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 541990 43-1239043
(State or jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification
Classification Code Number) Number
2500 Via Cabrillo Marina Suite 112, San Pedro, California 90731; (310) 514-9482
(Address and telephone number of Registrant's principal executive offices and
principal place of business)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport Beach, Ca
(949) 975-0544
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered Maximum Aggregate Registration
to be Offering Offering Fee
Registered Price Per Price
Share (1)
Common
Stock 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.
(1) 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 ask price as of August 18, 1999
PROSPECTUS
eConnect
17,183,339 Shares *
Common Stock
eConnect, a Nevada corporation ("Company"), is hereby offering
up to 17,183,339 shares of common stock (out of an original
registration of 61,000,000 shares) on a delayed basis under
Securities and Exchange Commission Rule 415, as follows (maximum
amounts): (a) 7,640,339 shares in connection with consulting
services and acquisitions by the company; (b) 8,043,000 shares
in connection with the common stock purchase agreement with
Alpha Venture Capital, Inc. at an offering price of 80% of the
average closing bid price on the five business days immediately
preceding the date of notice of a drawdown; (c) 1,000,000 Shares
to cover the exercise of warrants issued in connection with this
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 after said date until a date which is
five years thereafter); and (d) 500,000 Shares to cover the
exercise of warrants issued in connection with drawdowns under
the purchase agreement (exercisable at the closing bid price on
the date of each draw from the effective date of the purchase
agreement until a date which is five years thereafter).
The Shares offered hereby are highly speculative and involve a
high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 9).
These securities have not been approved or disapproved by the
securities and exchange commission or any state securities
commission nor has the securities and exchange commission or any
state securities commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a
criminal offense.
Price to Public Underwriting Discounts Proceeds to
And Commissions (2) Issuer (3)
Per Share $ (1) $0 $ (1)
Total Maximum $ (1) $0 $ (1)
Information contained herein is subject to completion or
amendment. The registration statement relating to the
securities has been filed with the U.S. Securities and Exchange
Commission. The securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such State.
Subject to Completion, Dated: _____________, 2000
* Pursuant to SEC Rule 416, there will be a change in the
amount of securities being issued to prevent dilution resulting
from stock splits, stock dividends, or similar transaction
(1) The price per share, the maximum amount to be raised under this
offering and the proceeds to the issuer will be dependent on the
market price at the times that drawdowns are taken under a
common stock purchase agreement.
(2) First Fidelity Capital, Inc. will receive a commission of 8% of
the amount of each drawdown under the common stock purchase
agreement; the amount of commissions will be dependent on the
amount taken under such drawdowns.
(3) The proceeds to the company will be dependent on the amount sold
under the common stock purchase agreement, and is before the
payment of certain expenses in connection with this offering.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 6
RISK FACTORS 9
USE OF PROCEEDS 16
DETERMINATION OF OFFERING PRICE 17
PLAN OF DISTRIBUTION 17
LEGAL PROCEEDINGS 18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 24
DESCRIPTION OF SECURITIES 25
INTEREST OF NAMED EXPERTS AND COUNSEL 26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 27
ORGANIZATION WITHIN LAST FIVE YEARS 32
DESCRIPTION OF BUSINESS 32
PLAN OF OPERATION 46
DESCRIPTION OF PROPERTY 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 48
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 51
EXECUTIVE COMPENSATION 53
FINANCIAL STATEMENTS 54
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 81
AVAILABLE INFORMATION 81
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each
prospective investor is urged to read this prospectus in its
entirety.
The Company.
(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 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, the
transactions division has a specific emphasis on ATM card with
PIN instant cash transactions. There are two aspects to the
industry of self serviced home or mobile swiped ATM card with
PIN entry or credit card transactions which the company has
named PERFECT (personal encrypted remote financial electronic
card transactions).
The first aspect is the development of the "Bank Eyes Only"T
transactions system whereby a consumer can use a remote terminal
from a home environment or mobile environment to read a credit
card or ATM card with PIN or a smart card which is then sent to
a host processor for card authorization. "Bank Eyes Only"
transactions refers to a direct Internet connection between the
consumer's terminal and the company's bank card authorization
system. The web merchant does not store nor has ready access to
the consumer's card data. These "Bank Eyes Only" terminals are
remote from the merchant (protecting the consumer's data) and
are wireless or landline or computer enabled. This should
result in greater consumer confidence in performing such
financial transactions. This system will also enable the
consumer or business person to effect instant cash payments to
the recipient. A transaction using the terminal device with an
ATM card with PIN is considered a cash payment. Internet "Bank
Eyes Only" ATM card with PIN payments could substantially affect
global commerce, completely changing the way people around the
world do business.
The second aspect of a PERFECT transaction is the usage of the
company's proprietary hardware placed in public locations for
self serviced bill payments by ATM card with PIN entry.
The second division is eGaming. The company currently owns 100%
interest in Top Sports S.A., a series of 12 walk in Dominican
Republic sportsbooks. The company's interest in gaming two
fold: (1) the generation of revenues; (2) the establishment of a
base for the usage of "bank eyes only" eCashPads for global ATM
card with PIN entry gaming.
The Offering.
Shares of common stock of the company will be offered as a shelf
registration under Securities and Exchange Commission Rule 415
up to 61,000,000 shares and warrants of its $0.001 par value
common stock. To date, a total of 43,816,661 shares have been
sold under this offering. The following additional amounts
(totaling 17,183,339) out of the total offering remain to be
sold (maximum amounts):
7,640,339 shares in connection with consulting services and
acquisitions by the company.
8,043,000 shares in connection with the common stock purchase
agreement with Alpha Venture Capital, Inc. at an offering price
of 80% of the average closing bid price on the five business
days immediately preceding the date of notice of a drawdown.
1,000,000 Shares to cover the exercise of warrants issued in
connection with this 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 after said date until a
date which is five years thereafter).
500,000 Shares to cover the exercise of warrants issued in
connection with drawdowns under the purchase agreement
(exercisable at the closing bid price on the date of each draw
from the effective date of the purchase agreement until a date
which is five years thereafter).
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 (a placement fee of 8% is being paid to First Fidelity
Capital, Inc. in connection with the funds provided under the
purchase agreement; a total of $304,320 has been paid to date).
These securities are offered by the Company subject to prior
issue and to approval of certain legal matters by counsel.
Since there are only 15,358,687 shares left in the authorized
limit of 200,000,000, unless the shareholders vote to increase
this authorization at the upcoming annual meeting, this offering
not be completed as set forth above.
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.
Development Stage.
The company has not completed the development and testing of any
commercial products, and, accordingly, has no profitable
operating history upon which investors may rely. The company
has received limited revenues from operations. The company's
products and services will require significant additional
investment in research and development and will require
substantial additional resources. There can be no assurance
that any of the company's products will meet applicable
regulatory standards, obtain required regulatory approvals, or
be capable of being produced in commercial quantities at
reasonable costs.
There can be no assurance that the Company will generate
significant revenues in the future; and there can be no
assurance that the Company will operate at a profitable level.
If the Company is unable to obtain customers and generate
sufficient revenues so that it can profitably operate, the
Company's business will not succeed. In such event, investors
in the Shares may lose their entire cash investment. Also the
Company and its management do not have significant experience in
the internet business, and in particular the on-line gaming
business.
As a result of the fixed nature of many of the company's
expenses, the company may be unable to adjust spending in a
timely manner to compensate for any unexpected delays in the
development and marketing of the company's products or any
capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on the
company's business, operations and financial condition.
Limited Revenues, History of Operating Loss and Accumulated
Deficit.
The company has had limited revenue to date. Although the
company has been involved with e-commerce since 1999, it has
been primarily engaged in research and development. The company
has incurred significant operating losses: $19,026,744 for the
fiscal year ended December 31, 1999, $776,138 for the four
months ended December 31, 1998, and $196,968 for the fiscal year
ended August 31, 1998. At June 30, 2000, the company had an
accumulated deficit of $58,924,066. The future growth and
profitability of the company will be principally dependent upon
its ability to successfully complete development and testing of,
obtain regulatory approvals for, and market or license its
primary products. Accordingly, the company's prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered in connection with the establishment of a
new business in a highly competitive industry, characterized by
new product introductions.
The company anticipates that it will incur substantial operating
expenses in connection with the research, development, testing
and approval of its proposed products and expects these expenses
to result in continuing and significant losses until such time
as the company is able to achieve adequate revenue levels.
There can be no assurance that the company will be able to
significantly increase revenues or achieve profitable
operations. Failure to obtain additional capital, if needed,
would have a material adverse effect on the company's
operations.
Additional Financing Will Be Required.
The company will be required to raise significant capital to
fund its plan of operation; this is estimated to be $3,000,000
over the next 12 months. Currently, the company is meeting its
funding requirements through financing provided by the Alpha
Venture Capital, Inc. through a common stock purchase agreement
between the company and this firm, dated September 28, 1999.
However, there is no guarantee that this funding source will
continue to be available in the future.
The current funds available to the Company, and any revenue
generated by operations, will not be adequate for it to be
competitive in the areas in which it intends to operate, and may
not be adequate for the company to survive. Therefore, the
Company will need to raise additional funds in order to fully
implement its business plan. The Company's continued operations
therefore will depend upon its ability to raise additional funds
through bank borrowings, equity or debt financing. There is no
assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the Company. If the Company
cannot obtain needed funds, it may be forced to curtail or cease
its activities. If additional shares were issued to obtain
financing, current shareholders may suffer a dilution on their
percentage of stock ownership in the Company.
Risks Associated with eCashPad Production.
The agreement under which the eCashPad is being manufactured for
the company only calls for an initial production run of 5,000
units, at a total cost of $80,000. The company must conclude an
agreement for a substantial additional manufacturing run in
order for the plan of business as set forth above to succeed.
There is no guarantee that the company will be able to conclude
such an agreement.
