or
affected (except for such conflicts, defaults,
terminations, amendments, accelerations,
cancellations and violations as would not,
individually or in the aggregate, have a Material
Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for
possible violations which either singly or in the
aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any
filing or registration with, any court or
governmental agency in order for it to execute,
deliver or perform any of its obligations under this
Agreement or issue and sell the Securities in
accordance with the terms of this Agreement (other
than any SEC, NASD or state securities filings which
may be required to be made by the Company subsequent
to any closing hereunder, and any registration
statement which may be filed in furtherance of this
Agreement); provided that, for purposes of the
representation made in this sentence, the Company is
assuming and relying upon the accuracy of the
relevant representations and agreements of Purchaser
herein. Neither the Company nor any of the
Subsidiaries is in violation of any material term of
or in material default under its Certificate or By-
laws or their organizational charter or by-laws,
respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument,
judgment, decree of order or any statute, rule or
regulation applicable to the Company or the
Subsidiaries, which has not been duly waived as of
the date of this Agreement.
4.9 SEC Documents. As of their respective dates,
the SEC Documents complied, and all similar documents
filed with the SEC prior to each Closing Date will
comply, in all material respects with the
requirements of the Securities Act or the Exchange
Act, as the case may be, and rules and regulations of
the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC
Documents contained, nor will any similar document
filed with the SEC prior to each Closing Date
contain, any untrue statement of a material fact or
omitted or omit to state a material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading. The
financial statements of the Company included in the
SEC Documents, as of the dates thereof, complied,
and all similar documents filed with the SEC prior to
each Closing Date will comply, as to form in all
material respects with applicable accounting
requirements and the published rules and regulations
of the SEC and other applicable rules and regulations
with respect thereto. Such financial statements were
prepared in accordance with generally accepted
accounting principles applied on a consistent basis
during the periods involved (except (i) as may be
otherwise indicated in such financial statements or
the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not
include footnotes or may be condensed or summary
statements as permitted by Form 10-QSB of the SEC)
and fairly present in all material respects the
financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and
the consolidated results of operations and cash flows
for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit
adjustments).
4.10 No Undisclosed Liabilities. Except to the
extent described in Schedule 4.10, the Company and
the Subsidiaries have no liabilities or obligations
of a financial nature (whether accrued, absolute,
contingent or otherwise), which are material,
individually or in the aggregate, and are not
disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or
the Subsidiaries' respective businesses consistent
with past practice since December 31, 1996, and
which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the
Company.
4.11 Litigation and Other Proceedings. Except as may
be set forth in the SEC Documents or otherwise
disclosed in writing to Purchaser, there are no
lawsuits or proceedings pending or to the best
knowledge of the Company threatened, against the
Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or
investigation, which might have a Material Adverse
Effect on the Company or which might materially
adversely affect the transactions contemplated by
this Agreement. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or
decree or award has been issued by or, to the best
knowledge of the Company, requested of any court,
arbitrator or governmental agency which might result
in a Material Adverse Effect or which might
materially adversely affect the transactions
contemplated by this Agreement.
4.12 Other Documents or Materials. With respect to
any document or other materials received by Purchaser
from the Company or its representatives other than
the Transaction Documents and the SEC Documents, (i)
the Company has no reason to believe any of such
documents and materials or any projections contained
therein, as of the date of such other documents or
materials, contained material errors or misstatements
or do not adequately describe the status of the
development of the Company's technologies or its
business as of such date, and (ii) such documents,
materials and projections were prepared by the
Company and its management in good faith.
4.13 Nature of Company. The Company is not an open
ended investment company or a unit investment trust,
registered or required to be registered, or a closed
end investment company required to be registered, but
not registered, under the Investment Company Act of
1940.
4.14 Brokers, Finders. Except for payment of
commitment fees to Purchaser, payment of which is the
sole responsibility of the Company, the Company has
taken no action which would give rise to any claim by
any person for brokerage commission, finder's fees or
similar payments by Purchaser relating to this
Agreement or the transactions contemplated hereby.
Purchaser shall have no obligation with respect to
such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type
contemplated in this Section 4.14 that may be due in
connection with the transactions contemplated hereby.
4.15 Absence of Certain Changes. Since December
31, 1998, no Material Adverse Effect has been
suffered by, and no material adverse development has
occurred in the business, properties, operations,
financial condition or results of operations of the
Company or the Subsidiaries. The Company has not
taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of the
Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary
bankruptcy proceedings.
4.16 Intellectual Property Rights. The Company and
the Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service
marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations,
trade secrets and rights necessary to conduct their
respective businesses as now conducted. None of the
Company's trademarks, trade names, service marks,
service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets
or other intellectual property rights have expired or
terminated, or are expected to expire or terminate in
the near future. The Company and the Subsidiaries
do not have any knowledge of any infringement by the
Company or the Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks,
service mark registrations, trade secrets or other
similar rights of others, or of any such development
of similar or identical trade secrets or technical
information by others and, there is no claim, action
or proceeding being made or brought against, or to
the best knowledge of the Company, being threatened
against, the Company or the Subsidiaries regarding
trademark, trade name, patent, patent rights,
invention, copyright, license, service name, service
mark, service mark registration, trade secret or
other infringement; and the Company and the
Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the
foregoing. The Company and the Subsidiaries have
taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their
intellectual properties.
4.17 Internal Accounting Controls. The Company is
aware of no respect in which its system of internal
accounting controls is not sufficient to provide
reasonable assurance that (i) transactions are
executed in accordance with management's general or
specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of
financial statements in conformity with generally
accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted
only in accordance with management's general or
specific authorization and (iv) the recorded
accountability for assets is compared with the
existing assets at reasonable intervals and
appropriate action is taken with respect to any
differences.
4.18 Tax Status. The Company and the Subsidiaries
have made or filed all federal and state income and
all other tax returns, reports and declarations
required by any jurisdiction to which it is subject
and has paid all taxes and other governmental
assessments and charges that are material in amount,
shown or determined to be due on such returns,
reports, declarations, except those being contested
in good faith and has set aside on its books
provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which
such returns, reports, or declarations apply. There
are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for
any such claim.
4.19 Certain Transactions. Except as set forth in
Schedule 4.19 or in the SEC Documents and except for
arm's length transactions pursuant to which the
Company makes payments in the ordinary course of
business upon terms no less favorable than the
Company could obtain from third parties and other
than the grant of stock options, none of the
officers, directors, or employees of the Company (or
any spouse or relative of any such person) is
presently a party to any transaction with the Company
(other than for services as employees, officers,
consultants and directors), including any contract,
agreement or other arrangement providing for the
furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise
requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company,
any corporation, partnership, trust or other entity
in which any officer, director, or any such employee
has a substantial interest or is an officer,
director, trustee or partner.
4.20 Dilution. The Repricing Shares may increase
substantially in certain circumstances, including,
but not necessarily limited to, the circumstance
wherein the trading price of the Common Stock
declines during the one hundred eighty (180) day
period following the Initial Closing Date or the
Effective Date, as may be applicable. The Company's
executive officers and directors have studied and
fully understand the nature of the transactions
contemplated by this Agreement and recognize that
they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good
faith business judgment, that such issuance is in the
best interests of the Company. The Company
specifically acknowledges that its obligation to
issue the Repricing Shares is binding upon the
Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of
other shareholders of the Company.
4.21 OTC BB Listing. The Company's Common Stock is
presently quoted on the Over the Counter Bulletin
Board under the symbol "ECNC." The Company is not in
receipt of any written notice from any stock
exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it is
or has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance
requirements of such stock exchange, market or
trading facility or that the Common Stock will be
delisted from such stock exchange, market or trading
facility.
4.22 No Integrated Offering. Neither the
Company nor any of its affiliates nor any person
acting on its or their behalf has, directly or
indirectly, at any time since December 31, 1998, made
any offer or sales of any security or solicited any
offers to buy any security under circumstances that
would eliminate the availability of the exemption
from registration under Regulation D in connection
with the offer and sale of the Securities as
contemplated hereby.
5. Use and Disposition of Proceeds. The Company
will use the proceeds from the sale of the Common
Stock (excluding amounts paid by the Company for
legal fees and finder's fees in connection with the
sale to Purchaser) but shall not, directly or
indirectly, use such proceeds for investment in any
other affiliate or to repay debt to affiliates.
6. Company Reliance on Purchaser's Representations.
Purchaser understands that the Company is relying on
the truth and accuracy of the representations and
warranties made herein by Purchaser in offering the
Securities for sale and in relying upon applicable
exemptions available under the Securities Act and
applicable state securities laws.
7. Restricted Shares. Purchaser understands and
acknowledges that if the Securities have not been,
and will not as of the time issued be, registered
under the Securities Act, they will be issued in
reliance upon exemptions from the registration
requirements of the Securities Act, and thus cannot
be resold unless they are included in an effective
registration statement filed under the Securities Act
or unless an exemption from registration is available
for such resale. With regard to the restrictions on
resales of the Securities, Purchaser is aware (a)
that the Company will issue stop transfer orders to
its stock transfer agent in the event of attempts to
improperly transfer any Securities; and (b) that a
restrictive legend will be placed on certificates
representing the Securities, which legend will read
substantially as follows:
THESE SECURITIES ARE NOT REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT AND REGULATIONS PROMULGATED UNDER THE ACT,
INCLUDING EXEMPTIONS UNDER SECTIONS 3(b) AND 4(2) OF
THE ACT AND THE PROVISIONS OF REGULATION D UNDER SUCH
ACT, AND SIMILAR EXEMPTIONS UNDER STATE LAW.
ACCORDINGLY, THESE SECURITIES MAY NOT BE RESOLD,
TRANSFERRED, PLEDGED, ASSIGNED OR HYPOTHECATED UNLESS
SUCH SECURITIES ARE COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS
AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF
SECURITIES COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH EXEMPTION IS AVAILABLE.
The legend set forth above shall be promptly removed
without additional cost or delay, and the Company
shall issue a certificate without such legend to the
holder of any of the Securities upon which such
legend is stamped (or to the holder's assignee), if,
unless otherwise required by state securities laws,
(i) such securities are registered for resale, or
have been sold, under an effective registration
statement under the Securities Act, (ii) in
connection with a sale transaction, such holder
provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities
may be made without registration under the Securities
Act, or (iii) such holder provides the Company with
reasonable assurances that the Securities can be sold
pursuant to Rule 144 promulgated under the Securities
Act without any restriction as to the number of
securities acquired as of a particular date that can
then be immediately sold. Notwithstanding the
removal of the legend set forth above, in the event
the Securities are registered for resale on an
effective registration statement, the Company
reserves the right to affix a legend on certificates
representing the Securities that any selling
shareholder named in the registration statement must
comply with the prospectus delivery requirements of
the Securities Act in connection with any resale.
The Company shall bear the cost of the removal of any
legend as anticipated by this Section 7.
8. Other Covenants of the Company.
8.1 Furnishing of Information. As long as Purchaser
owns Securities, the Company covenants to timely file
(or obtain extensions in respect thereof and file
within the applicable grace period) all reports
required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on
which Purchaser may resell all of the Securities
without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined
by counsel to the Company pursuant to a written
opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the
benefit of and enforceable by Purchaser) the Company
is not required to file reports pursuant to such
sections, it will prepare and furnish to Purchaser
and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual
and quarterly financial statements, together with a
discussion and analysis of such financial statements
in form and substance substantially similar to those
that would otherwise be required to be included in
reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings
would have been required to have been made under the
Exchange Act. The Company further covenants that it
will take such further action as any holder of
Securities may reasonably request, all to the extent
required from time to time to enable such Person to
sell Securities without registration under the
Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the
Securities Act.
8.2 Certain Agreements. The Company covenants and
agrees that it will not, without the prior written
consent of Purchaser enter into any subsequent or
further offer or sale of Common Stock or securities
convertible into Common Stock with any third party
until the date which is one hundred eighty (180)
days after the later of any Closing Date or September
15, 2000 (the "Restrictive Period").
(a) The provisions of this subparagraph will not
apply to (x) Common Stock issued pursuant to Rule
144, provided the holder thereof holds such Common
Stock for at least one year from the date of
issuance; or (y) the issuance of securities (other
than for cash) in connection with a merger,
consolidation, sale of assets, disposition or the
exchange of the capital stock for assets, stock or
other joint venture interests; or (z) Upon conversion
or exercise of any convertible or derivative
securities outstanding on the date hereof, as set
forth on Schedule 8.3.
(b) The term "Effective Date" means the effective
date of the Registration Statement covering the
Registrable Securities (as defined in the
Registration Rights Agreement);
8.4 Limitation on Issuance of Shares. The parties
acknowledge that the Company may be limited in the
number of shares of Common Stock it may issue by
applicable OTC BB rules without obtaining shareholder
approval ("Cap Regulations"). To the extent the
Company cannot issue Repricing Shares and shares
issuable upon exercise of the Warrants without
violating the Cap Regulations, the Company shall
provide notice thereof to the Purchaser specifying
the number of shares that may not be repriced or
issued pursuant to the Warrants because of the Cap
Regulations and the Company shall be relieved of the
obligation to issue such shares if it is unable to
obtain the required shareholder vote as provided
below. On receipt of such notice, Purchaser's
request with respect to the issuance of Repricing
Shares or shares upon exercise of the Warrants shall
be deemed reduced by the number permitted under the
Cap Regulations and Purchaser shall have the option,
exercisable in its sole and absolute discretion, to
require the Company to redeem Initial Shares or
Additional Shares for an amount in cash equal to one
hundred twenty percent (120%) of the Initial Purchase
Price or the Additional Purchase Price, as
applicable. Company's obligation to redeem such
shares shall be suspended during any period in which
such redemption would be prohibited by law.
Notwithstanding the foregoing, the Company agrees
that the Company shall, in connection with its next
annual meeting, solicit the consent of its
shareholders for the issuance of shares that would
otherwise violate the Cap Regulations but for such
consent.
8.5 Available Shares. The Company shall have at all
times authorized and reserved for issuance, free from
preemptive rights, twenty million (20,000,000) shares
of Common Stock.
8.6 Reimbursement. If (i) Purchaser, other than by
reason of its gross negligence or willful misconduct,
becomes involved in any capacity in any action,
proceeding or investigation brought by any
stockholder of the Company, in connection with or as
a result of the consummation of the transactions
contemplated by the Transaction Documents, or if
Purchaser is impleaded in any such action, proceeding
or investigation by any Person, or (ii) Purchaser,
other than by reason of its gross negligence or
willful misconduct or by reason of its trading of the
Common Stock in a manner that is illegal under
applicable securities laws, becomes involved in any
capacity in any action, proceeding or investigation
brought by the SEC against or involving the Company
or in connection with or as a result of the
consummation of the transactions contemplated by the
Transaction Documents, or if Purchaser is impleaded
in any such action, proceeding or investigation by
any Person, then in any such case, the Company will
reimburse Purchaser for its reasonable legal and
other expenses (including the cost of any
investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In
addition, other than with respect to any matter in
which Purchaser is a named party, the Company will
pay Purchaser the charges, as reasonably determined
by Purchaser, for the time of any officers or
employees of Purchaser devoted to appearing and
preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing,
trials, and other proceedings relating to the subject
matter of this Agreement. The reimbursement
obligations of the Company under this paragraph shall
be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and
conditions to any Affiliates of Purchaser who are
actually named in such action, proceeding or
investigation, and partners, directors, agents,
employees and controlling persons (if any), as the
case may be, of Purchaser and any such Affiliate, and
shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal
representatives of the Company, Purchaser and any
such Affiliate and any such Person. The Company also
agrees that neither any Purchaser nor any such
Affiliate, partners, directors, agents, employees or
controlling persons shall have any liability to the
Company or any person asserting claims on behalf of
or in right of the Company in connection with or as a
result of the consummation of the Transaction
Documents except to the extent that any losses,
claims, damages, liabilities or expenses incurred by
the Company result from the gross negligence or
willful misconduct of Purchaser or any inaccuracy in
any representation or warranty of Purchaser contained
in herein or any breach by Purchaser of any of the
provisions hereof.
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. Subject to the
provisions of Section 2.5, the Company will
irrevocably instruct its transfer agent to issue
securities from time to time in such amounts as shall
be required hereunder and as specified from time to
time by the Company to the transfer agent, bearing
the restrictive legend specified in Section 7 of this
Agreement prior to registration of the Securities
under the Securities Act, registered in the name of
Purchaser or its nominee and in such denominations to
be specified by Purchaser in connection with each
closing hereunder. The Company warrants that no
instruction other than such instructions referred to
in this Section 9 and stop transfer instructions to
give effect to Section 7 hereof prior to registration
and sale of the Securities under the Securities Act
will be given by the Company to the transfer agent
and that the securities shall otherwise be freely
transferable on the books and records of the Company
as and to the extent provided in this Agreement, the
Registration Rights Agreement, and applicable law.
Nothing in this Section 9 shall affect in any way
Purchaser's obligations and agreement to comply with
all applicable securities laws upon resale of the
Securities.
9.2 Transmission of Certificates. Subject to
Section 7, the Company will transmit the certificates
representing any unlegended securities to be issued
to Purchaser via express courier, by electronic
transfer or otherwise, within three (3) business days
after receipt by the Company of the certificate
representing the legended Common Stock or the date
unlegended Common Stock is required to be issued
pursuant to Section 7, as applicable (the "Delivery
Date").
9.3 Delay. The Company understands that a delay in
the issuance of the securities beyond the Delivery
Date could result in economic loss to Purchaser. As
compensation to Purchaser for such loss, the Company
agrees to pay late payments to Purchaser for late
issuance of unlegended securities, including
Repricing Shares, valued at Relevant Repricing Price,
in accordance with the following schedule (where "No.
Days Late" is defined as the number of days beyond
five (5) business days from Delivery Date):
Late Payment For Each
No. Days Late $10,000 of Common Stock
1 $ 50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
>10 $500 +$100 for each
Business
Day Late
beyond 10
days
The Company shall pay any payments incurred under
this Section 9.3 in immediately available funds upon
demand. Nothing herein shall limit Purchaser's right
to pursue actual damages for the Company's failure to
issue and deliver the unlegended securities to
Purchaser.
9.4 Cover. If, by the relevant Delivery Date, the
Company fails for any reason to deliver the
unlegended Shares to be issued pursuant to Section
9.2 and after such Delivery Date, Purchaser
purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering
Shares") in order to make delivery in satisfaction of
a sale of Common Stock by Purchaser (the "Sold
Shares"), which delivery Purchaser anticipated to
make using the shares to be issued upon such
conversion (a "Buy-In"), the Company shall pay to
Purchaser, in addition to all other amounts
contemplated in other provisions of the Transaction
Documents, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess,
if any, of (x) Purchaser's total purchase price
(including brokerage commissions, if any) for the
Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by Purchaser
from the sale of the Sold Shares. The Company shall
pay the Buy-In Adjustment Amount to the Company in
immediately available funds immediately upon demand
by Purchaser. By way of illustration and not in
limitation of the foregoing, if Purchaser purchases
shares of Common Stock having a total purchase price
(including brokerage commissions) of eleven thousand
dollars ($11,000) to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of
ten thousand dollars ($10,000), the Buy-In Adjustment
Amount which Company will be required to pay to
Purchaser will be one thousand dollars ($1,000).