This agreement offers the company substantial savings by
contracting with an Asian country for manufacturing. Currently,
the manufacturer is stable but there is no guarantee that the
manufacturer may not be impacted by future changes in government
policies. The company is presently seeking additional suppliers.
Risks in Connection with Approval of Regional ATM Networks.
Within the United States market, the company is closely working
with NDFC to secure the go ahead for regional ATM card networks
for an eCashPad ATM card with PIN entry "Bank Eyes Only"
Internet payment. Such network currently permit the usage of
credit cards on their systems. Thus, a substantial part of the
company's strategy is based on ATM card with PIN entry Internet
payments, and the company may not receive bank approvals from
the regional ATM card networks in the United States for such
transactions. In such case, this payment system could not be
used in the United States, which could substantially affect the
prospects of the Company in this country. Even though this type
of payment system has already been approved in the Dominican
Republic and Ireland, and may be approved elsewhere outside the
United States, the Company would expect that a substantial
portion of its projected revenues would come form United States
based transactions.
Acceptance and Effectiveness of Internet Electronic Commerce.
The company's success in e-commerce will be dependent on
consumer acceptance of e-retailing and an increase in the use of
the Internet for e-commerce. If the markets for e-commerce do
not develop or develop more slowly than the company expects, its
e-commerce business may be harmed. If Internet usage does not
grow, the company may not be able to increase revenues from
Internet advertising and sponsorships which also may harm both
our retail and e-commerce business. Internet use by consumers is
in an early stage of development, and market acceptance of the
Internet as a medium for content, advertising and e-commerce is
uncertain. A number of factors may inhibit the growth of
Internet usage, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and limited
availability of cost-effective, high-speed access. If these or
any other factors cause use of the Internet to slow or decline,
our results of operations could be adversely affected.
Competition in Internet Commerce.
The company anticipates substantial competition in the
development of the PERFECT industry and the "Bank Eyes Only"
internet application in particular. The company believes that
the marketplace is large enough to absorb many competitor
companies who may focus on ancillary aspects of the PERFECT
industry such as the development of hardware or of merchant sign
ups, rather than on the core business of the company which is
the processing of transactions.
Increased competition from e-commerce could result in reduced
margins or loss of market share, any of which could harm both
our retail and e-commerce businesses. Competition is likely to
increase significantly as new companies enter the market and
current competitors expand their services. Many of the
company's present and potential competitors are likely to enjoy
substantial competitive advantages, including larger numbers of
users, more fully-developed e-commerce opportunities, larger
technical, production and editorial staffs, and substantially
greater financial, marketing, technical and other resources. If
the company does not compete effectively or if it experiences
any pricing pressures, reduced margins or loss of market share
resulting from increased competition, the company's business
could be adversely affected.
Unreliability of Internet Infrastructure.
If the Internet continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements,
the Internet infrastructure may not be able to support these
increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face
additional outages and delays in the future. These outages and
delays could reduce the level of Internet usage and traffic. In
addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols to
handle increased levels of activity. If the Internet
infrastructure is not adequately developed or maintained, use of
the company website may be reduced. Even if the Internet
infrastructure is adequately developed, and maintained, the
company may incur substantial expenditures in order to adapt its
services and products to changing Internet technologies. Such
additional expenses could severely harm the company's financial
results.
Transactional Security Concerns.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks.
Any breach in security could cause interruptions and have an
adverse effect on the company's business.
Governmental Regulation of the Internet.
There are currently few laws that specifically regulate
communications or commerce on the Internet. Laws and
regulations may be adopted in the future, however, that address
issues including user privacy, pricing, taxation and the
characteristics and quality of products and services sold over
the Internet. Possible future consumer legislation, regulations
and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities undertaken in
connection with the party planning business, the extent of which
cannot be predicted. The exact affect of such legislation cannot
be predicted until it is in final form.
Influence of Other External Factors on Prospects for Company.
The industry of the company in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the company will
result in a commercially profitable business. The marketability
of its products will be affected by numerous factors beyond the
control of the company. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect companies' spending. Factors which leave less money in
the hands of potential customers of the company will likely have
an adverse effect on the company. The exact effect of these
factors cannot be accurately predicted, but the combination of
these factors may result in the company not receiving an adequate
return on invested capital.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. None of the company's officers,
directors, and key employees have an employment agreement with
the company; therefore, there can be no assurance that these
personnel will remain employed by the company after the
termination of such agreements. Should any of these individuals
cease to be affiliated with the company for any reason before
qualified replacements could be found, there could be material
adverse effects on the company's business and prospects. In
addition, management has no experience is managing companies in
the same business as the company.
In addition, all decisions with respect to the management
of the company will be made exclusively by the officers and
directors of the company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the company. The success of the company,
to a large extent, will depend on the quality of the directors
and officers of the company. Accordingly, no person should
invest in the shares unless he is willing to entrust all aspects
of the management of the company to the officers and directors.
Control of the Company by Officers and Directors.
The company's officers and directors beneficially own
approximately 8.25% of the outstanding shares of the company's
common stock. As a result, such persons, acting together, have
the ability to exercise influence over all matters requiring
stockholder approval. Accordingly, it may be difficult for the
investors hereunder to effectuate control over the affairs of
the company. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control the
majority of voting rights will be able, by virtue of their stock
holdings, to control the affairs and policies of the company.
Limitations on Liability, and Indemnification, of Directors and
Officers.
The bylaws of the company provide for indemnification
of officer or directors of the company. In addition, the Nevada
Revised Statutes provide for permissive indemnification of
officers and directors and the company may provide
indemnification under such provisions. Any limitation on the
liability of any director, or indemnification of directors,
officer, or employees, could result in substantial expenditures
being made by the company in covering any liability of such
persons or in indemnifying them.
Potential Conflicts of Interest Involving Management.
The officers and directors have other interests to which they
devote time, either individually or through partnerships and
corporations in which they have an interest, hold an office, or
serve on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary
to the business of the Company. As a result, certain conflicts
of interest may exist between the Company and its officers
and/or directors which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Company. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
Board of Directors to the Company, any proposed investments for
its evaluation.
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.
No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
Prior to this offering, there has been only a limited
public market for the common stock of the Company. The common
stock of the Company is currently quoted on the National
Quotation Bureau's Pink Sheets after being delisted from the
Over the Counter Bulletin Board after the SEC trading suspension
on March 13, 2000. The Company is currently applying for
relisting on the Over the Counter Bulletin Board as one of its
market makers has filed a Form 15c2-11 with the NASD Stock
Market, Inc. As a result, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market
value of the Company's securities. In addition, the common stock
is subject to the low-priced security or so called "penny stock"
rules that impose additional sales practice requirements on
broker-dealers who sell such securities. The Securities
Enforcement and Penny Stock Reform Act of 1990 ("Reform Act")
requires additional disclosure in connection with any trades
involving a stock defined as a penny stock (generally, according
to recent regulations adopted by the U.S. Securities and
Exchange Commission, any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions),
including the delivery, prior to any penny stock transaction, of
a disclosure schedule explaining the penny stock market and the
risks associated therewith. The regulations governing low-
priced or penny stocks sometimes limit the ability of broker-
dealers to sell the Company's common stock and thus, ultimately,
the ability of the investors to sell their securities in the
secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association
of Securities Dealers, Inc. member broker/dealers as market
makers after relisting on the Bulletin Board, the liquidity of
the common stock could be impaired, not only in the number of
shares of common stock which could be bought and sold, but also
through possible delays in the timing of transactions, and lower
prices for the common stock than might otherwise prevail.
Furthermore, the lack of market makers could result in persons
being unable to buy or sell shares of the common stock on any
secondary market. There can be no assurance the company will be
able to maintain such market makers.
"Shelf" Offering
The shares are offered directly by the company on a delayed
basis. No assurance can be given that any or all of the shares
will be issued. No broker-dealer has been retained as an
underwriter and no broker-dealer is under any obligation to
purchase any of the shares. In addition, the officers and
directors of the company, collectively, have limited experience
in the offer and sale of securities on behalf of the company.
In addition, since the number of authorized but unissued shares
of common stock of the company was 15,358,687 as of September 1,
2000, unless the shareholders vote to increase the number of
authorized limit above 200,000,000, then this offering will not
be completed as set forth under Plan of Distribution.
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.
Shares Eligible For Future Sale
All of the 15,260,000 shares of common stock which are currently
held, directly or indirectly, by management have been issued in
reliance on the private placement exemption under the Securities
Act of 1933. Such shares will not be available for sale in the
open market without separate registration except in reliance
upon Rule 144 under the Securities Act of 1933. In general,
under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned shares acquired in a non-public
transaction for at least one year, including persons who may be
deemed affiliates of the company (as that term is defined under
that rule) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1%
of the then outstanding shares of common stock, or the average
weekly reported trading volume during the four calendar weeks
preceding such sale, provided that certain current public
information is then available. If a substantial number of the
shares owned by these shareholders were sold pursuant to Rule
144 or a registered offering, the market price of the common
stock could be adversely affected.
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
The amount of proceeds from this offering will depend on the
offering price per share and the number of shares sold for cash
under the common stock purchase agreement with Alpha Venture
Capital, Inc. The proceeds of the offering, less the expenses
of the offering, will be used to provide working capital for the
company. The net proceeds of this offering that are not
expended immediately may be deposited in interest or non-
interest bearing accounts, or invested in government
obligations, certificates of deposit, commercial paper, money
market mutual funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The cash offering price of the shares will be determined, from
time to time, based on the current market price of the shares on
the Over the Counter Bulletin Board under the formula set forth
in the common stock purchase agreement with Alpha Venture
Capital, Inc.
PLAN OF DISTRIBUTION
Shares of common stock of the company will be offered as a shelf
registration under Securities and Exchange Commission Rule 415
up to 61,000,000 shares and warrants of its $0.001 par value
common stock. To date, a total of 43,816,661 shares have been
sold under this offering. The following additional amounts
(totaling 17,183,339) out of the total offering remain to be
sold (maximum amounts):
7,640,339 shares in connection with consulting services and
acquisitions by the company.