9.5 Electronic Transfer. In lieu of delivering
physical certificates representing the unlegended
securities issuable after the Effective Date as
provided in Section 7, provided the Company's
transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of Purchaser and its
compliance with the provisions contained in this
paragraph, so long as the certificates therefor do
not bear a legend and Purchaser thereof is not
obligated to return such certificate for the
placement of a legend thereon, the Company shall use
its reasonable best efforts to cause its transfer
agent to electronically transmit the Common Stock
issuable upon conversion to Purchaser by crediting
the account of Purchaser's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission
system.
9.6 Bankruptcy. Purchaser shall be entitled to
exercise its right under Section 2.3 notwithstanding
the commencement of any case under 11 U.S.C. Section
101 et seq. (the "Bankruptcy Code"). In the event
the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the holder's
repricing right. The Company agrees, without cost
or expense to the holder, to take or consent to any
and all action necessary to effectuate relief under
11 U.S.C. Section 362.
10. Closing Conditions
10.1 Conditions to the Company's Obligation to Sell.
The Purchaser understands that the Company's
obligation to sell the Initial Shares and the
Additional Shares on the Initial Closing Date and the
Additional Closing Date, respectively, pursuant to
this Agreement is conditioned upon:
(a) the accuracy on each such date of the
representations and warranties of Purchaser contained
in this Agreement as if made thereon, and the
performance by Purchaser on or before such date of
all covenants and agreements of Purchaser required to
be performed on or before such date;
(b) there not being in effect any law, rule or
regulation prohibiting or restricting the
transactions contemplated hereby, or requiring any
consent or approval which shall not have been
obtained, nor there being any pending or threatened
proceeding or investigation which may have the effect
of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
10.2. Conditions to Purchaser's Obligation To
Purchase. The Company understands that Purchaser's
obligation to purchase the Initial Shares and the
Additional Shares on the Initial Closing Date and the
Additional Closing Date, respectively, pursuant to
this Agreement is conditioned upon:
(a) the accuracy in all material respects on each
such date of the representations and warranties of
the Company contained in this Agreement as if made on
such date and the performance by the Company on or
before each such date of all covenants and agreements
of the Company required to be performed on or before
such date;
(b) on or before each such date, Purchaser having
received an opinion of counsel for the Company, dated
on each such date, in the form of Exhibit E hereto;
(c) there not being in effect any law, rule or
regulation prohibiting or restricting the
transactions contemplated hereby, or requiring any
consent or approval which shall not have been
obtained, nor there being any pending or threatened
proceeding or investigation which may have the effect
of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement; and
(d) from and after the date hereof to and including
the Initial Closing Date and the Additional Closing
Date, the trading of the Common Stock shall not have
been suspended by the SEC or the NASD.
11. General Provisions.
11.1 Assignment. Neither this Agreement nor any
rights of Purchaser hereunder may be assigned by
either party to any other person without the prior
written consent of the Company.
11.2 Attorneys' Fees. In the event any dispute
arises under this Agreement or the documents or
instruments executed and delivered in connection with
this Agreement, and the parties hereto resort to
litigation to resolve such dispute, the prevailing
party in any such litigation, in addition to all
other remedies at law or in equity, shall be entitled
to an award of costs and fees from the other party,
which costs and fees shall include, without
limitation, reasonable attorneys' fees and legal
costs.
11.3 Choice of Law; Venue. This Agreement shall be
governed by and interpreted in accordance with the
laws of the State of Delaware for contracts to be
wholly performed in such state and without giving
effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to
the jurisdiction of the federal courts whose
districts encompass any part of the City of
Wilmington or the state courts of the State of
Delaware sitting in the City of Wilmington in
connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any
objection based on forum non coveniens, to the
bringing of any such proceeding in such
jurisdictions.
11.4 Costs and Expenses. The parties shall be
responsible for and shall pay their own costs and
expenses, including without limitation attorneys'
fees and accountants' fees and expenses, in
connection with the conduct of the due diligence
inquiry, negotiation, execution and delivery of this
Agreement and the instruments, documents and
agreements executed in connection with this
Agreement.
11.5 Counterparts/Facsimile Signatures. This
Agreement may be executed in one or more
counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts
together shall constitute one and the same
instrument. In lieu of the original, a facsimile
transmission or copy of the original shall be as
effective and enforceable as the original.
11.6 Entire Agreement: Amendment. This Agreement,
together with the exhibits to this Agreement and the
other instruments and documents delivered in
connection with this Agreement constitute the full
and entire understanding and agreement between the
parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any
other party in any manner by any warranties,
representations or covenants except as specifically
set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written
instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge
or termination is sought.
11.7 Headings. The headings of the sections and
paragraphs of this Agreement have been inserted for
convenience of reference only and do not constitute a
part of this Agreement.
11.8 Notices. All notices or other communications
provided for under this Agreement shall be in
writing, and mailed, telecopied or delivered by hand
delivery or by overnight courier service, as follows:
If to the Company:
eConnect
2500 Via Cabrillo Marina, Suite 112
San Pedro, California 90731
Attention: Thomas Hughes
Fax No.: (310) 514-9442
With a copy to:
Brian F. Faulkner, Esq.
3900 Birch Street, Suite 113
Newport Beach, California 92660
Fax No.: (949) 975-0596
If to Purchaser:
Alpha Venture Capital, Inc.
P.O. Box 11
Avarua Raotonga
Cook Island
Attention: Mr. Brent Weenink, Director
Fax No.: (682) 20667)
With a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Fax No.: (212) 213-2077
All notices and communications shall be effective as
follows: When mailed, upon three (3) business days
after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the
telecopied notice; when hand delivered, upon
delivery; and when sent by overnight courier, the
next business day after deposit of the notice with
the overnight courier.
11.9 Publicity. Purchaser acknowledges that this
Agreement and all or part of the Transaction
Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation
S-B, and that the Company may therefore be required
to file such documents as exhibits to reports or
registration statements filed under the Securities
Act or the Exchange Act. Purchaser further agrees
that the status of such documents and materials as
material contracts shall be determined solely by the
Company, in consultation with its counsel. Purchaser
consents to the Company's public disclosure of this
Agreement in accordance with the Securities Act and
the Exchange Act.
11.10 Severability. Should any one or more of
the provisions of this Agreement be determined to be
illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from
the provision or provisions determined to be illegal
or unenforceable and shall not be affected thereby.
11.11 Survival Of Representations And Warranties.
The Company's representations and warranties herein
shall survive the execution and delivery of this
Agreement and the delivery of the Securities, and
shall inure to the benefit of Purchaser and its
successors and permitted assigns.
11.12 Schedules and Exhibits. The schedules and
exhibits attached to this Agreement are a part
hereof, as if fully set forth herein.
11.13 The Purchaser's obligation hereunder to
purchase Common Stock of the Company shall expire one
(1) year from the Effective Date; provided, however,
in the event that during the initial six (6) months
after the Effective Date of the Registration
Statement, Purchaser purchases at least one million
dollars ($1,000,000) in Common Stock pursuant to this
Agreement, the terms of this Agreement shall be
extended for an additional period of six (6) months.
IN WITNESS WHEREOF, the parties named below have
caused this Agreement to be executed and delivered as
of the date first above written.
COMPANY:
eConnect
By :______________________________
Thomas S. Hughes, President
PURCHASER:
Alpha Venture
Capital, Inc.
By:______________________________
Name:____________________________
Title:_____________________________
Exhibit A
DEFINITIONS
"Additional Closing" means the closing of the
transactions described in Section 1.2.
"Additional Closing Date" means the date on which
each Additional Closing takes place.
"Additional Shares" is defined in Section 1.2.
"Additional Warrant" means a warrant in the form of
Exhibit B hereto to purchase a number of shares of
Common Stock equal to ten percent (10%) of the number
of Additional Shares.
"Affiliate" has the meaning set forth in the Exchange
Act and the rules and regulations thereunder.
"Business Day" means a day on which the Nasdaq stock
market is open for regular trading.
"Closing Date" means either the Initial Closing Date
or the Additional Closing Date.
"Common Stock" means common stock, $0.001 par value
per share, of the Company.
"Effective Date" means the effective date of the
registration statement filed pursuant to the
Registration Rights Agreement.
"Escrow Agent" means the Person appointed as Escrow
Agent under the Joint Escrow Instructions.
"Escrow Funds" means the funds held by the Escrow
Agent under the Joint Escrow Instructions together
with all interest and income earned thereon.
"Exchange Act" is defined in Section 3.8.
"Initial Closing" means the closing of the
transactions described in Section 1.1.
"Initial Closing Date" means the date on which the
Initial Closing takes place.
"Initial Purchase Price" is defined in Section 1.1.
"Initial Shares" is defined in Section 1.1.
"Initial Warrant" means a warrant in the form of
Exhibit B hereto.
"Joint Escrow Instructions" means the joint escrow
instructions in the form of Exhibit C hereto.
"Market Price" means the closing bid price of the
Common Stock as reported, at the option of the Buyer,
by Bloomberg, LP or the National Association of
Securities Dealers.
"Material Adverse Effect" is defined in Section 4.5.
"Person" means an individual, corporation,
partnership, association, trust, estate or other
entity or organization, including a governmental
entity or agency.
"Put Notice" shall mean the notice delivered by the
Company to the Purchaser in compliance with the
notice provisions of Section 2.2 hereof.
"Registration Rights Agreement" means the
registration rights agreement in the form of Exhibit
D hereto.
"Relevant Purchase Price" means, (i) with respect to
the Initial Shares, the Initial Purchase Price and
(ii) with respect to the Additional Shares, the
Additional Purchase Price.
"SEC" means the U.S. Securities and Exchange
Commission.
"SEC Documents' is defined in Section 4.2.
"Securities" means the Initial Shares, the Additional
Shares, the Repricing Shares, the Warrants and the
shares issuable under the Warrants.
"Securities Act" is defined in Recital B.
"Share Escrow Agent" shall mean Union Securities
Limited of White Rock, B.C.
"Share Valuation Date" shall mean the fifth (5th)
business day after delivery of the Put Notice.
"Share Payment Date" shall mean the tenth (10th)
business day after the Put Notice.
"Subsidiaries" is defined in Section 4.5
"Trading Volume" shall mean the product of the Market
Price and the daily trading volume as reported by
Bloomberg, LP.
"Transaction Documents" is defined in Section 3.7.
"Warrants" means the Initial Warrant and the
Additional Warrant.
EXHIBIT 1 TO COMMON STOCK PURCHASE AGREEMENT
JOINT ESCROW INSTRUCTIONS
September 28, 1999
Union Securities Limited
2099 152nd Street, Suite 300
White Rock, B.C. V4A4N7 Canada
Attention: Marty Brown
RE: Alpha Venture Capital, Inc.
Dear Mr. Brown:
As escrow agent for both eConnect, Inc., a Nevada
corporation (the "Company"), and Alpha Venture
Capital, Inc., a Cook Islands corporation (the
"Purchaser") of Shares of the Company, who is named
in the Common Stock Purchase Agreement (the
"Agreement") between the Company and the Purchaser to
which a copy of these Joint Escrow Instructions is
attached as Exhibit 1 (the "Agreement"), you
(hereafter, the "Share Escrow Agent") are hereby
authorized and directed to hold the documents
delivered to the Share Escrow Agent pursuant to the
terms of the Agreement in accordance with the
following instructions:
1. Upon its acceptance of the Common Stock Purchase
Agreement, the Company shall deliver or cause to be
delivered to Share Escrow Agent, common stock share
certificates ("Share Certificate") of twenty million
(20,000,000) shares in ten (10) certificates of two
million (2,000,000) each.
2. The Share Certificates delivered to the Share
Escrow Agent pursuant hereto shall be deposited for
safekeeping with the Share Escrow Agent (the "Escrow
Account"). During the Escrow Period (hereinafter
defined), none of the Share Certificates deposited in
the Escrow Account shall become the property of
Purchaser or any other entity or be subject to the
debts of Purchaser or any other entity except as
expressly provided herein, and the Share Escrow Agent
shall neither make nor permit any disbursements or
deliveries from the Escrow Account except as
expressly provided herein.
3. The Escrow Period shall begin on the effective
date of the Agreement and, except as provided in
Section 4 below, shall continue until terminated
under Section 2.4(c) of the Agreement.
Notwithstanding the foregoing, if there remain Share
Certificates in the Escrow Account, all such Share
Certificates then remaining in the Escrow Account
shall forthwith be forwarded to Corporate Stock
Transfer, Inc., the transfer agent for the Company,
within five (5) business thereafter upon written
request given to Share Escrow Agent by the Company.
4. Not later than two (2) business days after the
Share Valuation Date, the Company shall deliver a
letter to the Share Escrow Agent advising the Share
Escrow Agent of the maximum number of shares that may
be sold by the Purchaser free of restrictive legend
pursuant to a Put Notice. Purchaser shall make
payment of the Put Notice Amount (less any applicable
legal or other fees) within three (3) business days
after delivery of such share letter to the Share
Escrow Agent ("Share Payment Date").
5. The Share Escrow Agent shall promptly, upon
receipt of such notice, deliver one or more share
certificates to the transfer agent for removal of
legend pursuant to the Irrevocable Instructions
annexed hereto, and upon receipt of such
certificates, shall cause same to be delivered to or
for the benefit of the Purchaser pursuant to written
instructions of the Purchaser.
6. The Company shall deliver to the Share Escrow
Agent appropriate written notice of any extension or
amendment to the Agreement.
7. The Share Escrow Agent's duties hereunder may be
altered, amended, modified or revoked only by a
writing signed by the Company, the Purchaser and the
Share Escrow Agent.
8. The Share Escrow Agent shall be obligated only
for the performance of such duties as are
specifically set forth herein and may rely and shall
be protected in relying or refraining from acting on
any instrument reasonably believed by the Share
Escrow Agent to be genuine and to have been signed or
presented by the proper party or parties. The Share
Escrow Agent shall not be personally liable for any
act the Share Escrow Agent may do or omit to do
hereunder as Share Escrow Agent while acting in good
faith, and any act done or omitted by the Share
Escrow Agent pursuant to the advice of the Share
Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.
9. The Share Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by
any of the parties hereto or by any other person or
corporation, excepting only orders or process of
courts of law and is hereby expressly authorized to
comply with and obey orders, judgments or decrees of
any court. In case the Share Escrow Agent obeys or
complies with any such order, judgment or decree, the
Share Escrow Agent shall not be liable to any of the
parties hereto or to any other person, firm or
corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without
jurisdiction.
10. The Share Escrow Agent shall not be liable in
any respect on account of the identity, authorities
or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any
documents or papers deposited or called for
hereunder.
11. The Share Escrow Agent shall be entitled, at its
own expense, to employ such legal counsel and other
experts as the Share Escrow Agent may deem necessary
properly to advise the Share Escrow Agent in
connection with the Share Escrow Agent's duties
hereunder, may rely upon the advice of such counsel,
and may pay such counsel reasonable compensation
therefor.
12. The Share Escrow Agent's responsibilities as
Share Escrow Agent hereunder shall terminate if the
Share Escrow Agent shall resign by written notice to
the Company and the Purchaser. In the event of any
such resignation, the Purchaser and the Company shall
appoint a successor Share Escrow Agent.
13. If the Share Escrow Agent reasonably requires
other or further instruments in connection with these
Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in
furnishing such instruments.
14. It is understood and agreed that should any
dispute arise with respect to the delivery and/or
ownership or right of possession of the documents
held by the Share Escrow Agent hereunder, the Share
Escrow Agent is authorized and directed in the Share
Escrow Agent's sole discretion (1) to retain in the
Share Escrow Agent's possession without liability to
anyone all or any part of said documents or Share
Escrow Funds until such disputes shall have been
settled either by mutual written agreement of the
parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has
been perfected, but the Escrow Agent shall be under
no duty whatsoever to institute or defend any such
proceedings or (2) to deliver the Share Escrow Funds
and any other property and documents held by the
Share Escrow Agent hereunder to a state or federal
court having competent subject matter jurisdiction
and located in the State and City of New York in
accordance with the applicable procedure therefor.
15. The Company and the Purchaser agree jointly and
severally to indemnify and hold harmless the Share
Escrow Agent from any and all claims, liabilities,
costs or expenses in any way arising from or relating
to the duties or performance of the Share Escrow
Agent hereunder other than any such claim, liability,
cost or expense to the extent the same shall have
been determined by final, unappealable judgment of a
court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of the
Share Escrow Agent.
16. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified
herein) and shall be deemed effectively given upon
personal delivery or three business days after
deposit in the United States Postal Service, by
registered or certified mail with postage and fees
prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten
days advance written notice to each of the other
parties hereto.
If to Company:
eConnect
2500 Via Cabrillo Marina, Suite 112
San Pedro, California 90731
Attention: Thomas Hughes
Fax No.: (310) 514-9442
With a copy to:
Brian F. Faulkner, Esq.
3900 Birch Street
Suite 113
Newport Beach, California 92660
Fax No.: (949) 975-0596
If to Purchaser:
Alpha Venture Capital, Inc.
P.O. Box 11
Avarua Raotonga
Cook Island
Attention: Mr. Brent Weenink, Director
Fax No.: (682) 20667)
With a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, NY 10016
Attention: Samuel M. Krieger, Esq.
Fax No.: (212) 213-2077
If to Share Escrow Agent:
Union Securities Limited
2099 152nd Street, Suite 300
White Rock, B.C. V4A4N7 Canada
Attention: Mr. Marty Brown
Fax No.: (604) 541-1648
16. By signing these Joint Escrow Instructions, the
Escrow Agent becomes a party hereto only for the
purpose of these Joint Escrow Instructions; the
Escrow Agent does not become a party to the
Agreement. The Company and the Purchaser have become
parties hereto by their execution and delivery of the
Agreement, as provided therein.
17. This instrument shall be binding upon and inure
to the benefit of the parties hereto, and their
respective successors and permitted assigns and shall
be governed by the laws of the State of New York
without giving effect to principles governing the
conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be
legal and binding on all parties hereto.
18. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings
provided in the Agreement.
19. The rights and obligations of any party hereto
are not assignable without the written consent of the
other parties hereto.
eConnect
By:______________________________
Thomas S. Hughes, President
Alpha Venture Capital, Inc.
By: _____________________________
Name: ___________________________
Title: ____________________________
Union Securities Ltd.