8,043,000 shares in connection with the common stock purchase
agreement with Alpha Venture Capital, Inc. at an offering price
of 80% of the average closing bid price on the five business
days immediately preceding the date of notice of a drawdown.
1,000,000 Shares to cover the exercise of warrants issued in
connection with this 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 after said date until a
date which is five years thereafter).
500,000 Shares to cover the exercise of warrants issued in
connection with drawdowns under the purchase agreement
(exercisable at the closing bid price on the date of each draw
from the effective date of the purchase agreement until a date
which is five years thereafter).
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 (a placement fee in the amount of 8% is being paid to
First Fidelity Capital, Inc. in connection with the funds
provided under the purchase agreement; a total of $304,320 has
been paid to date). These securities are offered by the Company
subject to prior issue and to approval of certain legal matters
by counsel. Since there are only 15,358,687 shares left in the
authorized limit of 200,000,000, unless the shareholders vote to
increase this authorization at the upcoming annual meeting, this
offering will not be completed as set forth above.
Opportunity to Make Inquiries.
The company will make available to each offeree, prior to any
issue of the shares, the opportunity to ask questions and
receive answers from the Company concerning any aspect of the
investment and to obtain any additional information contained in
this prospectus, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or
expense.
Execution of Documents.
Each person desiring to purchase Shares must complete, execute,
acknowledge, and delivered to the company certain documents. By
executing these documents, the subscriber is agreeing that such
subscriber will be, a shareholder in the Company and will be
otherwise bound by the articles of incorporation and the bylaws
of the Company.
LEGAL PROCEEDINGS
Other than as stated below, the company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the company has been
threatened:
Securities and Exchange Commission Action (March 12, 1999).
On March 12, 1999, the Securities and Exchange Commission
("SEC") filed a complaint alleging the Company had failed to
make available to the investing public current and accurate
information about its financial condition and results of
operations through the filing of periodic reports as required by
the Securities Exchange Act of 1934 (specifically, the Form 10-
KSB for the 1997 and 1998 fiscal years, the Form 10QSB for each
of the first three quarters of fiscal 1998, and the
corresponding Notifications of Late Filings (Form 12b-25)). The
SEC sought in this action to compel the Company to file
delinquent reports and enjoin the Company from further
violations of the reporting requirements. The Company consented
to the entry of a final judgment granting the relief sought by
the SEC.
Although this action has been concluded, since the
permanent injunction was entered the Company has been late with
the following reports: (a) Form 10QSB for the quarter ended
February 28, 1999 (due by April 29, 1999 because of the filing
of a Form 12b-25) - filed with the SEC on May 28, 1999; (b) Form
10QSB for the quarter ended June 30, 1999 (due by August 14,
1999) - filed with the SEC on August 23, 1999 (due to an error
in the CIK code for the Company entered on the EDGAR electronic
filing system); (c) a Form 10-QSB for the transition period
ended December 31, 1998 (due by July 5, 1999) - filed with the
SEC on September 3, 1999; (d) Form 8-K to reflect a certain
acquisition by the Company (due by May 21, 1999) - filed with
the SEC on November 15, 1999; (e) Form 8-K to reflect two
acquisitions by the Company (due by September 15, 1999) - filed
with the SEC on November 16, 1999; (f) Form 10-KSB for the
period ended on December 31, 1999 (due by April 14, 2000) -
filed with the SEC on May 9, 2000; and (g) Form 10-QSB for the
quarter ended March 31, 2000 (due by May 22, 2000) - filed on
May 30, 2000. The Form 10-QSB for the quarter ended June 30,
2000 was timely filed.
Securities and Exchange Commission Action (March 23, 2000).
In a complaint filed on March 23, 2000 (Securities and Exchange
Commission v. eConnect and Thomas S. Hughes, Civil Action No. CV
00 02959 AHM (C.D. Cal.)), the SEC alleged that since February
28, 2000, the company issued false and misleading press releases
claiming: (1) the company and its joint venture partner had a
unique licensing arrangement with PalmPilot; and (2) a
subsidiary of the company had a strategic alliance with a
brokerage firm concerning a system that would permit cash
transactions over the Internet. The complaint further alleges
that the press releases, which were disseminated through a wire
service as well as by postings on internet bulletin boards,
caused a dramatic rise in the price of the company's stock from
$1.39 on February 28 to a high of $21.88 on March 9, 2000, on
heavy trading volume. The SEC suspended trading in the
company's common stock on the Over the Counter Bulletin Board on
March 13 for a period of 10 trading days (trading resumed on the
National Quotation Bureau's Pink Sheets on March 27, 2000). The
complaint alleges that despite the trading suspension and the
SEC's related investigation, the company and Mr. Hughes
continued to issue false and misleading statements concerning
the company's business opportunities. In addition to the
interim relief granted, the Commission seeks a final judgment
against the company and Mr. Hughes enjoining them from future
violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder (the anti-fraud provisions of that act) and assessing
civil penalties against them.
On March 24, 2000, a temporary restraining order was issued in
the above-entitled action prohibiting the company and Mr.
Hughes, from committing violations of the antifraud provisions
of the federal securities laws. The company and Mr. Hughes
consented to the temporary restraining order.
On April 6, 2000, without admitting or denying the allegations
contained in said complaint, the company and Mr. Hughes entered
into a settlement by consent that has resulted in the entry of
permanent injunctive relief. The settlement agreement with the
SEC was accepted and a judgment of permanent injunction was
entered by the Court on April 7, 2000. The judgment that the
company and Mr. Hughes consented to prohibits the company and
Mr. Hughes from taking any action or making any statement, or
failing to make any statement that would violate Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The court has yet to determine whether
disgorgement, civil penalties or other relief should be assessed
against the company or Mr. Hughes.
Shareholder Class Action Lawsuits.
Einhorn, et al. v. eConnect, Thomas S. Hughes, Jack M. Hall,
Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No. 00-
02674 MMM (JWJx);
Eckstein, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02700 DDP (CWx);
Bernstein, et al. v. eConnect, Inc., et al., Case No. 00-02703
FMC (BQRx);
Colangelo, et al. v. eConnect, Inc., et al., Case No. 00-02743
SVW (SHx);
Baron, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02757 WJR (CTx);
Warstler, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02758 R (SHx);
Prager, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02759 GHK (RCx);
Weisblum, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
02770 MRP (CTx);
Mazda, et al. v. eConnect, et al., Case No. 00-02776 LGB (Mcx);
Pirraglia, et al. v. eConnect, et al., Case No. 00-02875 SVW
(CWx);
Hershkop and Hershkop, et al. v. eConnect and Thomas S. Hughes,
Case No. 00-03095 MRP (RNRx);
Bacun, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03161 FMC (JWJx);
Fine, et al. v. eConnect, Inc. and Thomas Hughes, Case No. 00-
03290 SVW (BQRx);
Smith, et al. v. eConnect, Thomas Hughes, Case No. 00-03301 DT
(Mcx);
Reimer, et al. v. eConnect, Thomas Hughes, Case No. 00-03405
JSL;
Tepper, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
03444 WJR (CTx);
Bury, et al. v. eConnect, Thomas Hughes, Case No. 00-03446 ABC;
Villari, et al. v. eConnect, Thomas Hughes, Case No. 00-03447
LGB (SHx);
Ringel, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03591 RSWL (RNBx);
Massaro, et al. v. eConnect, Inc., Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03671 DDP (MANx);
Gardner, et al. v. eConnect, Inc., Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03897 MMM (RZx);
Schneyer, et al. v. eConnect, Case No. CV-00-03783 MMM (JWJx);
Ginocchi, et al. v. eConnect, Case No. 00-04003 MMM (JWJx);
Matrisciani, et al. v. eConnect, Case No. 00-04181 MMM (JWJx);
Dutton, et al. v. eConnect, Case No. 00-04505 LGB (Ex);
Shaw, et al. v. eConnect, Case No. 00-04637 LGB (Ex);
Gowrie, et al. v. eConnect, Case No. 00-04686 LGB (Ex);
Belcher, et al. v. eConnect, Case No.00-04792 LGB (Ex);
Lively, et al. v. eConnect, Case No. 00-03112 MMM (JWJx);
Levine, et al. v. eConnect, Case No. 00-03649 MMM (JWJx); and
Berkowitz, et al. v. eConnect, Case No. 00-04152 MMM (JWJx).
The foregoing thirty-one actions were filed on various dates
between March 14, 2000 and early May 2000, inclusive, and are
all pending in the United States District Court for the Central
District of California. These actions are brought by various
putative classes of the purchasers of the company's common
stock. The putative classes alleged, none of which have been
certified, range from no earlier than November 18, 1999 through
March 13, 2000. Plaintiffs in the various actions assert that
the company and Thomas S. Hughes, as well as (in certain of the
actions) Jack M. Hall, Diane Hewitt, Anthony L. Hall, and Kevin
J. Lewis, have violated Section 10(b) of the Exchange Act (false
or misleading statements and omissions which deceived stock
purchasers) and also Section 20(a) of the Exchange Act
(liability as a "controlling person" with respect to a primary
violation of securities laws). The principal allegations
concern various alleged material misrepresentations and
omissions which supposedly made the company's public statements
on and after November 18, 1999 (and/or on and after November 23,
1999) false and misleading, thereby artificially inflating the
market in and for the Company's common stock.
No class has yet been certified in connection with any of these
actions. All cases have been combined into one case before the
Honorable Margaret M. Morrow, entitled In Re eConnect, Inc.
Securities Litigation, Master File No. 00-02674 MMM (JWJx).
Negotiations are underway regarding the settlement of these
actions.
Additionally, a shareholder of the company named John P.
Maloney, filed an individual action for "securities fraud and
misrepresentation" against the company and Mr. Hughes on May 12,
2000 in small claims court in Torrance, California. The company
subsequently removed the action to the United States District
Court for the Central District of California, and requested that
it be consolidated with In Re eConnect, Inc. Securities
Litigation. However, on September 11, 2000, the Honorable
Margaret M. Morrow ruled that Mr. Maloney's action should be
remanded to the state small claims court.
PowerClick Litigation.
On August 21, 2000, the company filed an complaint for
fraudulent misrepresentation in Los Angeles County Superior
Court, Case No. BC 235420, entitled eConnect, Inc. v. William
Lane, James Wexler, Earl Gilbrech, Dominique Einhorn, and
PowerClick, Inc. The substance of the lawsuit is that
PowerClick, Inc. and its principals made fraudulent
misrepresentations to the company in connection with the
company's purchase on February 9, 2000 of an equity interest in
PowerClick, Inc., among other things. The company seeks actual
damages of $10 million, as well as punitive damages. On
September 1, 2000, PowerClick, Inc. filed a cross-complaint for
breach of contract and fraud against the company, Mr. Hughes,
and certain employees of the company, seeking $35 million in
damages. The company is unable at this time to express an
opinion as to the probable outcome of this matter, but intends
to defend this matter vigorously.
Employment Agreement - President/Chief Operating Officer.
On March 21, 2000, the Company consummated an amended
employment agreement with an individual for the position of
President and Chief Operating Officer for the Company. On April
17, 2000, the Company terminated this individual as President
and Chief Operating Officer of the Company. Based upon the
amended employment agreement, the remaining salary for the term
of this agreement, will be due within 30 days upon the
termination of this individual if terminated for reasons other
than good cause. In addition, through the date of termination,
all of the granted stock options and warrants will vest and be
exercisable for their entire term. Accordingly, the termination
of this individual, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $1,260,000 for the remaining portion of unpaid
salary for the first, second, third, and fourth years of this
agreement. Furthermore, the termination may have accelerated
the vesting of the granted stock options and warrants consisting
of 1,000,000 warrants exercisable at $1.00 per share, 6,000,000
stock options exercisable at $0.40 per share, and 1,500,000
stock options exercisable at the lowest average daily trading
price of the Company's common stock within the first 90 days of
the executive's employment. The Company's management believes
that the termination of this individual was in good cause and
intends to defend itself in this matter vigorously.
Employment Agreement - Outside Counsel.
On March 22, 2000, the Company consummated an amended and
restated employment agreement with an individual and his firm to
act as outside counsel for the Company. On April 14, 2000, the
Company terminated this individual and his firm as outside
counsel. Based upon the amended and restated employment
agreement, the remaining compensation for the term of this
agreement will be due immediately upon the termination of this
individual and his firm as outside counsel if terminated for
reasons other than good cause. In addition, any common stock
and stock warrants granted through the term of this agreement
will be considered due in the event of termination for reasons
other than good cause. Accordingly, the termination of this
individual and his firm, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $700,000 for the remaining portion of unpaid
compensation for the first, second and third years of this
agreement. Furthermore, the termination may have accelerated
the vesting of the granted common stock and stock warrants
consisting of 600,000 common shares and 600,000 warrants
exercisable at $1.00 per share. The Company's management
believes that the termination of this individual and his firm
was in good cause and intends to defend itself in this matter
vigorously.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The names, ages, and respective positions of the directors and
executive officers of the company are set forth below. The
Directors named below will serve until the next annual meeting
of the company's stockholders or until their successors are
duly elected and have qualified. Directors are elected for a
one-year term at the annual stockholders' meeting.
Officers will hold their positions at the will of the board of
directors, absent any employment agreement, of which none
currently exist or are contemplated. There are no arrangements,
agreements or understandings between non-management shareholders
and management under which non-management shareholders may
directly or indirectly participate in or influence the
management of the company's affairs. There are no other
promoters or control persons of the company. There are legal
proceedings involving the first three listed directors of the
company.
Directors and Executive Officers.
(a) Thomas S. Hughes, Chief Executive Officer/Director.
Mr. Hughes, Age 52, has been President and a Director of the
company since March 1997. From 1993 to the present, he has also
served as the President of Electronic Transactions &
Technologies, a privately held Nevada corporation which
developed terminals for wireless home and internet applications.
(b) Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, is currently President of Hall Developments, a
real estate development company he founded in 1991, which
employs a staff of 10 people. Mr. Hall spends approximately 20
hours per week searching out strategic alliances for the
company. Mr. Hall joined the company as Secretary and a Director
in March 1997.
(c) 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. Ms. Hewitt
joined the company as Treasurer and a Director in March 1997.
(d) Laurence B. Donoghue, Director.
Mr. Donoghue, age 55, is an attorney as well as a computer
professional. He was awarded a Juris Doctor degree at George
Washington University in Washington, D.C. in 1971. In December
1997, Mr. Donoghue founded and incorporated in Internet
marketing consulting business call Adweb Communications. In
July 1998, Mr. Donoghue also opened his own practice of law,
founding the Law Offices Of Laurence B. Donoghue. Mr. Donoghue
continues to operate both enterprises. From 1975 to 1998, Mr.
Donoghue built a successful prosecuting career in the Los
Angeles County District Attorney's Office as a Deputy District
Attorney. From 1980 to 1998, Mr. Donoghue worked as an Adjunct
Professor at Law at Trinity University School of Law.
Key Employee.
Anthony J. Bayne, Senior Vice President of Operations.
Mr. Bayne, age 33, received his Bachelor of Science degree in
1992 from Simon Greenleaf University, and his J.D. degree from
the same school in 1994. In 1998, he was awarded an LL.M. degree
in taxation from Washington School of Law. Mr. Bayne is licensed
as an attorney in the State of California. From January 1995 to
February 2000, Mr. Bayne served as a deputy public defender in
the Los Angeles County Public Defender's Office. In this
position, he represented defendants in all stages of criminal
proceedings though trial, directed investigations, appointed
experts, and planned case strategy. For the period of February
2000 to April 2000, Mr. Bayne was in private practice Rancho
Palo Verdes, California. He joined the company in his current
position on April 27, 2000.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of shares of the company's common stock as
of September 1, 2000 (184,641,313 issued and outstanding) by (i)
all stockholders known to the company to be beneficial owners of
more than 5% of the outstanding common stock; and (ii) all
directors, executive officers, and key employees of the company,
individually and as a group:
Title of Name and Address of Amount and Percent
Class Beneficial Owner Nature of of
Beneficial class
Owner (1)
Common Hughes Net Income Charitable 8,522,500 (2) 4.62%
Stock Remainder Unitrust,
c/o Anthony J. Bayne, Esq.
2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Thomas S. Hughes 5,550,000 (3) 3.01%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Diane Hewitt 1,157,500 0.63%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Laurence B. Donoghue 10,000 0.005%
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Anthony J. Bayne 10,000 0.005%
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Jack M. Hall 0 0.00%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Shares of all directors, 15,250,000 8.26%
Stock executive officers,
and key employees
as a group (5 persons)
(1) Except as noted in footnote 2 below, each person has sole
voting power and sole dispositive power as to all of the shares
shown as beneficially owned by them
(2) The creator of this trust is Thomas S. Hughes. Thomas S.
Hughes is the trustee of the trust; Lawrence B. Donoghue, Esq.
is the special trustee, and as such has the voting power and
power over the disposition of the company's shares under this
trust. In addition, Mr. Hughes is the lifetime net income
beneficiary of this trust, and the remainder beneficiary is
Philosopher Kings and Queens, a California nonprofit public
benefit corporation (according to information provided by Mr.
Hughes). According to information provided by Mr. Hughes, this
trust is irrevocable.
(3) 5,400,000 of this amount is owned by Electronic
Transactions & Technology. This ownership is attributed to Mr.
Hughes by virtue of his 70% ownership of this company.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
authorized capital of the company consists of 200,000,000 shares
of common stock, $0.001 par value per share. The holders of
common stock shall: (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; and (c) are entitled to one non-cumulative vote per
share on all matters on which shareholders may vote at all
meetings of shareholders. The shares of common stock do not
have any of the following rights: (a) special voting rights; (b)
preference as to dividends or interest; (c) preemptive rights to
purchase in new issues of Shares; (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. There are no
restrictions on dividends under any loan or financing
arrangements or otherwise. As of September 1, 2000, the company
had 184,641,313 shares of common stock issued and outstanding.
There are no preferred shares authorized in the articles of
incorporation.
Non-Cumulative Voting.
The holders of shares of common stock of the company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining shares
will not be able to elect any of the company's directors.
Dividends.
The company does not currently intend to pay cash dividends. The
company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the company's Board of
Directors deems such distributions appropriate. Because the
company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the company.
A distribution of revenues will be made only when, in the
judgment of the company's Board of Directors, it is in the best
interest of the company's stockholders to do so. The Board of
Directors will review, among other things, the investment
quality and marketability of the securities considered for
distribution; the impact of a distribution of the investee's
securities on its customers, joint venture associates,
management contracts, other investors, financial institutions,
and the company's internal management, plus the tax consequences
and the market effects of an initial or broader distribution of
such securities.
Transfer Agent.
The company has engaged the services of Corporate Stock
Transfer, 370 17th Street, Suite 2350, Denver, Colorado 80202, to
act as transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
Other than as set forth below, no named expert or counsel
was hired on a contingent basis, will receive a direct or
indirect interest in the small business issuer, or was a
promoter, underwriter, voting trustee, director, officer, or
employee of the company.
Brian F. Faulkner, Esq., counsel for the Registrant named
in this registration statement as giving an opinion on the
validity of the securities, will be receiving 1,150,000 shares
of common stock pursuant to the Registrant's Amended and
Restated Non-Employee Directors and Consultants Retainer Stock
Plan under this Form S-8 in exchange for legal services
previously rendered, and to be rendered in the future, to the
Registrant. These legal services consist of advice and
preparation work in connection with reports of the Registrant
filed under the Securities Exchange Act of 1934, and other
general corporate and securities work for the Registrant. Marc
R. Tow, Esq. will be receiving 150,000 shares of common stock
under this Plan for assistance provided to Mr. Faulkner in his
work for the Registrant. George Brenner, the former independent
certified public accountant for the Registrant, who now does per
diem accounting work for the company, will be receiving 100,000
shares of common stock under this Plan for past work for the
Registrant subsequent to his resignation.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Limitation of Liability.