By: _____________________________
Name: ___________________________
Title: ____________________________
EXHIBIT 2 TO COMMON STOCK PURCHASE AGREEMENT
JOINT ESCROW INSTRUCTIONS
September 28, 1999
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both eConnect, a Nevada
corporation (the "Company"), and Alpha Venture
Capital, Inc., a Cook Islands corporation ("Buyer")
of Common Stock (the "Common Stock") of the Company,
who is named in the Common Stock Purchase Agreement
between the Company and the Buyer to which a copy of
these Joint Escrow Instructions is attached as
Exhibit 2 (the "Agreement"; capitalized terms used
herein and not otherwise defined herein shall have
the respective meanings provided in the Agreement),
you (hereafter, the "Escrow Agent") are hereby
authorized and directed to hold the documents and
funds (together with any interest thereon, the
"Escrow Funds") delivered to the Escrow Agent
pursuant to the terms of the Agreement in accordance
with the following instructions:
1. The Escrow Agent shall, as promptly as feasible,
notify the Company of receipt of the Purchase Price
for the relevant Common Stock from or on behalf of
the Buyer, and notify the Buyer (or such agent as the
Buyer may designate in writing) of receipt of the
relevant Common Stock . As promptly as feasible upon
receipt of notice (whether oral or in written form)
from the Company and the Buyer that the respective
conditions precedent to the purchase and sale have
been satisfied (which notice shall not be
unreasonably withheld), the Escrow Agent shall, after
reduction by the amounts referred to in the next
succeeding sentences of this paragraph, release the
relevant Escrow Funds to or upon the order of the
Company, and shall release the relevant Common Stock
to the Buyer. After receipt of such notice, the
amount of eight percent (8%) of the Purchase Price of
the relevant Common Stock as the aggregate cash fees
to the Buyer shall be released. If the Company or
the Buyer notifies the Escrow Agent that on the
relevant Closing Date the conditions precedent to
the obligations of the Company or the Buyer, as the
case may be, under the Agreement with respect to the
purchase and sale of Common Stock to be effected
that date were not satisfied or waived, then the
Escrow Agent shall return the relevant Escrow Funds
to the Buyer. Prior to return of any Escrow Funds to
the Buyer, the Buyer shall furnish such tax reporting
or other information as shall be appropriate for the
Escrow Agent to comply with applicable United States
laws. The Escrow Agent shall deposit all funds
received hereunder in the Escrow Agent's attorney
escrow account at The Bank of New York.
2. The Escrow Agent's duties hereunder may be
altered, amended, modified or revoked only by a
writing signed by the Company, the Buyer and the
Escrow Agent.
3. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set
forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument
reasonably believed by the Escrow Agent to be genuine
and to have been signed or presented by the proper
party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do
or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by
the Escrow Agent pursuant to the advice of the Escrow
Agent's attorneys-at-law shall be conclusive evidence
of such good faith.
4. The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of the
parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and
is hereby expressly authorized to comply with and
obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such
order, judgment or decree, the Escrow Agent shall not
be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such
decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been
entered without jurisdiction.
5. The Escrow Agent shall not be liable in any
respect on account of the identity, authorities or
rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any
documents or papers deposited or called for
hereunder.
6. The Escrow Agent shall be entitled to employ
such legal counsel and other experts as the Escrow
Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's
duties hereunder, may rely upon the advice of such
counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as
legal counsel for each Buyer and may continue to act
as legal counsel for such parties, from time to time,
notwithstanding its duties as the Escrow Agent
hereunder. The Company consents to the Escrow Agent
acting in such capacity as legal counsel for the
Buyer and waives any claim that such representation
represents a conflict of interest on the part of the
Escrow Agent. The Company understands that the Buyer
and the Escrow Agent are relying explicitly on the
foregoing provision in entering into these Joint
Escrow Instructions.
7. The Escrow Agent's responsibilities as escrow
agent hereunder shall terminate if the Escrow Agent
shall resign by written notice to the Company and the
Buyer. In the event of any such resignation, the
Buyer and the Company shall appoint a successor
Escrow Agent.
8. If the Escrow Agent reasonably requires other or
further instruments in connection with these Joint
Escrow Instructions or obligations in respect hereto,
the necessary parties hereto shall join in furnishing
such instruments.
9. It is understood and agreed that should any
dispute arise with respect to the delivery and/or
ownership or right of possession of the documents or
the Escrow Funds held by the Escrow Agent hereunder,
the Escrow Agent is authorized and directed in the
Escrow Agent's sole discretion (1) to retain in the
Escrow Agent's possession without liability to anyone
all or any part of said documents or the Escrow Funds
until such disputes shall have been settled either by
mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the
Escrow Agent shall be under no duty whatsoever to
institute or defend any such proceedings or (2) to
deliver the Escrow Funds and any other property and
documents held by the Escrow Agent hereunder to a
state or federal court having competent subject
matter jurisdiction and located in the State and City
of New York in accordance with the applicable
procedure therefor.
10. The Company and the Buyer agree jointly and
severally to indemnify and hold harmless the Escrow
Agent from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the
duties or performance of the Escrow Agent hereunder
other than any such claim, liability, cost or expense
to the extent the same shall (a) have been tax
obligations in connection with Escrow Agent's fee
hereunder, or (b) have been determined by final,
unappealable judgment of a court of competent
jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent,
or (c) be a liability, or arise from liability, to
either the Company or the Buyer.
11. Any notice required or permitted hereunder shall
be given in manner provided in the Section headed
"NOTICES" in the Agreement, the terms of which are
incorporated herein by reference.
12. By signing these Joint Escrow Instructions, the
Escrow Agent becomes a party hereto only for the
purpose of these Joint Escrow Instructions; the
Escrow Agent does not become a party to the
Agreement. The Company and the Buyer have become
parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure
to the benefit of the parties hereto, and their
respective successors and permitted assigns and shall
be governed by the laws of the State of New York
without giving effect to principles governing the
conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be
legal and binding on all parties hereto.
14. The rights and obligations of any party hereto
are not assignable without the written consent of the
other parties hereto. These Joint Escrow
Instructions constitute the entire agreement amongst
the parties with respect to the subject matter
hereof.
15. The Company agrees that the Placement Agent is a
third party beneficiary of the provisions of clause
(i) in Section 1 hereof and that such clause can not
be amended or revoked without the prior written
consent of the Placement Agent.
ACCEPTED BY ESCROW AGENT:
Krieger & Prager
By: _______________________________________
Date: _____________________________________
EXHIBIT 3 TO COMMON STOCK PURCHASE AGREEMENT
September 28, 1999
Corporate Stock Transfer, Inc.
370 17th Street, Suite 2350
Denver, Colorado 82020
Ladies and Gentlemen:
Reference is made to that certain Common Stock
Purchase Agreement (the "Purchase Agreement") between
eConnect, a Nevada corporation (the "Company"), and
Alpha Venture Capital, Inc., a Cook Islands
corporation (the "Holder") pursuant to which the
Company is issuing to the Holder certain shares (the
"Common Shares") of the Company's Common Stock,
$0.001 par value per share (the "Common Stock"), and
certain common stock purchase warrants exercisable
into shares of Common Stock. The Common Shares and
the shares of Common Stock issuable upon exercise of
the Warrants are referred to herein as the "Shares".
This letter shall serve as our irrevocable
authorization and direction to you (provided that you
are the transfer agent for the Company with respect
to its Common Stock at such time) to issue Shares,
from time to time, upon notice from the Company to
issue such Shares.
So long as you have previously received (1) an
opinion of the Company's outside counsel
substantially in the form attached hereto (which the
Company shall direct be delivered to you by such
outside counsel upon the effectiveness of the
registration statement covering resale of the Common
Shares) stating that a registration statement
covering resales of the Common Shares has been
declared effective by the U.S. Securities and
Exchange Commission under the Securities Act of 1933,
as amended, and that Common Shares may be issued (or
reissued if they have been issued at a time when t
here was not such an effective registration
statement) or resold without any restrictive legend
(the "Opinion"), and (2) a copy of such registration
statement, certificates representing Common Shares
shall not bear any legend restricting transfer of
Common Shares thereby and should not be subject to
any stop transfer restriction. Provided, however,
that if you have not previously received (1) a copy
of the Opinion, and (2) a copy of such registration
statement, then the certificates for Common Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
Please be advised that the Holder has relied upon
this letter as an inducement to enter into the
Purchase Agreement and, accordingly, the Holder is a
third party beneficiary to these instructions.
Please execute this letter in the space indicated to
acknowledge your agreement to act in accordance with
these instructions. Should you have any questions
concerning this matter, please contact me.
Sincerely,
eConnect
By: _______________________________
Thomas S. Hughes, President
ACKNOWLEDGED & AGREED:
Corporate Stock Transfer, Inc.
By: ________________________________
Name: _____________________________
Title: ______________________________
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"),
dated as of September ____, 1999, is made by and between
eConnect, a Nevada corporation ("Company"), and the person
named on the signature page hereto ("Subscriber").
Recitals
WHEREAS, upon the terms and subject to the
conditions of the Common Stock Purchase Agreement
("Purchase Agreement"), between the Subscriber and
the Company, and the commitment letter of September
15, 1999 ("Commitment Letter") the Company has agreed
to issue and sell to the Subscriber up to five
million dollars ($5,000,000) of the common stock of
the Company ("Subscribed Shares"), which will be
converted into free trading shares of the common
stock, $0.001 par value ("Common Stock"), of the
Company ("Conversion Shares") upon the terms and
subject to the conditions of such Subscribed Shares;
and
WHEREAS, pursuant to the terms of the Purchase
Agreement the Company will issue on the Effective
Date, as that term is defined below, to the
Subscriber one million (1,000,000) warrants
("Warrants"), exercisable at a strike price equal to
eighty percent (80%) of the closing bid price of the
Common Stock on the Effective Date, as defined in
Section 1 below, and a maximum of five hundred
thousand (500,000) warrants ("Further Warrants") on a
pro rata basis in conjunction with the draw downs, as
set forth in the Purchase Agreement, exercisable at
the closing bid price five (5) day average closing
bid price for the Common Stock for the five trading
days prior to the Effective Date.
WHEREAS, to induce the Subscriber to execute and
deliver the Purchase Agreement, the Company has
agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor
statute (collectively, "Securities Act"), and
applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants contained herein and other
good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
Company and the Subscriber hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following
terms shall have the following meaning:
(i) "Effective Date" means the date of this
Agreement.
(ii) "Subscriber" means the Subscriber and any
transferee or assignee who agrees to become bound by
the provisions of this Agreement in accordance with
Section 9 hereof.
(iii) "Register", "registered" and
"registration" refer to a registration effected by
preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any
successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration
Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the
Conversion Shares and Warrants.
(iv) "Registration Statement" means a
registration statement of the Company under the
Securities Act.
(b) As used in this Agreement, the term
Subscriber includes (i) each Subscriber (as defined
above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities
pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not
otherwise defined herein shall have the respective
meanings set forth in the Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall
prepare and file with the SEC, no later than five (5)
days after the Effective Date, a post-effective
amendment to the Registration Statement on Form SB-2
declared effective by the SEC on September 7, 1999
("Registration Statement"), covering a sufficient
number of shares of Common Stock for the Subscribers
to cover the registration of the $5,000,000 of
Subscribed Shares and the conversion of the 1,500,000
Warrants and Further Warrants. The Registration
Statement shall cover a total of 61,000,000 shares of
the Common Stock. Such Registration Statement shall
state that, in accordance with the Securities Act, it
also covers such indeterminate number of additional
shares of Common Stock as may become issuable to
prevent dilution resulting from Stock splits, or
stock dividends. If at any time the number of shares
of Common Stock into which the Subscribed Shares and
Warrants issued in this offering may be converted
exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten
(10) business days after receipt of written notice
from any Subscriber, file with the SEC an additional
Registration Statement on Form SB-2 or any other
applicable registration statement, to register the
shares of Common Stock into which the Subscribed
Shares may be converted that exceed the aggregate
number of shares of Common Stock already registered.
(b) Payment by the Company. If the post-
effective amendment to the Registration Statement
covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof
is not declared effective within fifteen (15) days
from the Effective Date, then the Commitment between
the parties, as reflected in letter of understanding
dated September 15, 1999, shall terminate and the
Subscriber shall retain the Warrants and non-
refundable fee as described in the Commitment Letter.
The Company acknowledges that its failure to have the
post-effective amendment to the Registration
Statement declared effective within fifteen (15) days
from the Effective Date shall cause the Subscriber to
suffer damages in an amount that shall be difficult
to ascertain. Accordingly, the parties agree that it
is appropriate to include in this Agreement a
provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages
provision set forth in this section represents the
parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its
obligations to register the Common Stock and deliver
the Common Stock pursuant to the terms of this
Agreement, the Purchase Agreement and the Subscribed
Shares.
3. Obligation of the Company. In connection
with the registration of the Registrable Securities,
the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC
within five (5) days of the Effective Date, a post-
effective amendment to the Registration Statement
with respect to not less than the number of
Registrable Securities provided in Section 2(a),
above, and thereafter use its best efforts to cause
each Registration Statement relating to Registrable
Securities to become effective the earlier of (i)
five (5) business days after notice from the
Securities and Exchange Commission that the
Registration Statement may be declared effective, or
(b) fifteen (15) days after the Effective Date, and
keep the Registration Statement effective at all
times until the earliest of (i) the date that is one
year after the completion of the last Closing Date
under the Purchase Agreement, (ii) the date when the
Subscribers may sell all Registrable Securities under
Rule 144 without volume limitations, or (iii) the
date the Subscribers no longer own any of the
Registrable Securities ("Registration Period"), which
Registration Statement (including any amendments or
supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
in which they were made, not misleading;
(b) Prepare and file with the SEC such
amendments (including post-effective amendments) and
supplements to the Registration Statement and the
prospectus used in connection with the Registration
Statement as may be necessary to keep the
Registration effective at all times during the
Registration Period, and, during the Registration
Period, comply with the provisions of the Securities
Act with respect to the disposition of all
Registrable Securities of the Company covered by the
Registration Statement until such time as all of such
Registrable Securities have been disposed of in
accordance with the intended methods of disposition
by the seller or sellers thereof as set forth in the
Registration Statement;
(c) Furnish to each Subscriber whose
Registrable Securities are included in the
Registration Statement and its legal counsel
identified to the Company, (i) promptly after the
same is prepared and publicly distributed, filed with
the SEC, or received by the Company, one (1) copy of
the Registration Statement, each preliminary
prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of
a prospectus, including a preliminary prospectus, and
all amendments and supplements thereto and such other
documents, as such Subscriber may reasonably request
in order to facilitate the disposition of the
Registrable Securities owned by such Subscriber;
(d) Use its best efforts to (i) register and
qualify the Registrable Securities covered by the
Registration Statement under such other securities or
blue sky laws of such jurisdictions as the
Subscribers who hold a majority in interest of the
Registrable Securities being offered reasonably
request and in which significant volumes of shares of
Common Stock are traded, (ii) prepare and file in
those jurisdictions such amendments (including post-
effective amendments) and supplements to such
registrations and qualifications as may be necessary
to maintain the effectiveness thereof at all times
during the Registration Period, (iii) take such other
actions as may be necessary to maintain such
registrations and qualification in effect at all
times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable
to qualify the Registrable Securities for sale in
such jurisdictions: provided, however, that the
Company shall not be required in connection therewith
or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not
otherwise be required to qualify but for this Section
3(d), (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to
service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal
expense or burden to the Company or (E) make any
change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the
Board of Directors of the Company determines to be
contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware
of such event, notify each Subscriber of the
happening of any event of which the Company has
knowledge, as a result of which the prospectus
included in the Registration Statement, as then in
effect, includes any untrue statement of a material
fact or omits to state a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading ("Registration
Default"), and uses its best efforts promptly to
prepare a supplement or amendment to the Registration
Statement or other appropriate filing with the SEC to
correct such untrue statement or omission, and any
other necessary steps to cure the Registration
Default, and deliver a number of copies of such
supplement or amendment to each Subscriber as such
Subscriber may reasonably request. Failure to cure
the Registration Default within ten (10) business
days shall result in the Company including liquidated
damage penalty of $1,000 per day for so long as more
than 10,000 shares of Common Stock are held by the
Subscriber;
(f) As promptly as practicable after becoming
aware of such event, notify each Subscriber who holds
Registrable Securities being sold (or, in the event
of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any
notice of effectiveness or any stop order or other
suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if
eligible, either to (i) cause all the Registrable
Securities covered by the Registration Statement to
be listed on a national securities exchange and on
each additional national securities exchange on which
securities of the same class or series issued by the
Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under
the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered
by the Registration Statement as a National
Association of Securities Dealers Automated
Quotations System ("NASDAQ") "Small Capitalization"
within the meaning of Rule 11Aa2-1 of the SEC under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ Small Cap Market; or if,
despite the Company's commercially reasonable efforts
to satisfy the preceding clause (i) or (ii), the
Company is unsuccessful in doing so, to secure NASD
authorization and quotation for such Registrable
Securities on the over-the-counter bulletin board
and, without limiting the generality of the
foregoing, to arrange for at least two market makers
to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with
respect to such registrable securities;
(h) Provide a transfer agent for the
Registrable Securities not later than the effective
date of the Registration Statement;
(i) Cooperate with the Subscribers who hold
Registrable Securities being offered to facilitate
the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such
certificates for the Registrable Securities to be in
such denominations or amounts as the case may be, as
the Subscribers may reasonably request and
registration in such names as the Subscribers may
request; and, within five (5) business days after a
Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer
agent for the Registrable Securities (with copies to
the Subscribers whose Registrable Securities are
included in such Registration Statement) an
appropriate instruction and opinion of such counsel,
if so required by the Company's transfer agent; and
(j) Take all other reasonable actions necessary
to expedite and facilitate distribution to the
Subscriber of the Registrable Securities pursuant to
the Registration Statement.
4. Obligations of the Subscribers. In
connection with the registration of the Registrable
Securities, the Subscribers shall have the following
obligations;
(a) It shall be a condition precedent to the
obligations of the Company to complete the
registration pursuant to this Agreement with respect
to the Registrable Securities of a particular
Subscriber that such Subscriber shall timely furnish
to the Company such information regarding itself, the
Registrable Securities held by it, and the intended
method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect
the registration of such Registrable Securities and
shall timely execute such documents in connection
with such registration as the Company may reasonably
request.
(b) Each Subscriber by such Subscriber's
acceptance of the Registrable Securities agrees to
cooperate with the Company as reasonably requested by
the Company in connection with the preparation and
filing of the Registration Statement hereunder,
unless such Subscriber has notified the Company in
writing of such Subscriber's election to exclude all
of such Subscriber's Registrable Securities from the
Registration Statement; and
(c) Each Subscriber agrees that, upon receipt
of any notice from the Company of the happening of
any event of the kind described in Section 3(e) or
3(f), above, such Subscriber will immediately
discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such
Registrable Securities until such Subscriber's
receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and,
if so directed by the Company, such Subscriber shall
deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such
Subscriber's possession, of the prospectus covering
such Registrable Securities current at the time of
receipt of such notice.
5. Expenses of Registration. All
reasonable expenses, other than underwriting
discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to
Section 3, but including, without limitations, all
registration, listing, and qualifications fees,
printers and accounting fees, the fees and
disbursements of counsel for the Company, and review
by Subscribers' counsel, shall be borne by the
Company.
6. Indemnification. After Registrable
Securities are included in a Registration Statement
under this Agreement:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Subscriber who
holds such Registrable Securities, the directors, if
any, of such Subscriber, the officers, if any, of
such Subscriber, each person, if any, who controls
any Subscriber within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages,
liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may
become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such Claims (or actions
or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
of the Registration Statement or any post-effective
amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement or any post-effective
amendment thereof or any prospectus included therein:
(i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration
Statement or any post-effective amendment thereof or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective
date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary
to make the statements made therein, in light of the
circumstances under which the statements therein were
made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities
Act, the Exchange Act, any state securities law or
any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters
in the foregoing clauses (i) through (iii) being
collectively referred to as "Violations"). The
Company shall reimburse the Subscribers, promptly as
such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable
expenses incurred by them in connection with
investigating or defending any such Claim.
Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in
this Section 6(a) shall not (i) apply to any Claims
arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf
of any Indemnified Person expressly for use in
connection with the preparation of the Registration
Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available
by the Company pursuant to Section 3(b) hereof; (ii)
with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the
untrue statement or omission of material fact
contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented,
if such prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (iii) be
available to the extent such Claim is based on a
failure of the Subscriber to deliver or cause to be
delivered the prospectus made available by the
Company; or (iv) apply to amounts paid in settlement
of any Claim if such settlement is effected without
the prior written consent of the Company, which
consent shall not be unreasonably withheld. Each
Subscriber will indemnify the Company, its officers,
directors and agents (including Counsel) against any
claims arising out of or based upon a Violation which
occurs in reliance upon and in conformity with
information furnished in writing to the Company, by
or on behalf of such Subscriber, expressly for use in
connection with the preparation of the Registration
Statement, subject to such limitations and conditions
as are applicable to the Indemnification provided by
the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified
Person or Indemnified Party and shall survive the
transfer of the Registrable Securities by the
Subscribers pursuant to Section 9.
(b) Promptly after receipt by an Indemnified
Person under this Section 6 of notice of the
commencement of any action (including any
governmental action), such Indemnified Person shall,
if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver
to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the
Indemnified Person, as the case may be; provided,
however, that an Indemnified Person shall have the
right to retain its own counsel with the reasonable
fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the
representation by such counsel of the Indemnified
Person and the indemnifying party would be
inappropriate due to actual or potential differing
interests between such Indemnified Person and any
other party represented by such counsel in such
proceeding. In such event, the Company shall pay for
only one separate legal counsel for the Subscribers;
such legal counsel shall be selected by the
Subscribers holding a majority in interest of the
Registrable Securities included in the Registration
Statement to which the Claim relates. The failure to
deliver written notice to the indemnifying party
within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party
of any liability to the Indemnified Person under this
Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such
action. The indemnification required by this Section
6 shall be made by periodic payments of the amount
thereof during the course of the investigation or
defense, as such expense, loss, damage or liability
is incurred and is due and payable.
7. Contribution. To the extent any
indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution
shall be made under circumstances where the maker
would not have been liable for indemnification under
the fault standards set forth in Section 6; (b) no
seller of Registrable Securities guilty or fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable
Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller
of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view
to making available to the Subscribers the benefits
of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that
may at any time permit the Subscribers to sell
securities of the Company to the public without
registration ("Rule 144"), the Company agrees to use
its reasonable best efforts to:
(a) make and keep public information available,
as those terms are understood and defined in Rule
144;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company
under the Exchange Act; and
(c) furnish to each Subscriber so long as such
Subscriber owns Registrable Securities, promptly upon
request, (i) a written statement by the Company that
it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and
documents so filed by the Company and (iii) such
other information as may be reasonably requested to
permit the Subscribers to sell such securities
pursuant to Rule 144 without registration.
9. Interest. Nothing contained herein shall
be deemed to establish or require the payment of
interest to the Subscriber at a rate in excess of the
maximum rate permitted by governing law. In the
event that the rate of interest required to be paid
hereunder exceeds the maximum rate permitted by
governing law, the rate of interest required to be
paid thereunder shall be automatically reduced to the
maximum rate permitted under the governing and any
amounts collected in excess of the permissible amount
shall be deemed a payment of principal. To the
extent that such excess amount exceeds the aggregate
principal amount of the Subscribed Shares, such
excess shall be returned with reasonable promptness
by the Subscriber to the Company.
10. Miscellaneous.
(a) Other Funding. The Company represents
and warrants that the Company is not at present
engaged in discussions, and will not be so engaged,
with any persons, except the Subscribers for the
placement of any equity financing for the Company via
any offerings and the Company will not be permitted
to issue any of its equity securities (or instruments
convertible into or exercisable for equity
securities) in any offerings, except to the Funds
managed my them in a period from the date of this
Agreement until September 15, 2000, or until the
minimum amount of one million dollars ($1,000,000) of
the Common Stock has been issued to the Subscribers,
whichever occurs first.
(b) Registered Owners. A person or entity is deemed
to be a holder of Registrable Securities whenever
such person or entity owns of record such Registrable
Securities. If the Company received conflicting
instructions, notices or elections from two or more
persons or entities with respect to the same
Registrable Securities, the Company shall act upon
the basis of instructions, notice or election
received from the registered owner of such
Registrable Securities.
(c) Rights Cumulative; Waivers. The rights of
each of the parties under this Agreement are
cumulative. The rights of each of the parties
hereunder shall not be capable of being waived or
varied other than by an express waiver or variation
in writing. Any failure to exercise or any delay in
exercising any of such rights shall not operate as a
waiver or variation of that or any other such right.
Any defective or partial exercise of any of such
rights shall not preclude any other or further
exercise of that or any other such right. No act or
course of conduct or negotiation on the part of any
party shall in any way preclude such party from
exercising any such right or constitute a suspension
or any variation of any such right.
(d) Benefit; Successors Bound. This Agreement and
the terms, covenants, conditions, provisions,
obligations, undertakings, rights, and benefits
hereof, shall be binding upon, and shall inure to the
benefit of, the undersigned parties and their heirs,
executors, administrators, representatives,
successors, and permitted assigns.
(e) Entire Agreement. This Agreement contains the
entire agreement between the parties with respect to
the subject matter hereof. There are no promises,
agreements, conditions, undertakings, understandings,
warranties, covenants or representations, oral or
written, express or implied, between them with
respect to this Agreement or the matters described in
this Agreement, except as set forth in this
Agreement. Any such negotiations, promises, or
understandings shall not be used to interpret or
constitute this Agreement.
(f) Assignment. The rights to have the
Company register Registrable Securities pursuant to
this Agreement shall be assigned by the Subscribers
to any transferee, only if: (a) the Subscriber
agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the
securities with respect to which such registration
rights are being transferred or assigned, (c)
immediately following such transfer or assignment the
further disposition of such securities by the
transferee or assignee is restricted under the
Securities Act and applicable state securities laws,
and (d) at or before the time the Company received
the written notice contemplated by clause (b) of this
sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions
contained herein. In the event of any delay in
filing or effectiveness of the Registration Statement
as a result of such assignment, the Company shall not
be liable for any damages arising from such delay, or
the payments set forth in Section 2(c) hereof.
(g) Amendment. Any provision of this Agreement
may be amended and the observance thereof may be
waived (either generally or in a particular instance
and either retroactively or prospectively), only with
the written consent of the Company and Subscribers
who hold a majority in interest of the Registrable
Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon
each Subscriber and the Company.
(h) Severability. Each part of this Agreement
is intended to be severable. In the event that any
provision of this Agreement is found by any court or
other authority of competent jurisdiction to be
illegal or unenforceable, such provision shall be
severed or modified to the extent necessary to render
it enforceable and as so severed or modified, this
Agreement shall continue in full force and effect.
(i) Notices. Notices required or permitted to
be given hereunder shall be in writing and shall be
deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line
facsimile transmission, receipt confirmed, or other
means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage
pre-paid (i) if to the Company, at its executive
office (ii) if to the Subscriber, at the address set
forth under its name in the Purchase Agreement, with
a copy to its designated attorney and (iii) if to any
other Subscriber, at such address as such Subscriber
shall have provided in writing to the Company, or at
such other address as each such party furnishes by
notice given in accordance with this Section 12(b),
and shall be effective, when personally delivered,
upon receipt and, when so sent by certified mail,
four (4) business days after deposit with the United
States Postal Service.
(j) Governing Law. This Agreement shall be governed
by the interpreted in accordance with the laws of the
State of California without reference to its
conflicts of laws rules or principles. Each of the
parties consents to the exclusive jurisdiction of the
federal courts of the State of California in
connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any
objection based on forum non coveniens, to the
bringing of any such proceeding in such
jurisdictions.
(k) Consents. The person signing this
Agreement on behalf of Client hereby represents and
warrants that he has the necessary power, consent and
authority to execute and deliver this Agreement on
behalf of Client.
(l) Further Assurances. In addition to the
instruments and documents to be made, executed and
delivered pursuant to this Agreement, the parties
hereto agree to make, execute and deliver or cause to
be made, executed and delivered, to the requesting
party such other instruments and to take such other
actions as the requesting party may reasonably
require to carry out the terms of this Agreement and
the transactions contemplated hereby.
(m) Section Headings. The Section headings in
this Agreement are for reference purposes only and
shall not affect in any way the meaning or
interpretation of this Agreement.
(n) Construction. Unless the context otherwise
requires, when used herein, the singular shall be
deemed to include the plural, the plural shall be
deemed to include each of the singular, and pronouns
of one or no gender shall be deemed to include the
equivalent pronoun of the other or no gender.
(o) Execution in Counterparts. This Agreement may be
executed in two or more counterparts, each of which
shall be deemed an original but all of which shall
constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective
officers thereunto duly authorized as of the day and
year first above written.
COMPANY:
eConnect
By:_________________________________
Thomas S. Hughes, President
SUBSCRIBER:
____________________________________
By:_________________________________
Name:______________________________
Title:_______________________________
WARRANT TO PURCHASE UP TO 1,500,000
SHARES OF COMMON STOCK
Exercisable Commencing September 28, 1999;
Void after September 28, 2004
THIS CERTIFIES that, for value received, Alpha
Venture Capital, Inc., a Cook Islands corporation or
its registered assigns (the "Warrantholder"), is
entitled, subject to the terms and conditions set
forth in this Warrant, to purchase from eConnect, a
Nevada corporation ("Company"), up to one million
five hundred thousand (1,500,000) fully paid, duly
authorized and nonassessable shares of common stock
("Shares"), $0.001 par value per share, of the
Company ("Common Stock"), at any time commencing
September 28, 1999 and continuing up to 5:00 p.m.
Pacific Daylight Time on September 28, 2004 (the
"Exercise Period") at an exercise price of eighty
percent (80%) of the closing bid price of the Common
Stock on the Effective Date, as defined in the
accompanying Registration Rights Agreement, as
reported by Bloomberg, LP, subject to adjustment
pursuant to Section 8 hereof.
This Warrant is subject to the following
provisions, terms and conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued
only in registered form.
1.2 Transfer. This Warrant shall be transferable only
on the books of the Company maintained at its principal
executive offices upon surrender thereof for registration
of transfer duly endorsed by the Warrantholder or by its duly
authorized attorney or representative, or accompanied
by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Warrant or Warrants in appropriate
denominations to the person or persons entitled thereto.
1.3 Common Stock to be Issued. Upon the exercise of any Warrants
and upon receipt by the Company of a facsimile or original of
Warrantholder's signed Election to Exercise Warrant (See Exhibit
A), Company shall instruct its transfer agent to issue
stock certificates, subject to the restrictive legend
set forth below, in the name of Warrantholder (or its
nominee) and in such denominations to be specified by
Warrantholder representing the number of shares of
Common Stock issuable upon such exercise, as applicable.
Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer
agent and that the Common Stock shall otherwise be freely
transferable on the books and records of the Company. It shall
be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the
certificate of Common Stock as provided herein,
including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so
required. The person in whose name the certificate
of Common Stock is to be registered shall be treated
as a shareholder of record on and after the exercise
date. Upon surrender of any Warrant that is to be
converted in part, the Company shall issue to the
Warrantholder a new Warrant equal to the unconverted
amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
REGISTRATION UNDER OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT.
Section 2. Exchange of Warrant Certificate.
Any Warrant certificate may be exchanged for another
certificate or certificates of like tenor entitling
the Warrantholder to purchase a like aggregate number
of Shares as the certificate or certificates
surrendered then entitle such Warrantholder to
purchase. Any Warrantholder desiring to exchange a
warrant certificate shall make such request in
writing delivered to the Company, and shall
surrender, properly endorsed, the certificate
evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to
the person entitled thereto a new Warrant certificate
as so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) (i) Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time after
September 28, 1999, but before 5:00 p.m. Pacific
Daylight Time on September 28, 2004, ("Expiration
Time"), to purchase from the Company up to the number
of Shares which the Warrantholder may at the time be
entitled to purchase pursuant to the terms of this
Warrant, upon surrender to the Company at its
principal executive office, of the certificate
evidencing this Warrant to be exercised, together
with the attached Election to Exercise Warrant form
duly filled in and signed, and upon payment to the
Company of the Warrant Price (as defined in and
determined in accordance with the provisions of
Section 7 and 8 hereof) or as provided in Section
3(a)(i) hereof, for the number of Shares with respect
to which such Warrant is then exercised. Payment of
the aggregate Warrant Price shall be made in cash,
wire transfer or by cashier's check or any
combination thereof.
(b) Subject to the terms of this Warrant, upon
such surrender of this Warrant and payment of such
Warrant Price as aforesaid, the Company shall
promptly issue and cause to be delivered to the
Warrantholder or to such person or persons as the
Warrantholder may designate in writing, a certificate
or certificates (in such name or names as the
Warrantholder may designate in writing) for the
number of duly authorized, fully paid and non-
assessable whole Shares to be purchased upon the
exercise of this Warrant, and shall deliver to the
Warrantholder Common Stock or cash, to the extent
provided in Section 9 hereof, with respect to any
fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be
deemed to have been issued and any person so
designated to be named therein shall be deemed to
have become a holder of such Shares as of the close
of business on the date of the surrender of this
Warrant and payment of the Warrant Price,
notwithstanding that the certificates representing
such Shares shall not actually have been delivered or
that the Share and Warrant transfer books of the
Company shall then be closed. This Warrant shall be
exercisable, at the sole election of the
Warrantholder, either in full or from time to time in
part and, in the event that any certificate
evidencing this Warrant (or any portion thereof) is
exercised prior to the Termination Date with respect
to less than all of the Shares specified therein at
any time prior to the Termination Date, a new
certificate of like tenor evidencing the remaining
portion of this Warrant shall be issued by the
Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile
or original of Warrantholder's signed Election to
Exercise Warrant, the Company shall instruct its
transfer agent to issue one or more stock
Certificates representing that number of shares of
Common Stock which the Warrantholder is entitled to
purchase in accordance with the terms and conditions
of this Warrant and the Election to Exercise Warrant
attached hereto. The Company shall act as Registrar
and shall maintain an appropriate ledger containing
the necessary information with respect to each
Warrant.
(d) Such exercise shall be effectuated by
surrendering to the Company, or its attorney, the
Warrants to be converted together with a facsimile or
original of the signed Election to Exercise Warrant
which evidences Warrantholder's intention to exercise
those Warrants indicated. The date on which the
Election to Exercise Warrant is effective ("Exercise
Date") shall be deemed to be the date on which the
Warrantholder has delivered to the Company a
facsimile or original of the signed Election to
Exercise Warrant, as long as the original Warrants to
be exercised are received by the Company or its
designated attorney within five (5) business days
thereafter. As long as the Warrants to be exercised
are received by the Company within five (5) business
days after it receives a facsimile or original of the
signed Election to Exercise Warrant, the Company
shall deliver to the Warrantholder, or per the
Warrantholder's instructions, the shares of Common
Stock within three (3) business days of receipt of
the Warrants to be converted.
(e) Nothing contained in this Warrant shall be
deemed to establish or require the payment of
interest to the Warrantholder at a rate in excess of
the maximum rate permitted by governing law. In the
event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law,
the rate of interest required to be paid thereunder
shall be automatically reduced to the maximum rate
permitted under the governing law and such excess
shall be returned with reasonable promptness by the
Warrantholder to the Company.
(f) It shall be the Company's responsibility to
take all necessary actions and to bear all such costs
to issue the Certificate of Common Stock as provided
herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent,
if so required. The person in whose name the
certificate of Common Stock is to be registered shall
be treated as a shareholder of record on and after
the exercise date. Upon surrender of any Warrants
that are to be converted in part, the Company shall
issue to the Warrantholder new Warrants equal to the
unconverted amount, if so requested by Warrantholder.
(g) The Company shall at all times reserve and
have available all Common Stock necessary to meet
exercise of the Warrants by all Warrantholders of the
entire amount of Warrants then outstanding. If, at
any time Warrantholder submits an Election to
Exercise Warrant and the Company does not have
sufficient authorized but unissued shares of Common
Stock available to effect, in full, a exercise of the
Warrants (a "Exercise Default", the date of such
default being referred to herein as the "Exercise
Default Date"), the Company shall issue to the
Warrantholder all of the shares of Common Stock which
are available, and the Election to Exercise Warrant
as to any Warrants requested to be converted but not
converted (the "Unconverted Warrants"), upon
Warrantholder's sole option, may be deemed null and
void. The Company shall provide notice of such
Exercise Default ("Notice of Exercise Default") to
all existing Warrantholders of outstanding Warrants,
by facsimile, within one (1) business day of such
default (with the original delivered by overnight or
two day courier), and the Warrantholder shall give
notice to the Company by facsimile within five (5)
business days of receipt of the original Notice of
Exercise Default (with the original delivered by
overnight or two day courier) of its election to
either nullify or confirm the Election to Exercise
Warrant.
(h) The Company shall furnish to Warrantholder
such number of prospectuses and other documents
incidental to the registration of the shares of
Common Stock underlying the Warrants, including any
amendment of or supplements thereto. Warrantholder
shall acknowledge in writing the receipt, the careful
reading, and the understanding thereof, prior to any
exercise under this Section 3.
(i) Each person in whose name any certificate
for shares of Common Stock shall be issued shall for
all purposes be deemed to have become the holder of
record of the Common Stock represented thereby on the
date on which the Warrant was surrendered and payment
of the purchase price and any applicable taxes was
made, irrespective of date of issue or delivery of
such certificate, except that if the date of such
surrender and payment is a date when the Shares
transfer books of the Company are closed, such person
shall be deemed to have become the holder of such
Shares on the next succeeding date on which such
Share transfer books are open. The Company shall not
close such Share transfer books at any one time for a
period longer than seven (7) days.
(j) This Warrant is exercisable in whole or in
part at the Exercise Price per share of Common Stock
(as defined hereafter) payable hereunder, payable in
cash or by certified or official bank check, or by
"cashless exercise", by means of tendering this
Warrant Certificate to the Company to receive a
number of shares of Common Stock equal in Market
Value to the difference between the Market Value of
the shares of Common Stock issuable upon exercise of
this Warrant and the total cash exercise price
thereof. Upon surrender of this Warrant Certificate
with the annexed Notice of Exercise duly executed,
together with payment of the Exercise Price for the
shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for
the shares of Common Stock so purchased. For the
purposes of this subsection, "Market Value" shall be
an amount equal to the average closing bid price of a
share of Common Stock for the ten (I 0) days
preceding the Company's receipt of the Notice of
Exercise Form duly executed multiplied by the number
of shares of Common Stock to be issued upon surrender
of this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall
pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Shares; provided,
however, that the Company shall not be required to
pay any tax or taxes which may be payable, (i) with
respect to any secondary transfer of this Warrant or
the Shares or (ii) as a result of the issuance of the
Shares to any person other than the Warrantholder,
and the Company shall not be required to issue or
deliver any certificate for any Shares unless and
until the person requesting the issuance thereof
shall have paid to the Company the amount of such tax
or shall have produced evidence that such tax has
been paid to the appropriate taxing authority.