The articles of incorporation of the company provide that
no Director or Officer of this company shall be liable to the
company or its stockholders for any breach of fiduciary duty as
Officer or Director of this company. This provision shall not
affect liability for acts or omissions which involve intentional
misconduct, fraud, a knowing violation or law, or the payment of
dividends in violation of NRS 78.300.
Indemnification.
(a) Articles of Incorporation.
The articles of incorporation of the company provide the
following with respect to indemnification:
"All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this company as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of a Director or Officer to repay
the amount if it is ultimately determined by a court of
competent jurisdiction, that he or she did not act in good
faith, and in the manner he or she reasonably believed to be or
not opposed to the best interests of this company."
(b) Bylaws.
The bylaws of the company provide the following with respect to
indemnification:
"Section 1. Definitions. For purposes of this Article,
"Indemnitee" shall mean each Director or Officer who was or is a
party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a Director or
Officer of this Corporation or is or was serving in any capacity
at the request of this Corporation as a Director, Officer,
employee, agent, partner, or fiduciary of, or in any other
capacity for, another corporation, partnership, joint venture,
trust, or other enterprise. The term "Proceeding" shall mean any
threatened, pending or completed action or suit (including,
without limitation, an action, suit or proceeding by or in the
right of this Corporation), whether civil, criminal,
administrative or investigative.
Section 2. Indemnification. Each Indemnitee shall be
indemnified and held harmless by this Corporation for all
actions taken by him or her, and for all omissions (regardless
of the date of any such action or omission), to the fullest
extent permitted by Nevada law, against all expense, liability
and loss (including, without limitation, attorney fees,
judgments, fines, taxes, penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding. Indemnification
pursuant to this Section shall continue as to an Indemnitee who
has ceased to be a Director or Officer and shall inure to the
benefit of his or her heirs, executors and administrators. This
Corporation may, by action of its Board of Directors, and to the
extent provided in such action, indemnify employees and other
persons as though they were Indemnitees. The rights to
indemnification as provided in this Article shall be non-
exclusive of any other rights that any person may have or
hereafter acquire under an statute, provision of this
Corporation's Articles of Incorporation or Bylaws, agreement,
vote of stockholders or Directors, or otherwise.
Section 3. Financial Arrangements. This Corporation may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a Director,
Officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in such capacity,
whether or not this Corporation has the authority to indemnify
him or her against such liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating a
trust fund; (b) establishing a program of self-insurance; (c)
securing its obligation of indemnification by granting a
security interest or other lien on any of this Corporation's
assets, and (d) establishing a letter of credit, guarantee or
surety. No financial arrangement made pursuant to this section
may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for intentional misconduct, fraud, or a
knowing violation of law, except with respect to advancing
expenses or indemnification ordered by a court. Any insurance
or other financial arrangement made on behalf of a person
pursuant to this section may be provided by this Corporation or
any other person approved by the Board of Directors, even if all
or part of the other person's stock or other securities is owned
by this Corporation. In the absence of fraud:
(a) the decision of the Board of Directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section, and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(b) the insurance or other financial arrangement is not void or
voidable; does not subject any Director approving it to personal
liability for his action; and even if a Director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
Section 4. Contract of Indemnification. The provisions of this
Article relating to indemnification shall constitute a contract
between this Corporation and each of its Directors and Officers,
which may be modified as to any Director or Officer only with
that person's consent or as specifically provided in this
section. Notwithstanding any other provision of the Bylaws
relating to their amendment generally, any repeal or amendment
of this Article which is adverse to any Director or Officer
shall apply to such Director or Officer only on a prospective
basis and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act
occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal
or amendment of these Bylaws shall affect any or all of this
Article so as to limit or reduce the indemnification in any
manner unless adopted by (a) the unanimous vote of the Directors
of this Corporation then serving, or (b) the stockholders as set
forth in Article XII hereof; provided that no such amendment
shall have retroactive effect inconsistent with the preceding
sentence.
Section 5. Nevada Law. References in this Article to Nevada
law or to any provision thereof shall be to such law as it
existed on the date these Bylaws were adopted or as such law
thereafter may be changed; provided that (a) in the case of any
change which expands the liability of an Indemnitee or limits
the indemnification rights or the rights to advancement of
expenses which this Corporation may provide, the rights to
limited liability, to indemnification and to the advancement of
expenses provided in this Corporation's Articles of
Incorporation, these Bylaws, or both shall continue as
theretofore to the extent permitted by law; and (b) if such
change permits this Corporation, without the requirement of any
further action by stockholders or Directors, to limit further
the liability of Indemnitees or to provide broader
indemnification rights or rights to the advancement of expenses
than this Corporation was permitted to provide prior to such
change, liability thereupon shall be so limited and the rights
to indemnification and advancement of expenses shall be so
broadened to the extent permitted by law."
The board of directors may from time to time adopt further
bylaws with respect to indemnification and may amend these
bylaws to provide at all times the fullest indemnification
permitted by the Nevada Revised Statutes.
(c) Nevada Revised Statutes.
NRS 78.7502 Discretionary and mandatory indemnification of
officers, directors, employees and agents: General provisions.
(1) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable
cause to believe that his conduct was unlawful.
(2) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred
by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made
for any claim, issue or matter as to which such a person has
been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems
proper.
(3) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
subsections 1 and 2, or in defense of any claim, issue or matter
therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
NRS 78.751 Authorization required for discretionary
indemnification; advancement of expenses; limitation on
indemnification and advancement of expenses.
(1) Any discretionary indemnification under NRS 78.7502 unless
ordered by a court or advanced pursuant to subsection 2, may be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so
orders, by independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or
on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the corporation.
The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
(3) The indemnification and advancement of expenses authorized
in NRS 78.7502 or ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either
an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to or for the advancement of
expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
NRS 78.752 Insurance and other financial arrangements against
liability of directors, officers, employees and agents.
(1) A corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is
or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability
and expenses incurred by him in his capacity as a director,
officer, employee or agent, or arising out of his status as
such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
(2) The other financial arrangements made by the corporation
pursuant to subsection 1 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(iv) The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
(3) Any insurance or other financial arrangement made on behalf
of a person pursuant to this section may be provided by the
corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
(4) In the absence of fraud:
(i) The decision of the board of directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(ii) The insurance or other financial arrangement:
(A) Is not void or voidable; and
(B) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
(5) A corporation or its subsidiary which provides self-
insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of
Title 57 of NRS.
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in
the opinion of the U.S. Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the company are the officers
and directors as disclosed elsewhere in this Form SB-2. None of
the promoters have received anything of value from the company
in such capacity.
DESCRIPTION OF BUSINESS
Business Development
The company was originally organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP, INC. On
April 20, 1983, the Articles of Incorporation were amended to
change the name of the corporation to HTI Corporation. On May
28, 1993, the Articles of Incorporation were amended to change
the name of the corporation to Leggoons, Inc. and increase the
number of authorized shares of common stock from 40,000 to
10,000,000 and decrease the par value of the common stock from
$1.00 per share to $0.01 per share. Also on May 28, 1993,
Leggoons, Inc., declared a 14-for-1 stock split.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold
to specialty and department stores nationwide under the brands
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel, and
Snooggel. On January 19, 1996, Leggoons, Inc. adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within
twelve months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its assets
and liabilities to a third party assignee, under an "Assignment
for the Benefit of Creditors" (an assignment is a business
liquidation device available as an alternative to bankruptcy).
The third party assignee, a Nebraska corporation, also named
Leggoons, Inc., was required to properly, timely, and orderly
dispose of all remaining assets for the benefit of creditors.
Leggoons, Inc. continued to maintain its status as a shell
corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales, Inc.(now
know as Electronic Transactions & 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 is
designed to enable consumers to instantly pay bills or impulse
purchase from home with real time cash transactions.
Mr. Hughes, Chairman of ET&T, became Chairman and President
of Leggoons, Inc. on March 1, 1997. At that time, the name was
changed to Betting, Inc.
On April 28, 1997, the 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 future
transactions that are sent by terminals that read credit cards
or ATM cards. On March 27, 1998, the company entered into a
License Agreement with ET&T for the purpose of licensing
additional technology for processing electronic banking
transactions. The technology licensed under this agreement
supplements the technology licensed under the Agreement dated
February 18, 1997.
On May 17, 1999, an Agreement and Plan of Merger between
Betting, Inc., a Missouri corporation, into Betting, Inc., a
Nevada corporation was executed by an authorized signatory of
each company. On May 21, 1999, the merger of the two companies
was approved by a majority of the shareholders. Effective on
June 1, 1999, Articles of Merger were filed with the Nevada
Secretary of State, which formally resulted in the redomicile of
the company from the State of Missouri to the State of Nevada.
This also resulted in the change of the fiscal year end from
August 31 to December 31. On June 4, 1999, a Certificate of
Amendment to Articles of Incorporation was filed with the Nevada
Secretary of State changing the name of the company to
"eConnect" and increasing the number of authorized common shares
to 100,000,000. On August 23, 1999, a Certificate of Amendment
to Articles of Incorporation was filed with the Nevada Secretary
of State increasing the number of authorized common shares to
200,000,000.
Business of the Company.
(a) Transactions Division.
The business of the company is to drive (process) PERFECT global
transactions with specific emphasis on ATM card with PIN instant
cash transactions. There are two aspects to the industry of
self serviced home or mobile swiped ATM card with PIN entry or
credit card transactions which the company has named PERFECT
(personal encrypted remote financial electronic card
transactions).