Section 5. Mutilated or Missing Warrant.
In case the certificate or certificates evidencing
this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the
Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of
and substitution for the certificate or certificates
lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt
of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and of a bond of
indemnity, if requested, also satisfactory to the
Company in form and amount, and issued at the
applicant's cost. Applicants for such substitute
Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
Section 6. Reservation of Shares. The
issuance, sale and delivery of the Warrants have been
duly authorized by all required corporate action on
the part of the Company and when issued, sold and
delivered in accordance with the terms hereof and
thereof for the consideration expressed herein and
therein, will be duly and validly issued, fully paid,
and non-assessable and enforceable in accordance with
their terms, subject to the laws of bankruptcy and
creditors' rights generally. The Company shall pay
all taxes in respect of the issue thereof. As a
condition precedent to the taking of any action that
would result in the effective purchase price per
share of Common Stock upon the exercise of this
Warrant being less than the par value per share (if
such shares of Common Stock then have a par value),
the Company will take such corporate action as may,
in the opinion of its counsel, be necessary in order
that the Company may comply with all its obligations
under this Agreement with regard to the exercise of
this Warrant.
Section 7. Warrant Price. During the
Exercise Period, the price per Share ("Warrant
price") at which Shares shall be purchasable upon the
exercise of this Warrant shall be eighty percent
(80%) of the closing bid price of the Common Stock on
the Effective Date as reported by Bloomberg, LP,
subject to adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Warrant Price and
Number of Shares. The number and kind of securities
purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from
time to time after the date hereof upon the happening
of certain events, as follows:
8.1 Adjustments. The number of Shares
purchasable upon the exercise of this Warrant shall
be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on
Common Stock in Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to
receive Common Stock, (ii) declare a dividend payable in cash
on its Common Stock and at substantially the same time offer
its shareholders a right to purchase new Common Stock (or
securities convertible into, exchangeable for or other entitling
a holder thereof to receive Common Stock) from the proceeds of such
dividend (all Common Stock so issued shall be deemed to have been
issued as a stock dividend), (iii) subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock,
(iv) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (v) issue by
reclassification of its Common Stock any shares of Common Stock of
the Company, the number of shares of Common Stock issuable upon
exercise of the Warrants immediately prior thereto shall be adjusted
so that the holders of the Warrants shall be entitled to receive
after the happening of any of the events described above that
number and kind of shares as the holders would have received
had such Warrants been converted immediately prior to the happening
of such event or any record date with respect thereto. Any
adjustment made pursuant to this subdivision shall become effective
immediately after the close of business on the record date in the
case of a stock dividend and shall become effective immediately
after the close of business on the effective date in the
case of a stock split, subdivision, combination or reclassification.
(b) In case the Company shall distribute,
without receiving consideration therefor, to all
holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends
other than as described in Section (8)(a)(ii)), then
in such case, the number of shares of Common Stock
thereafter issuable upon exercise of the Warrants
shall be determined by multiplying the number of
shares of Common Stock theretofore issuable upon
exercise of the Warrants, by a fraction, of which the
numerator shall be the closing bid price per share of
Common Stock on the record date for such
distribution, and of which the denominator shall be
the closing bid price of the Common Stock less the
then fair value (as determined by the Board of
Directors of the Company, whose determination shall
be conclusive) of the portion of the assets or
evidences of indebtedness so distributed per share of
Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become
effective immediately after the record date for the
determination of stockholders entitled to receive
such distribution.
(c) Any adjustment in the number of shares of
Common Stock issuable hereunder otherwise required to
be made by this Section 8 will not have to be
adjusted if such adjustment would not require an
increase or decrease in one percent (1%) or more in
the number of shares of Common Stock issuable upon
exercise of the Warrant. No adjustment in the number
of Shares purchasable upon exercise of this Warrant
will be made for the issuance of shares of capital
stock to directors, employees or independent
Warrantors pursuant to the Company's or any of its
subsidiaries' stock option, stock ownership or other
benefit plans or arrangements or trusts related
thereto or for issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment
of dividends or interest payable on securities of the
Company and the investment of additional optional
amounts in shares of Common Stock under such plan.
(d) Whenever the number of shares of Common
Stock issuable upon the exercise of the Warrants is
adjusted, as herein provided the Warrant Price shall
be adjusted (to the nearest cent) by multiplying such
Warrant Price immediately prior to such adjustment by
a fraction, of which the numerator shall be the
number of shares of Common Stock issuable upon the
exercise of each share of the Warrants immediately
prior to such adjustment, and of which the
denominator shall be the number of shares of Common
Stock issuable immediately thereafter.
(e) The Company from time to time by action of
its Board of Directors may decrease the Warrant Price
by any amount for any period of time if the period
is at least twenty (20) days, the decrease is
irrevocable during the period and the Board of
Directors of the Company in its sole discretion shall
have made a determination that such decrease would be
in the best interest of the Company, which
determination shall be conclusive. Whenever the
Warrant Price is decreased pursuant to the preceding
sentence, the Company shall mail to holders of record
of the Warrants a notice of the decrease at least
fifteen (15) days prior to the date the decreased
Warrant Price takes effect, and such notice shall
state the decreased Warrant Price and the period it
will be in effect.
8.2 Mergers, Etc. In the case of any (i)
consolidation or merger of the Company into any
entity (other than a consolidation or merger that
does not result in any reclassification, exercise,
exchange or cancellation of outstanding shares of
Common Stock of the Company), (ii) sale, transfer,
lease or conveyance of all or substantially all of
the assets of the Company as an entirety or
substantially as an entirety, or (iii)
reclassification, capital reorganization or change of
the Common Stock (other than solely a change in par
value, or from par value to no par value), in each
case as a result of which shares of Common Stock
shall be converted into the right to receive stock,
securities or other property (including cash or any
combination thereof), each holder of Warrants then
outstanding shall have the right thereafter to
exercise such Warrant only into the kind and amount
of securities, cash and other property receivable
upon such consolidation, merger, sale, transfer,
capital reorganization or reclassification by a
holder of the number of shares of Common Stock of the
Company into which such Warrants would have been
converted immediately prior to such consolidation,
merger, sale, transfer, capital reorganization or
reclassification, assuming such holder of Common
Stock of the Company (A) is not an entity with which
the Company consolidated or into which the Company
merged or which merged into the Company or to which
such sale or transfer was made, as the case may be
("constituent entity"), or an affiliate of a
constituent entity, and (B) failed to exercise his or
her rights of election, if any, as to the kind or
amount of securities, cash and other property
receivable upon such consolidation, merger, sale or
transfer (provided that if the kind or amount of
securities, cash and other property receivable upon
such consolidation, merger, sale or transfer is not
the same for each share of Common Stock of the
Company held immediately prior to such consolidation,
merger, sale or transfer by other than a constituent
entity or an affiliate thereof and in respect of
which such rights or election shall not have been
exercised ("non-electing share"), then for the
purpose of this Section 8.2 the kind and amount of
securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
non-electing shares). If necessary, appropriate
adjustment shall be made in the application of the
provision set forth herein with respect to the rights
and interests thereafter of the holder of Warrants,
to the end that the provisions set forth herein shall
thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any
shares of stock or other securities or property
thereafter deliverable on the exercise of the
Warrants. The above provisions shall similarly apply
to successive consolidations, mergers, sales,
transfers, capital reorganizations and
reclassifications. The Company shall not effect any
such consolidation, merger, sale or transfer unless
prior to or simultaneously with the consummation
thereof the successor company or entity (if other
than the Company) resulting from such consolidation,
merger, sale or transfer assumes, by written
instrument, the obligation to deliver to the holder
of Warrants such shares of stock, securities or
assets as, in accordance with the foregoing
provision, such holder may be entitled to receive
under this Section 8.2.
8.3 Statement of Warrants. Irrespective of
any adjustments in the Warrant Price of the number or
kind of shares purchasable upon the exercise of this
Warrant, this Warrant certificate or certificates
hereafter issued may continue to express the same
price and number and kind of shares as are stated in
this Warrant.
Section 9. Fractional Shares.
Any fractional shares of Common Stock issuable upon
exercise of the Warrants shall be rounded to the
nearest whole share or, at the election of the
Company, the Company shall pay the holder thereof an
amount in cash equal to the closing bid price
thereof. Whether or not fractional shares are
issuable upon exercise shall be determined on the
basis of the total number of Warrants the holder is
at the time exercising and the number of shares of
Common Stock issuable upon such exercise.
Section 10. No Rights as Stockholders:
Notices to Warrantholders. Nothing contained in this
Warrant shall be construed as conferring upon the
Warrantholder or its transferees any rights as a
stockholder of the Company, including the right to
vote, receive dividends, consent or receive notices
as a stockholder with respect to any meeting of
stockholders for the election of directors of the
Company or any other matter. If, however, at any
time prior to the Expiration Time and prior to the
exercise of this Warrant, any of the following events
shall occur:
(a) any action which would require an
adjustment pursuant to Section 8.1; or
(b) a dissolution, liquidation or winding up of the
Company or any consolidation, merger or sale of its
property, assets and business as an entirety; then in
any one or more of said events, the Company shall
give notice in writing of such event to the
Warrantholder at least ten (10) days prior to the
date fixed as a record date or the date of closing
the transfer books for the determination of the
shareholders entitled to any relevant dividend,
distribution, subscription rights, or other rights or
for the effective date of any dissolution,
liquidation of winding up or any merger,
consolidation, or sale of substantially all assets,
but failure to mail or receive such notice or any
defect therein or in the mailing thereof shall not
affect the validity of any such action taken. Such
notice shall specify such record date or the
effective date, as the case may be.
Section 11. Registration Rights. The Company
shall prepare and file with the U.S. Securities and
Exchange Commission, no later than five (5) days
after the Effective Date (as defined therein) of a
Registration Rights Agreement between the parties, a
post-effective amendment to the Registration
Statement on Form SB-2/A declared effective on
September 7, 1999 ("Registration Statement"),
covering a sufficient number of shares of Common
Stock to cover the conversion of this Warrant. If at
any time the number of shares of Common Stock into
which this Warrant shall be converted exceeds the
aggregate number of shares of Common Stock then
registered, the Company shall, within ten (10)
business days after receipt of written notice from
the Warrantholder, file with the SEC an additional
Registration Statement on Form SB-2 or any other
applicable registration statement, to register the
shares of Common Stock into which this Warrant may be
converted that exceed the aggregate number of shares
of Common Stock already registered.
Section 13. Miscellaneous.
(a) Benefits of this Agreement. Nothing in this
Warrant shall be construed to give to any person or
corporation other than the Company and the
Warrantholder any legal or equitable right, remedy or
claim under this Warrant, and this Warrant shall be
for the sole and exclusive benefit of the Company and
the Warrantholder.
(b) Rights Cumulative; Waivers. The rights of each
of the parties under this Warrant are cumulative.
The rights of each of the parties hereunder shall not
be capable of being waived or varied other than by an
express waiver or variation in writing. Any failure
to exercise or any delay in exercising any of such
rights shall not operate as a waiver or variation of
that or any other such right. Any defective or
partial exercise of any of such rights shall not
preclude any other or further exercise of that or any
other such right. No act or course of conduct or
negotiation on the part of any party shall in any way
preclude such party from exercising any such right or
constitute a suspension or any variation of any such
right.
(c) Benefit; Successors Bound. This Warrant and the
terms, covenants, conditions, provisions,
obligations, undertakings, rights, and benefits
hereof, shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs,
executors, administrators, representatives,
successors, and permitted assigns.
(d) Entire Agreement. This Warrant contains the
entire agreement between the parties with respect to
the subject matter hereof. There are no promises,
agreements, conditions, undertakings, understandings,
warranties, covenants or representations, oral or
written, express or implied, between them with
respect to this Warrant or the matters described in
this Warrant, except as set forth in this Warrant.
Any such negotiations, promises, or understandings
shall not be used to interpret or constitute this
Warrant.
(e) Assignment. This Warrant may be assigned if the
Assignment of Warrant, attached as Exhibit B to this
Warrant, is properly completed, executed and
delivered to the Company.
(f) Amendment. This Warrant may be amended
only by an instrument in writing executed by the
parties hereto.
(g) Severability. Each part of this Warrant is
intended to be severable. In the event that any
provision of this Warrant is found by any court or
other authority of competent jurisdiction to be
illegal or unenforceable, such provision shall be
severed or modified to the extent necessary to render
it enforceable and as so severed or modified, this
Warrant shall continue in full force and effect.
(h) Notices. Notices required or permitted to
be given hereunder shall be in writing and shall be
deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line
facsimile transmission, receipt confirmed, or other
means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage
pre-paid (i) if to the Company, at its executive
office (ii) if to the Subscriber, at the address set
forth under its name in the Purchase Agreement, with
a copy to its designated attorney and (iii) if to any
other Subscriber, at such address as such Subscriber
shall have provided in writing to the Company, or at
such other address as each such party furnishes by
notice given in accordance with this Section 12(b),
and shall be effective, when personally delivered,
upon receipt and, when so sent by certified mail,
four (4) business days after deposit with the United
States Postal Service.
(i) Governing Law. This Agreement shall be governed
by the interpreted in accordance with the laws of the
State of California without reference to its
conflicts of laws rules or principles. Each of the
parties consents to the exclusive jurisdiction of the
federal courts of the State of California in
connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any
objection based on forum non coveniens, to the
bringing of any such proceeding in such
jurisdictions.
(j) Consents. The person signing this Warrant
on behalf of the Company hereby represents and
warrants that he has the necessary power, consent and
authority to execute and deliver this Warrant on
behalf of the Company.
(k) Further Assurances. In addition to the
instruments and documents to be made, executed and
delivered pursuant to this Warrant, the parties
hereto agree to make, execute and deliver or cause to
be made, executed and delivered, to the requesting
party such other instruments and to take such other
actions as the requesting party may reasonably
require to carry out the terms of this Warrant and
the transactions contemplated hereby.
(l) Section Headings. The Section headings in
this Warrant are for reference purposes only and
shall not affect in any way the meaning or
interpretation of this Warrant.
(m) Construction. Unless the context otherwise
requires, when used herein, the singular shall be
deemed to include the plural, the plural shall be
deemed to include each of the singular, and pronouns
of one or no gender shall be deemed to include the
equivalent pronoun of the other or no gender.
IN WITNESS WHEREOF, the parties have caused this
Warrant to be duly executed, all as of the day and
year first above written.
COMPANY:
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
EXHIBIT A
ELECTION TO EXERCISE WARRANT
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within
Warrant for, and to purchase thereunder,
_______shares of Common Stock ("Shares") provided for
therein, and requests that certificates for the
Shares be issued in the name of:*
Name:________________________________________________
Address:_____________________________________________
Social Security No.__________________________________
or Tax ID Number:____________________________________
and, if such number of Shares shall not be all of the
Shares purchasable under the Warrant, that a new
Warrant certificate for the balance of the Shares
purchasable under the within Warrant be registered in
the name of the undersigned Warrantholder or his
Assignee* as indicated below and delivered to the
address stated below:
Dated: _________________, 19___
Name of Warrantholder of
Assignee (Please Print)___________________________________
Address:___________________________________________________
Signature:_________________________________________________
Signature Guaranteed:_______________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale,
assignment or transfer.
** Note: The above signature must correspond with
the name as written on the face of this Warrant
certificate in every particular, without alteration
or enlargement or any change whatever, unless this
warrant has been assigned.
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto
_____________________________________________________
_____________________________________________________
(Name and Address of Assignee must be Printed or
Typewritten)
the within Warrant, hereby irrevocably constituting
and appointing _________Attorney to transfer said
Warrant on the books of the Company, with full power
of substitution in the premises.
Dated: ___________________, 19____
________________________________**
Signature of Registered Holder
Signature Guaranteed:
________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale,
assignment or transfer.
** Note: The signature of this assignment must
correspond with the name as it appears upon the face
of the Warrant certificate in every particular,
without alteration or enlargement or any change
whatever.
Brian F. Faulkner
Attorney at Law
3900 Birch Street, Suite 113
Newport Beach, California 92660
September 27, 1999
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
I have acted as counsel to eConnect, a Nevada
corporation ("Company"), in connection with its
Registration Statement on Form SB-2 relating to the
registration of 61,000,000 shares of its common stock
("Shares"), $0.001 par value per Share, at a maximum
offering price of $0.60 per Share.
In my representation I have examined such documents,
corporate records, and other instruments as we have
deemed necessary or appropriate for purposes of this
opinion, including, but not limited to, the Articles
of Incorporation and Bylaws of the Company.
Based upon the foregoing, it is my opinion that the
Company is duly organized and validly existing as a
corporation under the laws of the State of Nevada,
and that the Shares, when issued and sold, will be
validly issued, fully paid, and non-assessable.
I hereby consent to the use of this opinion as an
exhibit to the Registration Statement.
Sincerely,
/s/ Brian F. Faulkner
Brian F. Faulkner, Esq.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL
YEAR ENDED AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its charter)
Missouri (2) 43-1239043
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification
No.)
31310 Eaglehaven Center, Suite 10, Rancho Palos
Verdes, California 90275
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $0.01 Par Value; Class A
Warrants
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) been subject to such filing
requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ].
The aggregate market value of the voting stock held
by non-affiliates of the registrant as of August 31,
1998: Common Stock, par value $0.01 per share --
$1,785,000. As of August 31, 1998, the registrant
had 14,284,234 shares of common stock issued and
outstanding.
(1) Effective on June 4, 1999, the name was changed
to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of
organization was changed to Nevada.
PART I.
ITEM 1. BUSINESS.
(a) Business Development
Betting, Inc., was organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP,
INC. On April 20, 1983, the Articles of
Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993, the
Articles of Incorporation were amended to change the
name of the corporation to Leggoons, Inc. In
addition to changing the company's name, the May
28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the par
value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons, Inc.,
declared a 14-for-1 stock split. Unless otherwise
indicated, all share and per share data are reflected
on a post split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of
its assets and liabilities to a third party assignee,
under an "Assignment for the Benefit of Creditors"
(the "Assignment"). An Assignment is a business
liquidation device available as an alternative to
bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the
"Assignee"), will be required to properly, timely,
and orderly dispose of all remaining assets for the
benefit of creditors. Leggoons, Inc., continued to
maintain its' status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales,
Inc.(HPOS). HPOS is a privately held corporation
focused on the emergence of the Personal Encrypted
Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase
from home with real time cash transactions.
Management believes the proprietary technology and
the large demand for wagering opportunities in
today's marketplace will combine to generate
substantial sales for Leggoons, Inc., over the medium
term.
Thomas S. Hughes, Chairman of HPOS, became Chairman
and President of Leggoons, Inc., on March 1, 1997.
He will focus on procedures, policies and state
approvals to begin home lottery, off track betting,
casino and sports ATM card and SMART card wagering. A
search is presently being conducted to locate a
CEO/COO for the Company. The CEO/COO will assemble a
team of professionals to develop the procedures and
policies of home ATM card and SMART card wagering.
This development process will include a close focus
on the political and the instant taxation of home
winnings issues associated with home ATM card and
SMART card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as
Chairman and President of the Leggoons, Inc.