The first aspect is the development of the "Bank Eyes Only"T
transactions system whereby a consumer can use a remote terminal
from a home environment or mobile environment to read a credit
card or ATM card with PIN or a smart card which is then sent to
a host processor for card authorization. "Bank Eyes Only"
transactions refers to a direct Internet connection between the
consumer's terminal and the company's bank card authorization
system. The web merchant does not store nor has ready access to
the consumer's card data. These "Bank Eyes Only" terminals are
remote from the merchant (protecting the consumer's data) and
are wireless or landline or computer enabled. This should
result in greater consumer confidence in performing such
financial transactions.
This system will also enable the consumer or business person to
effect instant cash payments to the recipient. A transaction
using the terminal device with an ATM card with PIN is
considered a cash payment. Internet "Bank Eyes Only" ATM card
with PIN payments could substantially affect global commerce,
completely changing the way people around the world do business.
The second aspect of a PERFECT transaction is the usage of the
company's proprietary hardware placed in public locations for
self serviced bill payments by ATM card with PIN entry.
Today, bankcard authorized transactions, that are terminal
driven, are initiated by consumers, "face to face" with
merchants. The company's "Bank Eyes Only" transaction enables
the consumer to perform the transaction safely from a remote
location. These PERFECT transactions are originated by the
consumer. The transaction is encrypted before being sent. The
merchant does not originate the transaction by swiping the bank
card; the consumer swipes the bank card with no merchant
present. The consumer is "remote" from the merchant.
Applications of the PERFECT industry focus specific attention of
the usage of ATM card with PIN entry to effect "just in time"T
bill, tax, mortgage, or premium payments from home, to "reserve
your seat"T for entertainment purposes.
The company acknowledges that a proprietary hardware device is
necessary to conduct its fee per transaction business. However,
the revenue will derive not from the hardware but from the
transaction fees. The company's goal is to develop network
global host processing centers. These centers will drive and be
compatible with all types of hardware made by many different
competitors.
The company has spent over $2,000,000 in cash and stock during
the last two fiscal years developing the system for the
implementation of the PERFECT industry in general and for the
specific application of Internet "Bank Eyes Only" transactions
in particular.
The company has contracted exclusive licenses for global usage
of Patent No. 5,336,870, issued August 8, 1994, Patent No.
5,754,655, issued May 19, 1998, and Patent No. 5,809,143, issued
September 15, 1998. These three Patents broadly cover the
implementation of what the company is now calling "Bank Eyes
Only" transactions.
Patent No. 5,336,870 has developed into the EzyDepot unit, which
is now being upgraded to a wireless unit for use by households
in the U.S. pay home services such as for plumbers and carpet
cleaners. Using the ExyDepot unit, consumers may pay for
household services from home with an ATM card rather than with a
check. The company will generate revenues from fees paid by the
home service merchant to receive real cash in real time, and the
company will also generate revenue from the sales of the
EzyDepot.
Patent No. 5,809,143 has developed into what the company is
calling the eCashPad, and the specific focus is for Internet
"Bank Eyes Only" usage. This device connects directly to a
personal computer and runs on the Windows operating system. The
company expects that the eCashPad should be commercially
available in June for use by consumers.
Patent No. 5,754,655 covers is in the process of development as
a hand held wireless voice capable phone and terminal for sale
and distribution into the PERFECT industry, with specific focus
for "Bank Eyes Only" Internet ATM card with PIN entry
transactions. This product is called the ePocketPay and is in
the development stage.
The present "Bank Eyes Only" system consists of the proprietary
company eCashPad, the proprietary company EzyDepot, the
eConnect/RGTecq Linux Transaction Server, and the company host
systems which will drive these transactions. In other words,
simple servers at the host center will "drive" the incoming
eCashPad or EzyDepot transactions into the bank system for
authorization. For example, the Linux transaction server will
receive the incoming eCashPad transaction and then send the
transaction on to the company host system for card
authorization. At no time is any bankcard data stored with the
Internet merchant, and this simple action effects a highly
secure consumer Internet transaction. The Linux server operates
on proprietary software developed by the company.
The eCashPad has been developed by Asia Pacific Micro, Inc,
under a manufacturing agreement entered into in January 2000.
Production of the eCashPad has commenced in Asia and is
commercially targeted for distribution in June 2000. This unit
attaches to the consumer's computer keyboard and enables the
consumer to affect Internet "Bank Eyes Only" transactions, from
the consumer's home or office. The company will receive a fee
from the merchant per transaction. The company is currently
establishing distribution agreements for the eCashPad.
The eCashPad will also be distributed with private labels.
Companies participating in the private label eCashPads will
enjoy the benefit of receiving a portion of the company's
transaction fee for transactions made to them in addition to
those made to other merchants. For example, an insurance
company using the eCashPad will generate cash payments by ATM
card with PIN entry for its premium payments. In addition, it
can generate additional revenues from the same eCashPad as it is
used to pay a phone bill, to make a charitable donation, to
purchase a product, or to pay a tax bill. The company will
receive a projected fee of $1.00 per transaction.
The ePocketPay is targeted for a third quarter prototype which
will effect hand held wireless "Bank Eyes Only" transactions
plus act as a wireless voice phone.
The first country outside of the United States that the company
is presently developing a host system is the Dominican
Republic, the second is Ireland, followed by Hong Kong and then
Australia. The company has chosen these countries since they
have a strong usage of ATM card with PIN entry.
The company has recently formed eConnect Caribbean, S.A.
(the name was changed from eConnect Dominican Republic, S.A. in
July 2000) to develop its gaming and other operations in the
Dominican Republic. This firm will act as a full service host
processing center for both bank eyes only transactions as
originated by the eCashPad and to also service merchant walk in
retail locations in the Dominican Republic. It is also the
intention of eConnect Caribbean to process Internet credit card
transactions for gaming companies and to sell the eCashPad to
Internet gaming companies for distribution of the eCashPad to
their clients. The company owns 75% of the outstanding capital
shares with the remaining 25% owned by the company's president.
eConnect Caribbean is in the start-up phase, no revenue has been
recorded and start-up costs of $71,114 have been expensed.
Within the countries of Hong Kong, Ireland, Australia, and the
Dominican Republic, the company recognizes that the eCashPad
within those countries will naturally evolve into ATM card with
PIN cash games, and the company intends the present holdings of
Top Sports and 777WINS to be combined into an eGaming company
which will feature the "International", which will be the
equivalent of a same day instant cash game between the countries
of Australia, Hong Kong, Ireland and the Dominican Republic
whereby the eCashPad is used with ATM card and PIN entry and
processed by the company's host systems.
The specific goal of the company is to establish global "Bank
Eyes Only" ATM card with PIN entry by the usage of the eCashPad
which will be targeted for substantial free distribution within
the United States and in Hong Kong, Ireland, the Dominican
Republic and Australia in the third and fourth quarters of 2000.
The long term strategic goal of company is to position its
global host systems to offer "Bank Eyes Only" processing
services for both competitors' terminal solutions and for the
company's terminal solutions. This places the company in the
position of being a HUB for its own transactions and
competitor's transactions. There will also be a particular
emphasis on Internet cash payments between countries by the
usage of eCashPad or ePocketPay type of devices and ATM card
with PIN entry. This enables the company to handle Business to
Business transactions and Country to Country transactions.
Revenue generation from "Bank Eyes Only" transactions is
expected to begin in the second quarter of 2000 when the
eCashPad is freely distributed by the company and is also
aggressively deployed by the industries of telecommunications,
insurance, collection, network marketing, charity and utilities.
Within the United States market, the company is closely working
with National Data Funding Corporation to secure the go ahead
for regional ATM card networks for an eCashPad ATM card with PIN
entry "Bank Eyes Only" internet payment.
The company's host service in the United States is provided by
eFunds, a wholly owned subsidiary of Deluxe Data under an
agreement between eFunds and the company entered into in
February 2000. The company is currently using the eFunds CONNEX
software to provide the company Host support system outside of
the United States.
The company is confident that the ATM card network will accept
"Bank Eyes Only" transactions. A targeted pilot program is
scheduled to begin in the third quarter. Since this is a new
endeavor, the company cannot guarantee that such United States
"Bank Eyes Only" with ATM card and PIN entry transactions will
actualize. The usage of ATM card with PIN entry "Bank Eyes
Only" transactions is directly dependent on the acceptance by
bank networks such as STAR or MAC.
The company expects the industry of "Bank Eyes Only" Internet
transactions to develop substantially by the fourth quarter and
anticipates numerous "Bank Eyes Only" product devices to be
introduced by various companies. It is the intention of the
company to provide support services for such hardware devices
and to gain a service fee from the processing of "Bank Eyes
Only" transactions. The company encourages the introduction of
different types of "Bank Eyes Only" devices.
The company anticipates a strong effort by competitors to seize
the "Bank Eyes Only" space on an Internet merchant site and the
company recognizes that there are a finite number of top 100 web
merchants per category.
In summary, the company intends to build host systems in such
countries as the Dominican Republic, Hong Kong, Australia and
Ireland, plus numerous other countries, whereby the company's
host system is driving many different types of hardware devices
as developed by many companies to meet the demand of the PERFECT
industry. The company will generate a fee per transaction from
the driving of each hardware device which is sending in PERFECT
ATM card and PIN entry, credit card and smart card payments.
(b) Gaming Division.
Effective as of April 1, 2000, the company owns a 99.94%
interest in Top Sports S.A., a series of 12 walk in Dominican
Republic sportsbooks. The company's interest in gaming two
fold: (1) the generation of revenues; (2) the establishment of a
base for the usage of "bank eyes only" eCashPads for global ATM
card with PIN entry gaming.
It is anticipated that 777WINS.com, as explained in more detail
below, will generate revenue in 2000. Under the strict control
of the Dominican Republic subsidiary, United States originated
gaming transaction will not be accepted.
The government of the Dominican Republic has granted eConnect
Caribbean the specific licenses required to own and manage full
service walk in sports gaming public locations and to offer
Internet gaming with the 777WINS.com service.