Leggoons, Inc., intends to seek shareholder
ratification of its name change from Leggoons, Inc.
to Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the "Company") is positioning itself
to facilitate same as cash ATM card or smart card
transactions that are originating from bank host
processing centers and are being sent to gaming
operators. These transactions are being effected
with electronic equipment that allows self service
pay per play and no actual communications between the
player and the gaming operator. These types of
transactions will be originating from homes, offices,
and public walk in locations. The Company will act
as the interface that will communicate data to the
gaming operators, receive back their acknowledgment
of the transaction and then pass on this gaming
acknowledgment to the bank host processing center
that has been standing by for this information and
has already completed the bank authorization of the
pay per play transaction.
The business model of the Company is to receive a fee
per transaction paid to Betting, Inc. by the bank
host processing center at the moment of the
transaction. In general, this fee will be from
between 2% to 6% of the wager placed on a pay per
play or a $6 flat fee in the case of an account being
opened.
The internet gaming industry is an industry that has
developed significantly in recent years. The
internet gaming industry as a whole is under
increasing governmental scrutiny as the industry
develops. It is possible that at some point in the
future there could be legislation against gambling on
the internet or other similar methods.
Leggoons, Inc., was engaged in the design,
manufacture and distribution of apparel and related
accessories which are sold to better specialty and
department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork
Apparel and Snooggel. On January 19, 1996, Leggoons,
Inc., entered into a Licensing Agreement with Robert
Tamsky, a former director and employee of the
Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr.
Tamsky effective January 1, 1996, the right to use
the LEGGOONS trademark in connection with the design,
production, marketing, sales and sublicensing of all
clothing, wearing apparel and accessories bearing the
"LEGGOONS" symbol. This right will continue until
December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration
for the license, Mr. Tamsky, according to the
Licensing Agreement, shall pay to the Leggoons, Inc.
a royalty of five percent of the net sales of
"LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc., adopted
a formal plan to discontinue the designing, selling,
manufacturing and distribution of its apparel
products. As part of such plan, Leggoons, Inc.,
discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations
within twelve months of that date. On June 12, 1996,
Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors." Included
in the Assignment were the rights and obligations of
the Licensing Agreement.
Item 2. Description of Property.
Not Applicable
Item 3. Legal Proceedings.
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders.
Not Applicable
PART II.
Item 5. Market for Common Equity and Related
Stockholder Matters.
(a) Market Information
The Common Stock is traded in the over-the-counter
market and the range of closing bid prices shown
below is as reported by the OTC Bulletin Board. The
quotations shown reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
First Quarter 0.12 0
Second Quarter 0.08 0
Third Quarter 0.15 0.03
Fourth Quarter 0.20 0.06
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High Low
First Quarter 8 5.875
Second Quarter 8.125 7.625
Third Quarter 0.8125 0.0625
Fourth Quarter 0.5625 0.06
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there
were 400 beneficial shareholders of the Company's
Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend
to stockholders since it became a "C" corporation on
November 18, 1993. The Board of Directors presently
intends to retain any earnings to finance Company
operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the
Company's earnings, capital requirements and other
factors.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was
$196,968. The Company recognized $0 in revenue while
preparing the setup of the Company to commence
operations as a facilitator of same as cash ATM card
or smart card transactions that are originating from
bank host processing centers and are being sent to
gaming operators. The loss was due to consulting
fees of $122,020 and general and administrative
expenses of $74,948.
During the period September 1, 1996, through February
28, 1997, the Company was operating as Leggoons, Inc.
(a public shell available for merger or acquisition).
During this six month period the net loss from
continuing operations was $35,912. This loss was due
to general and administrative expenses of $35,912.
The primary general and administrative expenses
incurred during the six month period ended February
28, 1997, were legal expenses related to the HPOS
license agreement, accounting fees for the audit of
Leggoons, Inc., financial statements as of and for
the year ended August 31, 1996, and stock expenses
required to maintain Leggoons, Inc., public shell
status. During the period March 1, 1997, through
August 31, 1997, the Company was maintaining
operations as Betting, Inc. During this six month
period the net loss from continuing operations was
$1,663,533. This loss was due to operating expenses
of $1,663,533. The operating expenses were
consulting fees of $565,740, research and development
expenses of $450,331, software development costs of
$507,600 and general and administrative expenese of
$139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August
31, 1998, the Company issued 6,441,000 shares of
common stock for services rendered and payments on
accounts payable and due to stockholder. For the
shares of common stock issued for services rendered
and payments on accounts payable during the period
September 1, 1997, through August 31, 1998, the
following valuation policies were used so that a
financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the
1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used to
determine "fair market value" of the 2,322,000
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 2,750,000 shares, were valued at par value,
$.01 per share. For the 2,750,000 shares of common
stock issued for which no performance was received a
stop has been placed on the stock certificates with
the Company's stock transfer agent.
The financial value of the common stock issued for no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $153,160, has primarily been expensed
as $122,020 in consulting fees and $31,140 in general
and administrative expenses during the year ended
August 31, 1998. Some of the common stock shares
issued were registered with the Securities and
Exchange Commission using Form S-8 Registration
Statements.
During the six month period from September 1, 1996,
through February 28, 1997, Leggoons, Inc., principal
stockholder, James S. Clinton, provided the operating
capital needed to fund operations. During the six
month period from March 1, 1997, through August 31,
1997, operations were funded via advances from HPOS
and by issuing common stock for funds and services
rendered. During the period March 1, 1997, through
August 31, 1997, the Company issued 4,710,234 shares
of common stock for services rendered. For the
2,999,734 shares of common stock issued for services
rendered during the period March 1, 1997, through May
31, 1997, the following valuation policies were used
so that a financial value could be assigned to the
stock issuance transactions: the closing "market"
stock price on the day of each common stock issuance
was used to determine "fair market value" of the
520,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used to
determine "fair market value" of the 1,725,734
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 754,000 shares, were valued at par value,
$.01 per share. For the 1,710,500 shares of common
stock issued for services rendered during the period
June 1, 1997, through August 31, 1997, an average
closing stock price of $.20 was used to determine
"fair market value" of each share issued so that a
financial value could be assigned to the stock
issuance transactions.
The financial value of the common stock issued for no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $1,297,805, has primarily been expensed
as $304,240 in consulting fees, $445,128 in research
and development costs, $500,000 in software
development costs and $48,437 in general and
administrative expenses during the year ended August
31, 1997. Some of the common stock shares issued
were registered with the Securities and Exchange
Commission using Form S-8 Registration Statements.
The common shares of stock issued for noncash
consideration were, in some cases, given for past
services rendered to HPOS in developing its' product.
The management of the Company is continuing its
search for additional private investors to provide
the funds needed to fund day to day operations. It
is also the goal of management to register and
complete additional public stock offerings of its
common stock.
The Company has an accumulated deficit of $5,467,602.
The Company's losses from operations and inability
to generate sufficient cash flow from normal
operations to meet its obligations as they come due
raise substantial doubt about the Company's ability
to continue as a going concern. The Company's
ability to continue in existence is dependent upon
future developments, including obtaining financing
and achieving a level of profitable operations
sufficient to enable it to meet its obligations as
they become due.
Plan of Operations
The plan of the Company is to establish partners in
countries including, but not limited to, the United
Kingdom, China, Mexico, Australia and South Africa
with the stated goal being the establishment of the
wagering gate between the bank hosts in that country
and the gaming operators. The second phase will be
the connection between the various countrys' Company
wagering gates so that same day per play between
countries will be possible.
Establishing the wagering gate presence involves the
linking of Betting, Inc. to both the gaming operators
and the bank hosts. In effect, the Company will be a
data host processing center whose business is the
passing of messages back and forth between the bank
hosts and the gaming operators.
The Company is currently satisfying its cash
requirements by issuing Betting, Inc. common stock
for services rendered. The Company intends to issue
Betting, Inc. common stock at some point in the
future to satisfy a $237,000 obligation to the
designer and developer of the Merchant Response
Software used with the Company's hardware products.
The $237,000 obligation is included in accounts
payable at August 31, 1998.
On May 22, 1996, Leggoons, Inc., entered into an
Addendum to the Stock Purchase Agreement it initially
entered into on September 5, 1995, with Infinitron
Investments International, Inc. of Vancouver B.C.
("Infinitron"). Pursuant thereto 100% of the shares
of common stock of Infinitron would be exchanged for
approximately 4,797,500 shares of common stock of
Leggoons, Inc., which would represent approximately
95% of the post-split Leggoons, Inc., outstanding
common stock. The Addendum provided, among other
things, that Leggoons, Inc., would use its best
efforts to obtain SEC clearance of its proxy
statement by July 22, 1996, and Infinitron will use
its best efforts to fully cooperate with Leggoons,
Inc., in obtaining such clearance.
On July 3, 1996, counsel for Infinitron informed
Leggoons, Inc., that Infinitron does not intend to
proceed with the transactions contemplated by the
Stock Acquisition Agreement. Counsel for Infinitron
stated that the basis for that action was that he
noted "a number of irregularities in the
relationships and dealings among the principals of
Leggoons and Infinitron, " however he did not provide
any specifics relating to that allegation. Leggoons,
Inc., believes these claims to be baseless and
without merit.
Settlement negotiations have been completed,
including verbal approval by Infinitron and Leggoons,
Inc., of the settlement documents. Generally, under
the terms of the settlement, Leggoons, Inc.
shareholders are to receive 186,721 shares of
Infinitron common stock, which represents
approximately 3% of Infinitron's outstanding shares
of common stock on August 5, 1996. The 186,721
shares of common stock of Infinitron will be held for
the benefit of the Leggoons, Inc., stockholders as
their "loss of the bargain" under the proposed
merger.
As of March 31, 1999, the settlement agreement has
not been executed by all parties. If, and when, this
settlement agreement is executed the Company will be
able to determine how any proceeds of the settlement
agreement affect its plan of operations for the next
twelve months. There can be no assurance that a
settlement agreement will be executed and the
shareholders will receive any proceeds.
Year 2000 Issue
Most companies have computer systems that use two
digits to identify a year in the date field (e.g.
"99" for 1999). These systems must be modified to
handle turn-of-the century calculations. If not
corrected, systems failures or miscalculations could
occur, potentially causing disruptions of operations,
including, among other things, the inability to
process transactions or engage in other normal
business activities. This creates potential risk for
all companies, even if their own computer systems are
Year 2000 compliant.
The Company is in the process of developing an
ongoing program of communication with suppliers and
vendors to determine the extent to which those
companies are addressing Year 2000 compliance issues.
There can be no assurance that the Company will be
able to develop a contingency plan that will
adequately address issues that may arise in the Year
2000.
In 1999, a contingency plan will be developed in the
event key or critical suppliers or vendors are unable
to meet the Year 2000 compliance. The timeframe for
completing or documenting contingency plans has not
been finalized.
The Company's Year 2000 plans are based on
management's best estimates. Based on currently
available information, management does not believe
that the Year 2000 issues will have a material
adverse impact on the Company's financial condition
or results of operations; however, because of the
uncertainties in this area, no assurances can be
given in this regard.
Item 7. Financial Statements.
Financial statements as of and for the year
ended August 31, 1998, and for the year ended
August 31, 1997 are presented in a separate section
of this report following Part IV.
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
Not Applicable
PART III.
Item 9. Directors, Executive Officers and Compliance
With Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the Company
since March 1997. From 1993 to the present, he has
also served as the President of Electronic
Transactions & Technologies ("ET&T"), a privately
held Nevada corporation which developed terminals for
wireless home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President
of Hall Developments, a real estate development
company he founded in 1991, which employs a staff of
10 people. Mr. Hall spends approximately 20 hours
per week searching out strategic alliances for the
Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer
since 1991. Currently she owns and manages her own
firm, D. Diane Hewitt Designs. This firm's expertise
is churches and employs a staff of five people. Ms.
Hewitt currently devotes approximately 25 hours per
week in working with the Company's image development
and consulting with the Company's advertising firm.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, certain officers
and persons holding 10% or more of the Company's
common stock to file reports regarding their
ownership and regarding their acquisitions and
dispositions of the Company's common stock with the
Securities and Exchange Commission. The Company is
unaware that any required reports were not timely
filed.
Item 10. Executive Compensation.
The following table sets forth information concerning
compensation paid by BETTING, INC. for services
rendered during fiscal year 1998, 1997, and 1996 for
the Chief Executive Officer and for each of the
Company's other executive officers whose annual
salary and bonus exceeds $100,000.
Summary Compensation Table
Name and Year Salary Bonus Other Stock SARs Options Comp
Principal ($) ($) ($) ($) ($) ($)
Position
Thomas
Hughes 1998 -0- -0- -0- -0- -0- -0- -0-
Thomas
Hughes/ 1997 -0- -0- -0- 375,000 -0- -0- -0-
James S.
Clinton, 1996 -0- -0- -0- -0- -0- -0- -0-
President
and
Chief
Execu-
tive
Officer
*Perquisites and other personal benefits are omitted
because they do not exceed either $50,000 or 10% of
the total of annual salary and bonus for the named
executive officer.
Item 11. Security Ownership of Certain Beneficial
Owners and Management.
The following table sets forth, as of August 31,
1998, the beneficial ownership of the Company's
Common Stock by each person who is known by the
Company to own beneficially more than 5% of the
issued and outstanding shares of the Company's Common
Stock.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Ownership Class
James S. Clinton 1,417,000 18.0%
30 Ginger Cove Road
Valley, NE 68064
Thomas S. Hughes 1,000,000 12.7%
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
On January 24, 1996, Mr. Larry Langston entered into
an Option Agreement with Steven Walters, a former
officer and director of Leggoons, Inc., which grants
Mr. Walters an option to purchase 261,500 of Mr.
Langston's common stock shares. The option price is
$100,000, the option may not be exercised prior to
November 23, 1996, and expires on July 24, 1997. Mr.
Walters, in turn, has assigned the right to purchase
130,750 of such shares to the Claude E. Clinton
Family Trust for which Mr. Clinton, an officer and
director of Leggoons, Inc., acts as Trustee (Mr.
Clinton is not the beneficiary of the trust but has
the right to vote the shares) in consideration of
$50,000 cash and a loan to Mr. Walters in the amount
of $50,000. The option was exercised by Mr. Walters.
However, the shares are not included in the total
shares for James S. Clinton due to the additional
shares being issued after August 31, 1998.
The following table shows, as of August 31, 1998,
certain information with respect to BETTING, INC.
Common Stock beneficially owned by directors and
executive officers of the Company. Unless otherwise
noted, all shares are owned directly or indirectly
with sole voting and investment power.
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Class
Amount and Nature of Ownership
Thomas S. Hughes 1,000,000 12.7%
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
All officers and 1,000,000 12.7%
directors as a group
(1 individual)
Shares reported include shares owned by spouses of
officers and directors. No options to acquire any
BETTING, INC. common stock are owned by any officer
or director.
Item 12. Certain Relationships and Related
Transactions.
During the past two fiscal years, certain
transactions which occurred between the Company and
its officers and directors are set forth below. With
respect to each such transaction, the Company
believes that the terms of each transaction were
approximately as favorable to the Company as could
have been obtained from an unrelated third party:
(1) The Company utilized cash accounts maintained by
ET&T to fund day to day operations of the Company
over the period of March 1998 through September 1998.
At August 31, 1998, the net result of these
transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of
restricted common stock to Thomas S. Hughes during
May 1997 in exchange for service rendered to the
Company. The Company did not receive any cash
consideration for this common stock issuance and has
treated this as an expense to the Company of
$375,000.
(3) On February 18, 1997, Leggoons, Inc. entered
into an Agreement to License Assets from Home Point
of Sales, Inc.("HPOS") (now known as ET&T) (this
agreement is incorporated by reference at Exhibit
10.1 to this Form SB-2). ET&T is a privately held
corporation 70% owned by Thomas S. Hughes, President
of the Company, which is focused on the emergence of
the Personal Encrypted Remote Financial Electronic
Card Transactions industry (although this agreement
was entered into prior to Mr. Hughes becoming
affiliated with the Company, it is included here
since certain of the conditions under that agreement
have not been completely fulfilled, as discussed
below).
The assets included under this agreement are the
following: (a) The name "Betting, Inc.", as
trademarked by HPOS; (b) The Wagering Gate (receive
incoming data transfer commands from the Host Center
and other competitive Host Centers who have received
ATM and SMART card wagering payment from off site
home or office locations and then who command the
Wagering GATE to alert the recipient gaming companies
that they have been paid and to respond back with an
acknowledgement of such payment; and, the general
promotion and education of home ATM and SMART card
wagering over the Internet through the HPOS Secure
Computer Keyboard or over the telephone through the
HPOS stand alone Infinity unit); (c) the specific
application of Wagering with an ATM card or SMART
card with the Secure Computer Keyboard (any other
uses of the Secure Computer Keyboard, such as Bill
Pay or Impulse Purchase that are not Wagering
transactions, are not included); (d) the HPOS
developed Merchant Response Software for the specific
application only of transacting Off Site ATM and
Smart card Wagering through the Wagering Gate; and
(e) HPOS' interest in the use of and revenue from the
HPOS Personal Encrypted Remote Financial Electronic
Card transaction relating to the Wagering Business in
all HPOS partner countries.
Under terms of this licensing agreement, the Company
is to issue 2,900,000 shares of restricted common
stock to HPOS in exchange for licensing home ATM card
and SMART card wagering technology developed by HPOS.
Of this amount, 2,755,000 shares were placed in
escrow subject to cancellation on February 10, 1998,
in the event the bid price of the common stock of the
Company is not at least $3.00 per share for any
twenty consecutive day period as reported on the
NASD's Electronic Bulletin Board or NASDAQ's Small
Cap Market from the date of the agreement through
February 10, 1998 (this escrow agreement is
incorporated by reference at Exhibit 10.2 to the Form
SB-2).
As of the date of this Form 10-KSB, the terms of the
Licensing Agreement have not been met by the Company.
However, the Company has entered into amendment(s)
of the original agreement that provide for an
extension of the cancellation deadline from February
10, 1998, to September 1, 1999, subject to certain
conditions specified in the agreement. All
conditions set forth in the original agreement need
to be met on or before September 1, 1999.
The License Agreement also provides that in the event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, then HPOS shall have the
option to purchase up to 13,822,000 additional shares
of the Company common stock at an exercise price of
$.30 per share.
(4) On April 28, 1997, the Company entered into
a Host Processing Agreement with ET&T for the purpose
of having ET&T act as the bank host processing for
all Company transactions that are sent by terminals
that read credit cards or ATM cards (this agreement
is incorporated by reference at Exhibit 10.3 to this
Form SB-2). ET&T is to charge the Betting, Inc. a
fee of $0.25 per transaction or 2.5% of the wager
being sent by Betting, Inc. to gaming operators.
These transactions are to originate from globally
placed Betting, Inc. equipment and/or Betting, Inc.
licensed operators.
(5) On March 27, 1998, the Company entered into a
License Agreement with ET&T for the purpose of
licensing additional technology for processing
electronic banking transactions (this agreement is
incorporated by reference at Exhibit 10.4 to this
Form SB-2). This licensing supplements the
technology licensed under the Agreement date February
18, 1997. This agreement states that ET&T licenses
the following ET&T products to Betting, Inc. for the
exclusive global usage of wagering by PERFECT
originated ATM cards, credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that
attaches to phone lines and which calls the ET&T host
processing center with bank data.
The SLICK, defined as a stand alone keyboard terminal
that attaches to phone lines and call the ET&T host
processing center with bank data that has bypassed
the Internet.
The PocketPay, defined as a pocket sized terminal and
telephone that sends bank data by wireless
transmission to the ET&T host processing center.
The TV Pin Pad Remote, defined as a set top box and
TV remote that sends bank data by landline dial up
transmission to the ET&T host processing center.
Each ET&T product is exclusively licensed to Betting,
Inc. on a global basis for the application of PERFECT
wagering at a licensing fee of $2,000,000 each. The
duration of the exclusive license is 20 years. The
licensing fee is to be paid by the Company at the
rate of $30,000 per month; however, under the terms
of this License Agreement, this fee is not due and
payable until the technology for a particular product
covered by the license has been perfected and is
ready for public use. As of the date of this Form
10-KSB, none of the products covered by the License
Agreement had been perfected, and, therefore, no
licensing fee is required to be paid at this time
(when this does occur, a statement to that effect
will be placed in a future report filed by the
Company).
PART IV.
ITEM 13. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants 16
Balance Sheets of the Company as
of August 31, 1998 and August 31, 1997 17
Statements of Operations for the year ended
August 31, 1998,the year ended August 31, 1997,
and the year ended August 31, 1996 18
Statement of Shareholders' Equity (Deficiency) for
the year ended June 30, 1998, the year ended
June 30, 1997, and the yearended June 30, 1996 19
Statements of Cash Flows for the year ended
June 30, 1998,the year ended June 30, 1997,
and the year ended June 30, 1996 20
Notes to Financial Statements 21
(b) Reports on Form 8-K. There are no reports on
Form 8-K filed during the last quarter of the fiscal
year covered by this report.
(c) Exhibits included or incorporated by reference
herein: See Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
eConnect (formerly known as Betting, Inc.)
Dated: August 6, 1999 By: /s/ Thomas S, Hughes
Thomas S. Hughes, President
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by
the following persons in the capacities and on the
date indicated:
Signature Title Date
/s/ Thomas S. Hughes President, Chief Executive August 6, 1999
Thomas S. Hughes Officer, Director
/s/ Jack M. Hall Director August 6, 1999
Jack M. Hall
/s/ Diane Hewitt Director August 6, 1999
Diane Hewitt
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 490
BEVERLY HILLS CALIFORNIA 90212
AUDITOR'S REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of
Betting, Inc. as of August 31, 1998 and the related
statements of operations, changes in stockholders'
equity, (deficit), and cash flows for the years ended
August 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management.
My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally
accepted auditing standards. Those standards require
that I plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatements. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement
presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Betting, Inc. as of August 31,
1998, and the results of its operations and its cash
flows for the years ended August 31, 1998 and 1997,
in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a
going concern. As more fully described in Note 8A
("Continued Existence") to the financial statements,
the Company's recurring losses from operations and
inability to generate sufficient cash flow from
normal operations raise substantial doubt about its
ability to continue as a going concern. Management's
plans in regard to these matters are also described
in Note 8A. The financial statements do not include
any adjustments to reflect the possible future
effects on the recoverability and classification of
assets or the amounts and classification of
liabilities that may result from the possible
inability of the Company to continue as a going
concern.
As discussed in Note 8B ("Common Stock Issued in
Excess of Authorized Shares") the Company is
attempting to convert excess shares of common shares
issued to preferred shares. The effect, if any, of
this uncertainty on the future operations of the
Company cannot presently be determined.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
April 7, 1999
Beverly Hills, Californi
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEETS
August 31, 1998
ASSETS
Current Assets:
Cash 0
Total current assets 0
Total Assets 0
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts payable 283,971
Due to related party 18,969
Commissions payable 21,400
Total current liabilities 324,340
Contingencies (Note 8)
Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding,
14,284,234 (Note 8b) 142,842
Preferred stock, $.01 par value,
authorized 5,000,000 shares; issued and
outstanding - none (Note 8b)
Additional paid-in capital 5,000,420
Accumulated deficit (5,467,602)
Total stockholders' equity (deficit) (324,340)
Total Liabilities and Stockholders'
Equity (Deficit) 0
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended August Year Ended August
31, 1998 31, 1997
Revenue 0 0
Operating Expenses
(Note 4)
Consulting Fees 122,020 565,740
General and
Administrative Expenses 74,948 175,774
Research and Development
Expenses 0 450,331
Software Development Costs 0 507,600
Total Operating Expenses (196,968) (1,699,445)
Net Loss (Note 1) (196,968) (1,699,445)
Net Loss per Common
Share (.02) (.41)
Weighted Average Common
Shares Outstanding 10,994,465 4,106,620
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Number Par Pref- Add'l Accum Stock
of Value erred paid ulated holders
common Stock in deficit equity
shares capital deficit
Balance at
August 31
1996 2,787,000 27,870 0 3,522,792 (3,571,189) (20,527)
Issuance of
346,000
sharesof
Common stock
at $.25 per
share (Cash
Transaction) 346,000 3,460 0 82,040 0 85,500
Issuance of
2,999,734
shares of
Common stock
(1) (Non-Cash
Transactions)2,999,734 29,997 0 925,708 0 955,705
Issuance of
1,710,500
shares of
Common stock
at $.20 per
share (Non-
Cash
Transactions)1,710,500 17,105 0 324,995 0 342,100
Net loss 0 0 0 0 (1,699,445)(1,699,445)
Balance at
August 31
1997 7,843,234 78,432 0 4,855,535 (5,270,634) (336,667)
Issuance of
6,441,000
shares of
Common
stock at
various $
per share
[1] (Non-
Cash
Transactions)6,441,000 64,410 0 144,885 0 209,295
Net loss 0 0 0 0 (196,968) (196,968)
Balance at
August 31
1998 14,284,234 142,842 0 5,000,420 (5,467,602) (324,340)
(1) S-8 common shares valued at market value on day
of issuance; Restricted common shares valued at
market value on day of issuance less 50% discount;
Common shares for which no performance was received
valued at par value of $.01 per common share.
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended August Year Ended August
31, 1998 31, 1997
Operating Activities
Continuing operations:
Net loss (Note 7) $(43,808) $(401,640)
Changes in assets and
liabilities:
Accounts payable 21,793 270,839
Commissions payable 3,001 18,399
Cash Used in Operating
Activities (19,014) (112,402)
Financing Activities
Continuing operations:
Proceeds from additional
borrowings from
stockholder 18,969 26,947
Proceeds from issuance
of common stock 0 85,500
Cash Provided by
Financing Activities 18,969 112,447
Net Increase (Decrease)
in Cash (45) 45
Cash at Beginning of
Year 45 0
Cash at End of Year 0 45
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the years
ended August 31, 1998 and 1997, respectively. The
following summarizes noncash investing and financing
transactions:
Year Ended August 31, 1998
Issuance of 5,341,000 shares of common
stock for services rendered $153,160
Issuance of 750,000 shares of common
stock for payment on due to stockholder 35,135
Issuance of 350,000 shares of common
stock for payment on accounts payable 21,000
Year Ended August 31, 1997
Issuance of 4,710,234 shares of common
stock for services rendered $1,297,805
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION
Betting, Inc. (the "Company") is positioning itself
to facilitate same as cash ATM card or smart card
transactions that are originating from bank host
processing centers and are being sent to gaming
operators. These transactions are being effected
with electronic equipment that allows self service
pay per play and no actual communications between the
player and the gaming operator. These type of
transactions will be originating from homes, offices,
and public walk in locations. The Company will act
as the interface that will communicate data to the
gaming operators, receive back their acknowledgment
of the transaction and then pass on this gaming
acknowledgment to the bank host processing center
that has been standing by for this information and
has already completed the bank authorization of the
pay per play transaction. The business model of the
Company is to receive a fee per transaction paid to
Betting, Inc. by the bank host processing center at
the moment of the transaction. In general, this fee
will be from between 2% to 6% of the wager placed on
a pay per play or a $6 flat fee in the case of an
account being opened. The Company has many
characteristics commonly associated with a
development stage company. A development stage
company devotes substantially all of its efforts to
establishing a new business and its planned principal
operations either (a) have not commenced or (b) have
commenced, but have not produced any significant
revenue. However, due to the company's previously
established operation as a public shell, a
development stage company presentation is not
appropriate for these financial statements.
Leggoons, Inc., was engaged in the design,
manufacture and distribution of apparel and related
accessories which were sold to better specialty and
department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork
Apparel and Snooggel. On January 19, 1996, Leggoons,
Inc., adopted a formal plan to discontinue the
designing, selling, manufacturing and distribution of
its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30,
1996, and intended to either sell or liquidate the
operations within twelve months of that date. On
June 12, 1996, Leggoons, Inc., transferred all of its
assets and liabilities to a third party assignee,
under an "Assignment for Benefit of Creditors." An
Assignment is a business liquidation device available
as an alternative to bankruptcy. The third party
assignee, a Nebraska corporation named Leggoons, Inc.
II, is required to properly, timely and orderly
dispose of all remaining assets for the benefit of
creditors. Leggoons, Inc., continued to maintain its
status as a shell corporation.
On February 18, 1997, Leggoons, Inc., entered into an
Agreement to License Assets from Home Point of Sales,
Inc.(HPOS). HPOS is a privately held corporation
focused on the emergence of the Personal Encrypted
Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase
from home with real time cash transactions.
Management believes the proprietary technology and
the large demand for wagering opportunities in
today's marketplace will combine to generate
substantial sales for Leggoons, Inc., over the medium
term.
Under terms of the Licensing Agreement, the Company
will issue 2,900,000 shares of restricted common
stock to HPOS in exchange for licensing home ATM card
and SMART card wagering technology developed by HPOS.
Of this amount, 2,755,000 shares will be placed in
escrow and are subject to cancellation on February
10, 1998, in the event the bid price of the common
stock of the Company is not at least $3.00 per share
for any twenty consecutive day period as reported on
the NASD's Electronic Bulletin Board or NASDAQ's
Small Cap Market from the date of the agreement
through February 10, 1998.
As of the date of these financial statements the
terms of the Licensing Agreement have not been met by
the Company. However, the Company has entered into
amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to
certain conditions specified in the agreement. As of
the date of these financial statements, none of the
conditions have been met. All conditions set forth
in the original agreement need to be met on or before
September 1, 1999.
The License Agreement also provides that in the event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, then HPOS shall have the
option to purchase up to 13,822,000 additional shares
of the Company common stock at an exercise price of
$.30 per share.
Thomas S. Hughes, Chairman of HPOS, became Chairman
and President of Leggoons on March 1, 1997. He will
focus on procedures, policies and State approvals to
begin home lottery, off track betting, casino and
sports ATM card and SMART card wagering. The Company
intends to seek shareholder approval of its name
change from Leggoons, Inc. to Betting, Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon
consummation of a transaction
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand,
demand deposits, and short-term investments with
original maturities of three months or less.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense
when incurred. Costs incurred to internally develop
software, including costs incurred during all phases
of development, are charged to expense as incurred.
STOCKHOLDERS' EQUITY
The following valuation policies were used so that a
financial value can be assigned to stock issuance
transactions: the closing "market" stock price on the
day of each common stock issuance was used to
determine "fair market value" of unrestricted common
shares issued; the closing "market" stock price on
the day of each common stock issuance less a 50%
discount was used to determine "fair market value" of
restricted common shares issued. Common shares that
were issued and for which no performance was received
were valued at par value, $.01 per share.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed
using the weighted average number of common and
common equivalent shares outstanding during the
period. Shares issuable pursuant to outstanding
stock warrants have been excluded from the
computation as the effect is antidilutive. Fully
diluted net loss per share for all periods presented
is not materially different from primary loss per
share.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for temporary
differences between the bases of assets and
liabilities for financial statement and income tax
purposes. If it is more likely than not that all or
some portion of a deferred tax asset will not be
realized, a valuation allowance is recorded. (See
Note 2)
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenue and expenses
during the reporting period. Actual results could
differ from those estimates.
(2) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August
31, 1998, that were generated by Leggoons, Inc. The
unused net operating losses expire in various amounts
from 2009 to 2012. However, due to change of
ownership rules of section 382 of the Internal
Revenue Code some or all of these NOL carryforwards
may be unavailable to offset any future income of
Betting, Inc. The Company generated losses of
approximately $1,658,000 during the six month period
ended August 31, 1997, and losses of approximately
$197,000 during the year ended August 31, 1998.
These losses, totaling $4,655,000 may not qualify as
federal and state NOL carryforwards due to the
possible nondeductibility of the noncash service
costs incurred and the change of ownership rules of
section 382 of the Internal Revenue Code. The
Company provides an allowance for the entire amount
of any deferred tax assets that are applicable to the
NOL.
(3) COMMON STOCK WARRANTS
The Company had outstanding warrants to purchase
approximately 900,000 shares of common stock. The
warrants were exercisable at $3.75 per share and
expired on November 18, 1997.
(4) STOCKHOLDERS' EQUITY (DEFICIT)
During the period September 1, 1997, through August
31, 1998, the Company issued 6,441,000 shares of
common stock for services rendered and payments on
accounts payable. For the shares of common stock
issued for services rendered during the period
September 1, 1997, through August 31, 1998, the
following valuation policies were used so that a
financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the
1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used to
determine "fair market value" of the 2,322,000
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 2,750,000 shares, were valued at par value,
$.01 per share. For the 2,750,000 shares of common
stock issued for which no performance was received a
stop has been placed on the stock certificates with
the Company's stock transfer agent.
For the period September 1, 1997, through August 31,
1998, the financial value of the common stock issued
for no cash consideration is required to be expensed
by the Company. The "fair market value" of such
common stock issued, $153,160, has primarily been
expensed as $122,020 in consulting fees and $31,140
in general and administrative expenses during the
year ended August 31, 1998. Some of the common stock
shares issued were registered with the Securities and
Exchange Commission using Form S-8 Registration
Statements.
During the period March 1, 1997, through August 31,
1997, the Company issued 4,710,234 shares of common
stock for services rendered. For the 2,999,734
shares of common stock issued for services rendered
during the period March 1, 1997, through May 31,
1997, the following valuation policies were used so
that a financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the 520,000
unrestricted common shares issued; the closing
"market" stock price on the day of each common stock
issuance less a 50% discount was used to determine
"fair market value" of the 1,725,734 restricted
common shares issued. Common shares that were issued
and for which no performance was received, 754,000
shares, were valued at par value, $.01 per share.
For the 1,710,500 shares of common stock issued for
services rendered during the period June 1, 1997,
through August 31, 1997, an average closing stock
price of $.20 was used to determine "fair market
value" of each share issued so that a financial value
could be assigned to the stock issuance transactions.
For the period September 1, 1996, through August 31,
1997, the financial value of the common stock issued
for no cash consideration is required to be expensed
by the Company. The "fair market value" of such
common stock issued, $1,297,805, has primarily been
expensed as $304,240 in consulting fees, $445,128 in
research and development costs, $500,000 in software
development costs and $48,437 in general and
administrative expenses during the year ended August
31, 1997. Some of the common stock shares issued
were registered with the Securities and Exchange
Commission using Form S-8 Registration Statements.
(5) RELATED PARTY TRANSACTIONS
COMMON STOCK ISSUED
The Company issued 1,000,000 shares of restricted
common stock to Thomas S. Hughes during the year
ended August 31, 1997. The Company did not receive
any cash consideration for this common stock issuance
and was valued at $375,000. See Note (4).
The Company issued 286,234 shares of restricted
common stock to former associates of Thomas S. Hughes
at a company called Betts, Inc. The restricted
common shares were valued at $41,864.
TRANSACTIONS WITH HPOS
The Company utilized cash accounts maintained by HPOS
to fund day to day operations of the Company. Thomas
S. Hughes is the Chairman of both the Company and
HPOS. At August 31, 1998, the net result of these
transactions is a payable to HPOS of $18,969.
DUE TO STOCKHOLDER
The Company had a due to stockholder payable to James
S. Clinton, former Chairman of Leggoons, Inc., in the
amount of $35,135 for advances made to Leggoons,
Inc., prior to March 1, 1997. This was paid in full
by the issuance of 750,000 shares of restricted
common stock during the year ended August 31, 1998.
(6) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1998 and 1997, the Company
recorded adjustments that increased its net loss by
approximately $27,500 and$1,558,000, respectively.
These adjustments were primarily related to the
issuance of common stock for no cash consideration.
(7) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing
transactions for the years ended August 31, 1998 and
August 31, 1997:
1998 1997
Net loss from Continuing Operations 43,808 401,640
Issuance of common stock for Consulting
Fees and General and Administrative
Expenses 153,160 1,297,805
Income Statement Net Loss $196,968 $1,699,445
(8) CONTINGENCIES
(A) CONTINUED EXISTENCE
The Company's financial statements are presented on
the going concern basis, which contemplates the
realization of assets and satisfaction of liabilities
in the normal course of business. As shown in the
accompanying financial statements, the Company has
shown a significant loss from operations and has
negative working capital and a stockholders' deficit.
This raises substantial doubt about the Company's
ability to continue.
The Company's continued existence is dependent upon
its ability to resolve its liquidity problems,
principally by obtaining additional debt financing
and equity capital and ultimately upon achieving
profitability. While pursuing additional debt and
equity funding, the Company must continue to operate
on limited cash flow. Management is committed to
developing the product and continues to receive small
amounts of funding from private investors. It is the
goal of management to receive additional funding from
an additional public offering of its common stock
within twelve months.
There is no assurance that the Company can achieve
the profitability and positive liquidity discussed
above. The financial statements do not include any
adjustments to reflect the possible future effects on
the recoverability and classification of assets or
the amounts and classification of liabilities that
may result from the possible inability of the Company
to continue as a going concern.
(B) COMMON STOCK ISSUED IN EXCESS OF AUTHORIZED
SHARES
During the year ended August 31, 1998, the Company
issued a total of 6,441,000 shares of common stock.
This has resulted in the total issued common shares
exceeding the 10,000,000 common shares authorized by
4,284,234 common shares. Most of these shares were
to have been preferred stock. Due to an error that
was discovered after the close of the year, however,
all of the shares were issued as common shares,
resulting in the Company issuing more common shares
than its articles of incorporation authorize. The
Company is in the process of "recalling" these
certificates totaling 4,550,000 shares and replacing
them with preferred certificates. The net result
will not be significantly different. Holders of
preferred shares will have a priority over common
stockholders with respect to dividends and
liquidation rights, but no dividends are required or
anticipated. The preferred stockholders will have
voting rights equal to those of the common
stockholders. The stockholders' equity (deficit)
section of the balance sheet then would be restated
as follows to take into account the preferred stock:
August 31 Proforma Restated
1998 Adjustment August
31, 1998
Stockholders' Equity
(Deficit):
Common stock, $.01 par
value, authorized
10,000,000 shares;
issued and outstanding,
9,734,234 $142,842 $(45,500) $97,342
Preferred stock, $.01
par value, authorized
5,000,000 shares;
issued and outstanding
4,550,000 0 45,500 45,500
Additional paid-in
capital 5,000,420 0 5,000,420
Accumulated deficit (5,467,602) 0 (5,467,602)
Total stockholders'
equity (deficit) $(324,340) 0 $(324,340)
(9) SUBSEQUENT EVENTS (UNAUDITED)
CONSENT DECREE ENTERED WITH SECURITIES AND EXCHANGE
COMMISSION
The Company has not, to the date of this report,
filed necessary quarterly or annual reports with the
United States Securities and Exchange Commission (the
"SEC") since May 31, 1998. This constitutes a
violation by the Company of a provision of the
Securities Exchange Act of 1934, as amended. The
Company entered into a consent decree with the SEC by
which the Company agreed to file all necessary
reports by April 9, 1999, and agreed to file all
required reports with the SEC on a timely basis in
the future.