(c) General.
company presently has 12 full time employees and contracts with
multiple independent contractors. To meet the company's service
launch requirements, it expects to hire additional financial,
technical, administrative and sales staff.
In addition to the patents set forth above, the company
currently has 8 filed applications for trademarks.
Acquisitions by the Company.
(a) Rogel Technologies.
According to an agreement dated May 6, 1999, the company
acquired all of the assets of Rogel Technologies, a sole
proprietorship. These assets consisted of the following: (a)
proposed secure e-mail service; (b) Perfect Merchant Response
Software (MRS); (c) Global Market Place Mall (GMM) (the GMM
includes these products: GMM Classified Adds, GMM Web hosting
services, eTrusts, eHomebuy, eDine, eTheater, Portable Website
Software, PCA Compression Software, and Virtual Card Game
Software); and (d) the consulting services of Rogel Patawaran
for the purpose of creating and writing new software products
for the company.
The company agreed to make the following payments under this
agreement: (a) 2,750,000 free trading shares; (b) 2,500,000
restricted shares of common stock; (c) options to purchase
500,000 shares of common stock at an exercise price of $0.50 per
share, which options expire on June 30, 2000; (d) options to
purchase 500,000 shares of common stock at an exercise price of
$1.00, which options expire on June 30, 2001; (e) options to
purchase 250,000 shares of common stock at an exercise price
$2.00 per share, which options expire on June 30, 2002 ; (f)
$200,000 per year management fee payable from the gross revenues
of RT; and (g) 12.5% of the remaining net profits of Rogel
Technologies as an administration fee. A total of 2,500,000
restricted shares of common stock and 2,500,000 free trading
shares of common stock have been issued date under this
agreement (no options as set forth in the agreement have been
issued to date).
Under an agreement dated October 23, 1999, the company agreed to
pay Rogel Technologies an additional $168,000 for services
related to MRS software and the SafeTPay system server, and to
provide additional consulting services for an hourly fee. Under
an agreement dated November 23, 1999, the parties agreed that in
consideration of said sum the MRS and SafeTPay software will
remain under the ownership and full control of Rogel
Technologies; however, the company would have the right to
utilize this software and provide instruction in its use.
Based on the main focus of this agreement being the consulting
services of Mr. Patawaran in research and development activities
of the company, the shares issued under this agreement are being
accounted for as research and development costs in the financial
statements of the company. The company has not as yet made any
determination regarding further development of the other items
set forth in the agreement.
(b) eBet.com, Inc.
According to an agreement dated August 12, 1999, the company
intended to acquire all of the stock of eBet.com, Inc., a Nevada
corporation; one of the assets of eBet is the eSportsbet.com
website. The assets of the company consisted of certain
technology in connection with on-line wagering. As part of this
transaction, the company also agreed to assume all of the
liabilities of eBet. This compensation specified for this
acquisition was as follows: (a) 400,000 free trading shares, and
1,000,000 restricted shares, paid to the shareholders of eBet;
and (b) 1,200,000 free trading shares paid to the principal of
this firm (Edward James Wexler). In addition, the company
agreed to pay a total of $225,000 to satisfy the creditors of
eBet and for other development costs in connection with the
acquisition. However, this agreement was never consummated, and
the eSportsbet.com website therefore stayed under the ownership
of eBet.com, Inc.
(c) Isla Escondida, S.A.
La Empressa Ranco Plasticos Limitada, a Costa Rica corporation
("Holder"), was the owner of record of 58.33% of the issued and
outstanding stock of Isla Escondida, S.A., a Costa Rica
Corporation ("IE") ("Stock"). Pursuant to an agreement between
Holder, Jamie Ligator and Michael Lanes, one-half (1/2) of the
Stock was actually being held in the name of Holder for the
benefit of Lanes and the other one-half (1/2) of the Stock was
actually being held in the name of Holder for the benefit of
Ligator. Effective on August 31, 1999, the company purchased
the Stock under a Stock Exchange Agreement.
Under this agreement the company paid the following amounts for
the Stock: 7,000,000 shares of free trading common stock of the
company, to be deposited into an escrow account. These share
were all released by December 31, 1999 under the provisions of
an accompanying escrow agreement. Subsequent to this agreement,
the company acquired, for 5,000,000 free trading shares, the
remaining 41.67% of the stock of IE directly from the
shareholders of that company in a stock swap (an additional
5,200,000 restricted shares of common stock previously issued in
connection with this transaction are still in need of
cancellation). In addition to the above amounts paid, the
company paid an additional 1,510,000 shares of free trading
common stock in connection with closing this transaction.
This asset has generated no revenues for the company since
its acquisition. Due to various problems with the 777WINS
operation in Costa Rica, this website was closed shortly after
the acquisition by the company and no revenues or profits were
realized from this operation. As a result, this entire
investment was written down to $250,000 in the fourth quarter of
fiscal 1999. As set forth in section (5) below, the company now
owns only a 50% interest in 777WINS.com in connection with the
agreement with Top Sports, S.A.
(d) TheArtAuction.com
Effective on September 9, 1999, the company acquired the website
known as "theArtAuction.com" from PowerClick, Inc., a Nevada
corporation, through an Agreement and Plan of Acquisition
Agreement. Under this agreement, company paid the following:
(a) 1,000,000 shares of free trading common stock of the
company; and (b) 1,000,000 shares of restricted common stock of
the company. In addition, the company paid an additional
165,000 shares of restricted common stock in connection with
closing this transaction.
Although this website did briefly generate revenues in September
1999 totaling approximately $40,000, the website was closed down
in November 1999 for reconstruction and has not as yet reopened.
company has been upgrading theArtAuction.com into artaste.com,
which is scheduled for a third quarter 2000 opening.
(e) Top Sports S.A.
By a Contract of Partnership dated November 20, 1999, the
company acquired a 50% interest in Top Sports S.A., a Dominican
Republic corporation. The company has also entered into a
Business Cooperation Agreement with Top Sports S.A., dated
December 9, 1999, to carry forward the terms of the partnership
between the two companies under local Dominican Republic law.
Top Sports operates various sports book betting establishments
in the Dominican Republic, where casino and related types of
gaming are legal.
Under these agreements, the company is to be the beneficiary of
50% of all the assets, benefits and gains, and shall share in
50% of all the liabilities, losses or obligations. As part of
these agreements, the company agreed to give-up a 50% interest
in its website 777WINS.com. The company paid the following: (a)
U.S. $35,000 and (b) 1,000,000 of restricted common stock of the
company. The company also agreed to pay options to purchase
2,000,000 shares of common stock of the company, during the 12
months following the execution hereof for the fixed price of
U.S. $0.30 per share; these options have not yet been issued.
Under these agreements, it is the intention of the parties that
not only will sports book betting be expanded in the Dominican
Republic, but that only wagering will be facilitated through the
777WINS.com website. To this end, all of the equipment and other
assets of 777WINS.com moved from Costa Rica to the Dominican
Republic in January 2000.
On January 1, 2000, the company entered into a Shares Sale
Contract to acquire the remaining approximately 50% interest of
Top Sports from Paul Egan. Under the terms of the agreement, the
company is to pay Mr. Egan a) 1,000,000 unrestricted free-
trading shares of the company; b) 1,000,000 restricted shares of
the company; and c) 1,000,000 warrants at a fixed price of $1.00
per share.
On June 20, 2000, the company verbally agreed to modify the
two previous agreements. This verbal agreement was committed to
writing and made effective as of April 1, 2000; the company
acquired 4,994 shares of the remaining 5,000 capital shares
outstanding. Of the 10,000 shares outstanding, the company owns
9,994 shares (Dominican Republic Law, where Top Sports, S.A. is
incorporated, requires that there be seven stockholders in a
company). The 4,994 shares of Top-Sports, S.A. were acquired
for 2,800,000 shares of the company's common stock valued at
$3,450,000 (these shares have not yet been issued).
In accordance with this agreement, Mr. Egan received 25% of the
common stock of eConnect Caribbean, S.A., and in return the
company now owns 99.94% of Top Sports, S.A. Mr. Egan would
resign as a director of Top Sports and would keep all
consideration received to date under the December 9, 1999 and
January 1, 2000 agreements and will not receive any other
consideration under either of these agreements. He will be
employed as President of eConnect Caribbean, S.A. for a term of
three years.
In order to help fund the operation of Top Sports, S.A., this
firm and the company entered into an agreement dated December
16, 1999, whereby the company is to provide that firm with
100,000 free trading shares of the company per month beginning
January 2000 and ending December 2000. Top Sports will sell
such shares in the marketplace and will use the resulting
revenues to fund the continued expansion plans of Top Sports SA,
specifically the acquisition of 20 targeted Dominican Republic
Sports Books.
(f) PowerClick, Inc.
On February 9, 2000, the company acquired 50% of the
outstanding capital stock of PowerClick, Inc., a Nevada
corporation, in consideration of $1,200,000 cash (of which
$450,000 is still due and payable) and 8,000,000 shares of the
company's common stock valued at $1,300,000 for an aggregate 50%
investment of $2,500,000, which is principally comprised of
goodwill. PowerClick, Inc. owns and operates a website that
provides a wide range of products and services to the public,
and is intended to be used as a vehicle to promote the use of
the "Bank Eyes Only" system.
To date, a loss of $79,697 (first quarter March 31,2000)
and six months goodwill amortization of $319,292 have been
recorded for a net carrying value at June 30, 2000 of
$2,101,011. During the second quarter, 5,200,000 shares of
common stock valued at $1,950,000 were given to PowerClick, Inc.
stockholders for consulting services.
(g) National Data Funding Corporation.
On May 22, 2000, the company entered into a non-binding Letter
of Intent with National Data Funding Corporation ("NDFC") to
acquire 100% of NDFC's capital stock and spin it off in a
publicly trading company and retaining a 25% ownership. NDFC is
a company that will provide eCashPad distribution, encryption,
and maintenance. The eCashPad is a device which will attach to
a personal computer to enable a credit card or ATM transaction
via Internet. NDFC will also provide full merchant processing
for all credit and debit cards in support of eFunds-United
States. The company is in the process of negotiating a final
acquisition agreement.