EXHIBIT INDEX
Number Exhibit Description
3.1 Leggoons, Inc. Articles of Incorporation and
Amendments, incorporated by reference to Exhibit 3.1
of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by
reference to Exhibit 3.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
4. Class A Warrant Agreement, incorporated by
reference to Exhibit 4.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
10.1 Agreement to License Assets (incorporated by
reference to Exhibit 10.16 to the Form 8-K filed on
February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to
Exhibit 10.17 to the Form 8-K filed on February 25,
1997).
10.3 ET&T Host Processing Agreement (see below).
10.4 ET&T Licensing Agreement (see below).
27. Financial Data Schedule
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 33-68570
eCONNECT
(Exact name of registrant as specified in its
charter)
Nevada 43-1239043
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No)
2500 Via Cabrillo Marina, Suite 112, San Pedro,
California 90731
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 514-9482
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $0.01 Par Value; Class A
Warrants
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) been subject to such filing
requirements for the past 90 days. Yes X No.
As of June 30, 1999, the registrant had
30,885,100 shares of common stock issued and
outstanding.
Transitional Small Business Dislcosure Format
(check one): Yes No X .
PART I.
ITEM 1. FINANCIAL STATEMENTS.
eConnect
BALANCE SHEETS
(Unaudited)
June 30 December 31
1999 1998
ASSETS
Current Assets
Cash 184,218 8,862
Total current assets 184,218 8,862
Investment in wholly-owned
subsidiary 2,062,500 0
Property and equipment 5,478 0
Total Assets $2,252,196 $8,862
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 440,331 305,121
Due to a related party 1,219,379 24,169
Debenture payable 500,000 0
Common stock payable 1,411,000 0
Current portion - due vendor 60,000 0
Total current liabilities 3,630,710 329,290
Long Term Liability
Due vendor - less current
portion of $60,000 580,000 0
Total liabilities 4,210,710 329,290
Commitments and Contingencies 0 0
Stockholders' Equity (Deficit):
Common stock, $0.001 par value
at June 30, $0.01 at December
31; authorized 100,000,000
shares; issued and
outstanding, 14,354,798
and 30,885,100 and
14,475,234, respectively 30,885 144,752
Additional paid-in
capital 7,411,407 5,018,560
Accumulated deficit (9,400,806) (5,483,740)
Total stockholders'
equity (deficit) (1,958,514) (320,428)
Total Liabilities and
Stockholders' Equity
(Deficit) 2,252,196 8,862
See accompanying notes to interim financial
statements
eConnect
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
1999 1998
1999 1998
General and
administrative expenses:
Consulting fees 841,365 0 867,615 23,750
Legal fees 48,956 800 65,318
800
Office expense 0 5,160 4,358
17,491
Software development 186,070 0 190,170
2,143
Stock expense 11,508 1,143 22,314
12,000
Interest 97,500 0 97,500
0
License fee -
related party 1,908,000 0 2,000,000
0
Executive compensation 50,000 0 50,000
0
Research &
development 312,184 0 312,184 0
Finders fees & stock
promotion 84,450 0 84,450
0
Restitution expense 125,000 0 125,000
0
Other 70,753 0 98,157 0
Total operating expense 3,735,786 7,103 3,917,066
56,184
Net loss (3,735,786) (7,103) 3,917,066 (56,184)
Net loss per common
share (.25) (.00) (.22) (.01)
Weighted average shares
outstanding 14,685,596 11,181,234 18,233,711 11,293,234
See accompanying notes to interim financial
statements
eConnect
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30 June 30
1999 1998
Cash Flows From Operating Activities
Net loss: 3,917,066 (57,327)
Stock given for services 722,638 35,750
Stock to be given to related party 2,125,000 0
Loss adjusted to cash basis (1,069,428) (21,577)
Changes in assets and liabilities
(Accounts payable) 135,210 14,843
Cash Used in Operating Activities (934,218) (6,734)
Cash Flows From Investing Activities:
Property and equipment (5,478) 0
Cash Flows From Financing Activities:
Issuance of Debenture 500,000 0
Issuance of common stock 861,587 0
Proceeds from borrowings 136,000 0
Paid down on borrowings (100,000) 0
(Paid down) borrowings from related
party (282,535) 6,700
Cash provided by financing
activities 1,115,052 6,700
Net increase (decrease) in cash 175,356 (34)
Cash at beginning of period 8,862 34
Cash at end of period 184,218 0
Supplemental Disclosures:
Non-monetary transactions
Stock issued or to be issued for the
wholly owned subsidiary:
2,500,000 shares of restricted stock 687,500 0
2,500,000 shares to be issued
(free trading) 1,375,000 0
2,062,500 0
Stock issued to a related party:
9,400,000 shares at par value $0.001 9,400 0
Interest paid 97,500 0
See accompanying notes to interim financial statements.
eConnect
NOTES TO INTERIM FINANCIAL STATEMENTS
Basis of Presentation.
The information furnished herein relating to interim
periods has not been audited by an independent
certified public accountant. In the opinion of the
Company's management, the financial information in
this report reflects any adjustments that are
necessary for a fair statement of results for the
interim periods presented in accordance with
generally accepted accounting principles.
Certain information and footnote disclosure normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been omitted pursuant to the
requirements of the Securities and Exchange
Commission, although the Company believes that the
disclosures included in these financial statements
are adequate to make the information not misleading.
The financial statements should be read in
conjunction with the financial statements and notes
thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended August 31,
1998.
2. Organization.
The Company was originally organized under the laws
of the State of Missouri on September 1, 1981, as
HANDY-TOP, INC. On April 20, 1983, the Articles of
Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993, the
Articles of Incorporation were amended to change the
name of the corporation to Leggoons, Inc. In
addition to changing the company's name, the May
28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the par
value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons, Inc.,
declared a 14-for-1 stock split.
Thomas S. Hughes became Chairman and President of
Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
On May 17, 1999, an Agreement and Plan of Merger
between Betting, Inc., a Missouri corporation, into
Betting, Inc., a Nevada corporation ("Company") was
executed by an authorized signatory of each company.
At a duly called meeting of shareholders on May 21,
1999, the merger of the two companies was approved by
a majority of the shareholders appearing in person or
by proxy. Effective on June 1, 1999, Articles of
Merger were filed with the Nevada Secretary of State,
which formally resulted in the redomicile to the
State of Nevada. As a result of the merger, the
fiscal year-end was changed from August 31 to
December 31 and the par value of the common stock was
changed from $0.01 per share to. $0.001 per share.
On June 4, 1999, a Certificate of Amendment of
Amendment to Articles of Incorporation was filed with
the Nevada Secretary of State changing the name of
the Company to "the Company.". An audited report will
be filed (prior to August 31, 1999) for the four
month transition period from September 1, 1998
through December 31, 1998.
The Company's business has been in a start-up mode.
No revenue has been recorded. As set forth in Note 9
"Subsequent Events," the Company has acquired (post
June 30, 1999) certain revenue producing businesses.
Hence forth, certain segments of the business will be
revenue producing while other segments will continue
in the start-up phase.
3. Continued Existence.
The accompanying financial statements have been
prepared assuming that the Company will continue as a
going concern. As set forth above, the Company,
through June 30, 1999, has been in a start phase
experiencing negative working capital and a
stockholders' deficit. This raises substantial doubt
about its ability to continue as a going concern. The
interim financial statements do not include any
adjustments to reflect the possible future effects on
the recoverability and classification of assets or
the amounts and classification of liabilities that
may result from the possible inability of the Company
to continue as a going concern.
Management's plans to continue as a going concern
include the acquisition of going concern businesses
(Note 9 Subsequent Event). Management is cautiously
optimistic that the unaudited revenue and earnings
generated by businesses prior to acquisition will
continue and be available to fund those business
segments still in the start-up phase.
4. Related Party Transactions.
The Company has entered into various agreements with
Electronic Transactions and Technologies ("ET&T"), a
corporation 70% owned by Mr. Hughes. The following
are the transactions for the six months ended June
30, 1999 between the related parties (ET&T and Mr.
Hughes) and e Connect:
Charges
Cash disbursed to the related parties (net of a
$50,000 salary): $ 189,411
144 Restricted Stock issued
to Mr. Hughes: 4,000,000 shares
144 Resticted Stock issued
to ET&T: 5,400,000 shares
9,400,000 shares
Value at par value of $.001 per share: 9,400
Assumption of ET&T liability: 706,810
Total Charges 905,621
Credits
License fee (Note 6B): 2,000,000
Restitution (Note 6C): 125,000
Total Credits: 2,125,000
Due to ET&T and Mr. Hughes: $ 1,219,379
It is planned to reimburse ET&T in company stock.
5. Acquisition.
During the six months ended June 30, 1999, the
Company acquired 100% of Rogel Technologies, a
corporation which will assist the Company in
developing its product line. The acquisition was
accounted for as follows:
2,500,000 shares of restricted stock: 687,500
2,500,000 shares of free trading stock
to be delivered post June 30, 1999: 1,375,000
$2,062,500
The stock was valued at $.55 per share less a 50%
discount for restricted stock.
Commitments and Contingencies.
A. Debenture Payable.
The Company is contesting the payment of $500,000
principal due on a certain debenture, as claimed by a
Canadian firm. The companies respective counsels are
currently negotiating a settlement of this matter.
B. Licensing Agreement.
ET&T has licensed the global intellectual rights of
four products to e Connect. The products are: "The
Paymaster," "The Slick," "The Pocket Pay" and " The
TV Pin Pad Remote." Each product is licensed at
$2,000,000 and is due if and when the Company
perfects the product. To date, only "The PayMaster"
has been perfected.
C. Restitution.
In connection with the acquisition of the
wholly-owned subsidiary, Rogel Technologies, Mr.
Thomas Hughes gave up 250,000 shares of his own stock
valued at $.50 per share. In the event Mr. Hughes
receives the stock back, the restitution loss will be
canceled.
D. Stock Options.
The Company does not have a formal stock plan,
however, certain consultants have, as part of their
agreements, the right to buy stock at a stipulated
price per share.
E. Agreement to License Assets.
The Company issued 2,900,000 shares of restricted
common stock to ET&T in exchange for licensing home
ATM card and SMART card wagering technology developed
by ET&T. Of this amount, 2,755,000 shares were placed
in escrow and were subject to cancellation on
February 10, 1998, in the event the bid price of the
common stock of the Company was not at least $3.00
per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board from
the date of the agreement through February 10, 1998.
As of the date of these financial statements, the
terms of the Licensing Agreement have not been met by
the Company. However, the Company has entered into
amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to
certain conditions specified in the agreement. As of
the date these financial statements, none of the
conditions have been met. All conditions set forth in
the original agreement need to be met on or before
September 1, 1999.
The License Agreement also provides that in the event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, the ET&T shall have the
option to purchase up to 13,822,000 additional shares
of the Company common stock at an exercise price of
$.30 per share.
7. Earnings (loss) Per Share.
Net earnings (loss) per share are computed using the
weighted average number of common shares outstanding
during the period.
8. Income Taxes.
the Company has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at February
18, 1997, that were generated by Leggoons, Inc. The
unused net operating losses expire in various amounts
from 2009 to 2012. However, due to change of
ownership rules of section 382 of the Internal
Revenue Code, some or all of these NOL carryforwards
may be unavailable to offset any future income of e
Connect. The Company generated losses of
approximately $1,658,000 during the six month period
ended August 31, 1997, losses of approximately
$197,000 during the year ended August 31, 1998, and
losses of approximately $183,000 during the six
months ended February 28, 1999. These losses,
totaling $4,838,000, may not qualify as federal and
state NOL carryforwards due to the possible
nondeductibility of the noncash service costs
incurred and the change of ownership rules of section
382 of the Internal Revenue Code. The Company
provides an allowance for the entire amount of any
deferred tax assets that are applicable to the NOL.
In connection with the change in fiscal years ( see
Note 2), an application with the IRS will be filed to
change the tax year.
Subsequent Event.
The Company filed a SB2 (a shelf offering) with the
Securities and Exchange Commission on June 1,1999,
which became effective July 22, 1999. A maximum of
20,000,000 shares (some of which have been issued)
are available to acquire the assets of various
businesses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FIINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in
conjunction with the financial statements of the
Company and notes thereto contained elsewhere in this
report.
Results of Operations.
Because the Company was in a start-up phase, there
were no reviews in either period. Activity for the
six months ended June 30, 1998 was immaterial
(approximately $56,000 of expenses).
For the period ended June 30, 1999, expenses were
approximately $3,900,000. Of the total expenses
$293,000 were incurred by the e Gate Division (Ezy
Shop) which began start-up operations in May. The
balance of the expenses approximating $3,600,000 were
incurred at the corporate level of which $2,000,000
was for a license fee, $800,000 for consulting
expenses and $125,000 for restitution or an aggregate
of $2,925,000.
The above enumerated license fee ($2,000,000) and
restitution ($125,000) were paid in stock. Of the
$800,000 consulting expense, approximately $723,000
was paid in stock of the Company. Of the approximate
$57,000 expenses incurred for the period ended June
30, 1998, $36,000 were paid in stock of the Company.
Liquidity and Capital Resources.
Because activity for the six months ended June 30,
1998 was immaterial, liquidity was not a factor. For
the six month period ended June 30, 1999 the Company
raised $417,500 from a debenture offering ($82,500
fee), approximately $862,000 from a stock offering
and $160,000 from individual borrowings.
For the period ended June 30, 1999 debt from
individual borrowings was paid down by $100,000. A
related party debt (ET&T) was paid down approximately
$283,000. The Company paid down approximately
$700,000 on its debt to ET&T by assuming ET&T's
liability to a vendor.
Capital Expenditures.
No material capital expenditures were made during the
quarter ended on June 30, 1999.
Year 2000 Issue.
The Year 2000 issue arises because many
computerized systems use two digits rather than four
to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year
2000 date is processed. In addition, similar
problems may arise in some systems which use certain
dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and
if not addressed, the impact on operations and
financial reporting may range from minor errors to
significant system failure which could affect the
Company's ability to conduct normal business
operations. This creates potential risk for all
companies, even if their own computer systems are
Year 2000 compliant. It is not possible to be
certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the
efforts of customers, suppliers, or other third
parties, will be fully resolved.
The Company currently believes that its systems are
Year 2000 compliant in all material respects, its
current systems and products may contain undetected
errors or defects with Year 2000 date functions that
may result in material costs. Although management is
not aware of any material operational issues or costs
associated with preparing its internal systems for
the Year 2000, the Company may experience serious
unanticipated negative consequences (such as
significant downtime for one or more of its web site
properties) or material costs caused by undetected
errors or defects in the technology used in its
internal systems. Furthermore, the purchasing
patterns of advertisers may be affected by Year 2000
issues as companies expend significant resources to
correct their current systems for Year 2000
compliance. The Company does not currently have any
information about the Year 2000 status of its
advertising customers. However, these expenditures
may result in reduced funds available for web
advertising or sponsorship of web services, which
could have a material adverse effect on its business,
results of operations, and financial condition. The
Company's Year 2000 plans are based on management's
best estimates.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis
contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Act of
1934, as amended, and as contemplated under the
Private Securities Litigation Reform Act of 1995,
including statements regarding, among other items,
the Company's business strategies, continued growth
in the Company's markets, projections, and
anticipated trends in the Company's business and the
industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-
looking statements. These forward-looking statements
are based largely on the Company's expectations and
are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control.
The Company cautions that these statements are
further qualified by important factors that could
cause actual results to differ materially from those
in the forward looking statements, including, among
others, the following: reduced or lack of increase in
demand for the Company's products, competitive
pricing pressures, changes in the market price of
ingredients used in the Company's products and the
level of expenses incurred in the Company's
operations. In light of these risks and
uncertainties, there can be no assurance that the
forward-looking information contained herein will in
fact transpire or prove to be accurate. The Company
disclaims any intent or obligation to update "forward
looking statements".
PART II.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending
legal proceedings and, to the best of its knowledge,
no such action by or against the Company has been
threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
The following matters were submitted to a vote of the
Company's stockholders during the second quarter of
the fiscal year covered by this report:
A Special Meeting of the shareholders of the Company
was held on May 21, 1999.
The shareholders voted on approving and Agreement and
Plan of Merger between Betting, Inc., a Missouri
corporation, into Betting, Inc., a Nevada corporation
(now know as the Company), for the purpose of
redomiciling the Company to the State of Nevada. The
Agreement and Plan of Merger was approved by a total
of 8,700,000 shares (in person and by proxy) out of a
total of 14,500,000 shares entitled to vote at that
time (no shares voted against the merger). This
merger was evidenced by the filing of Articles of
Merger with the Nevada Secretary of State (effective
on June 1, 1999).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K. Reports on Form 8-K were filed
during the second quarter of the fiscal year covered
by this Form 10-QSB, as follows:
Form 8-K filed on June 2, 1999 reflecting the merger
described in Item 4 above, the resulting change of
the fiscal year, as well as the Amendement of the
Articles of Incorporation of the Company changing the
name from "Betting Inc." to "the Company."
Form 8-K filed on June 23, 1999 reflecting the new
address for the Company and the new trading symbol
for the Company on the OTC Bulletin Board: ECNC.
(b) Exhibits included or incorporated by reference
herein: See Exhibit Index
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
the Company
Dated: August 11, 1999 By: /s/ Thomas S. Hughes
Thomas S. Hughes,
President
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2/A filed on July
22, 1999.
3.2 Amendment of Articles of Incorporation, incorporated
by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2/A filed on July 22, 1999.
3.3 Bylaws of the Company, incorporated by reference
to Exhibit 3.3 of the Registration Statement on Form
SB-2/A filed on July 22, 1999.
4. Class A Warrant Agreement, incorporated by
reference to Exhibit 4.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
10.1 Agreement to License Assets (incorporated by
reference to Exhibit 10.16 to the Form 8-K filed on
February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to
Exhibit 10.17 to the Form 8-K filed on February 25,
1997).
10.3 ET&T Host Processing Agreement (incorporated by
reference to Exhibit 10.3 of the Form 10-KSB for the
period ending on August 31, 1998).
10.4 ET&T Licensing Agreement (incorporated by
reference to Exhibit 10.4 of the Form 10-KSB for the
period ending on August 31, 1998).
10.5 Letter of Commitment between Rogel
Technologies and the Company, dated May 6, 1999 (see
below).
27. Financial Data Schedule (see below).
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
August 18, 1999
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
As a certified public accountant, I hereby consent to
the inclusion in this Form SB-2 Registration
Statement of my report dated April 7, 1999 in
Betting, Inc.'s Form 10-KSB for the fiscal year ended
August 31, 1998, and to all references to my firm
included in this Registration Statement.
Sincerely,
/s/ George Brenner
George Brenner, C.P.A.