In connection with the Letter of Intent, the company has
deposited (non-refundable) $250,000. The Letter of Intent
requires the company to pay the stockholders of NDFC $10,000,000
and 10,000,000 restricted shares of the company's common stock
in exchange for 100% ownership, and contribute to NDFC
$1,000,000 and 1,000,000 shares of the company's common stock
for working capital. Pursuant to the Letter of Intent, the
company is required to "spin off" NDFC as a publicly traded
company in which the company will retain a 25% ownership. The
Letter of Intent, dated June 2, 2000, originally expired on
September 1, 2000 but has been extended by oral agreement of the
parties to a closing date of October 31, 2000.
Other Agreements.
(a) First Entertainment Holding Corp.
On April 29, 1999, the company entered into a Joint Venture
Agreement with First Entertainment Holding Corp. for the purpose
of using the allowing customers to use their ATM cards to make
purchases from a number of websites owned by that firm at
www.firstentertainment.com. These companies intend to move
forward with this project once the eCashPad is available for
distribution. Each company will share equally in the profits
and losses from this joint venture.
(b) Cash2Trade.
In September 1999, the company entered into an oral joint
venture agreement with Robert Bragg and Michael Rice to develop
an online investment trading website. The company issued a
total of 1,650,000 shares of free trading common stock in this
transaction. As of December 31, 1999, the company's management
evaluated the value of this investment and substantially all of
the $325,000 investment was written off as a loss on investment
since it has no future benefit.
(c) International Investor Relations Group.
The company entered into a Consulting Agreement with
International Investor Relations Group, Inc. ("IRG"), dated
September 24, 1999. Under the terms of this agreement, this
firm provided certain services for the company, as follows: (a)
10 road shows; (b) 1 Media Placement in Stock/Card deck reaching
250,000 + investors; (c) 2 News releases, includes broadcast fax
to all interested parties; (d) one research report 6-8 page full
color; and (e) a broker card - 2 sided, full color.
Under this agreement, the company paid the following amounts for
the services of IRG: (a) $85.000.00; (b) 167,000 free trading
shares based on a .21 cent per share price; and (c) 300,000
purchase warrants, as follows: 100,000 $0.50 cents per share,
100,000 at $0.75 cents per share, and 100,000 at $1.00 per
share. These have a 2-year expiration date from the original
date of signing the agreement.
(d) Kanakaris Communications.
On October 21, 1999, the company entered into an agreement
with Kanakaris Communications for the purpose of developing
Internet Cash Programming ("ICP"), a service to be offered by
Kanakaris and the company which will enable the consumer to
purchase internet video streaming programming by Same-as-Cash
(ATM card and PIN), or by Enhanced Credit Card (the payment by
credit card that is read by the ePIN or like devices). Under
this agreement, Kanakaris Communications will provide the
delivery to the internet consumer of video streaming programming
from either Kanakaris Communications own inventory base or shall
act as a distributor of video streaming programming from other
entertainment providers.
Under the terms of this agreement, ICP will be established
as a separate Nevada corporation and will authorize 1,000,000
shares of stock; Kanakaris Communications will receive 400,000
shares of stock and eConnect shall receive 400,000 shares of
stock, and 200,000 shares of stock shall remain in the ICP
treasury. Kanakaris Communications will retain the managing
control of ICP and shall appoint officers to manage ICP. All
profits of ICP shall be equally split between eConnect and
Kanakaris Communications.
The company will receive exclusive global rights to drive
or process all originating ICP transactions whether transacted
by an ePIN or by a competitive hardware devices that are
effecting either a Same-as-Cash or Enhanced Credit Card
programming purchase. In addition, the company will charge ICP
a flat fee per ICP processed transaction. Further development
of this project is awaiting the delivery of the eCashPad, as
previously discussed.
The company paid a total of 3,000,000 shares of free
trading common stock for the research and development to be done
under this agreement. However, unbeknownst to the company these
shares were paid out directly to a nominee of Richard Epstein,
United Capital Management.
(e) SafeTPay.com.
On November 5, 1999, the company entered into a Capital
Contribution Agreement with SafeTPay.com, a Nevada corporation.
Under the terms of this agreement, the company agreed to
creation and management of a business unit focused on the
processing of secure internet transactions.
Under this agreement, the company agreed to contribute the
following assets to this newly formed company:
(a) Software. All ownership and rights to the software that
have been developed by Rogel Technologies per specifications
provided by SafeTPay ("System"). SafeTPay is to have access to
this software as needed for the operation of its business.
(b) Computer Hardware. The server which has been procured by
Rogel Technologies for use as the SafeTPay internet server, and
installed in St. Petersburg, Florida.
(c) Miscellaneous Physical Assets. Three laptop personal
computers, 7 sample PIN pads, and miscellaneous office supplies
that have been purchased for and/or are being used by the
SafeTPay business unit.
(d) Trademarks, Trade-names, Copyrights. Ownership of any and
all marks, registrations, and goodwill that eConnect may own,
regarding "SafeTPay", "Same-As-Cash", "ePIN" and "ePAD". As a
condition for this transferal, Harry Hargens is to contribute
and unconditionally transfer to SafeTPay any and all trademarks
and domain names held in his name.
(e) Web Address. Ownership of any web addresses reserved for
any of the above names or marks.
Under the agreement, the parties were to receive stock in
SafeTPay.com as follows:
(a) Common Stock: SafeTPay will initially authorize 20 million
shares of common stock. In return for the capital contributions
listed above, the company is to receive 2,300,000 shares of
restricted common stock of SafeTPay. The principals of SafeTPay
(Harry Hargens, Gerard Gay, Robert Hodgson, and Dale Reistad)
are to each receive 150,000 shares of restricted common stock of
SafeTPay.
(b) Options.
(1) The company is to, upon execution of the agreement, receive
options to purchase 5,000,000 shares of SafeTPay common stock,
at an exercise price of one dollar ($1.00) per share. Any
unexercised options shall expire 3 years after execution of this
Agreement.
(2) The principals of SafeTPay are to each receive options to
purchase 500,000 shares of SafeTPay common stock, at an exercise
price of $1.00 per share. Any unexercised options shall expire 3
years after execution of this Agreement.
(3) For a period of 24 months following execution of this
Agreement, any additional options given to officers or
shareholders of either SafeTPay or eConnect shall be issued at
the same exercise price at those set forth in subparagraph (a)
above.
(c) Additional common stock in return for capitalization:
eConnect hereby commits to invest in SafeTPay $500,000 over the
period of one year from the date of this Agreement, in four (4)
equal quarterly installments, with $20,000 of the first
installment due not later than November 15, 1999, $42,500 due
not later than December 15, 1999, and the remainder of the first
installment due not later than January 15, 2000; subsequent
installments shall be due not later than the following dates:
April 15, 2000, July 15, 2000, and October 15, 2000.
Although to the knowledge of the company no litigation has
been threatened with regard to this agreement with SafeTPay.com,
the principals of SafeTPay now claim that the company is now in
breach of contract since it did not pay certain sums for the
capital contribution, as stated above, and has not fulfilled
certain obligations under the agreement. The company has
contributed a total of $62,500 to SafeTPay.com. The company
does not intend to contribute any further cash, or other assets
as set forth above, until other claims of the principals of
SafeTpay.com can be resolved.
In connection with this agreement, the company entered into
a separate consulting agreement with Michael Leste and Michael
Kofoed for their services in connection with this agreement.
Under the terms of these agreements, these individuals are to
receive certain options and restricted shares of SafeTPay.com;
these have not been paid due to the status of this agreement.
(f) eMarkit (eConnect2Trade.com).
(1) August 16, 1999 Agreement.
On August 16, 1999, the company entered into a consulting
agreement with eMarkit Incorporated, a Nevada corporation,
whereby this company would provide certain consulting services
for the company in connection with introductions to the
brokerage industry. Such introductions would be for the purpose
of developing the "Bank Eyes Only" system for use in the
financial services industry.
Under the terms of this agreement, the company agreed to
pay 1,000,000 free-trading shares of company's common stock
deemed fully earned upon execution hereof for eMarkit's initial
setup activities which are necessary for Contractee to provide
the services herein. In addition, the company agreed to pay
1,000,000 warrants exercisable at $1.00 per share, which expire
on December 31, 2000. However, this consulting agreement never
went forward and the compensation was not paid.
(2) December 29, 1999 Agreement.
On December 29, 1999, the company entered into an agreement with
eMarkit for the purpose of a joint venture, whereby the company
agrees to purchase on a "stock for stock" basis, 50% of a
corporation to be formed by eMarkit, that name being
eConnect2Trade.com, Incorporated ("ET"). The business of ET is
to be the marketing and sales of the company's "same-as-cash"
transactions to the securities industry via any medium, but
initially via the internet using an ATM pin pad. The long term
goal of ET will be, for a fee, to act as a financial interface
between securities broker/dealers and their clients who are
transacting currencies via transactions using bank host
processing centers that are authorizing such transactions.
Upon signing of this agreement of the company agreed to issue
1,000,000 "free-trading" shares of the company's stock to
eMarkit and 2,000,000 warrants to eMarkit to purchase 2,000,000
"free-trading" shares of eConnect stock at an exercise price of
$1.00 per share. The expiration date of the warrants is to be
December 31, 2000. The company is to deliver the stock and
warrants as follows: 300,000 shares and 300,000 warrants no
later than January 20, 2000. The next issuance of 200,000
shares and 200,000 warrants will be delivered when Beta testing
begins and 500,000 shares and 500,000 warrants will be delivered
when Beta testing is complete but no later than March 20, 2000.
Subsequent to December 31, 1999, a total of 300,000 free trading
shares were issued to Robert Bragg, the principal of eMarkit;
the company has not as yet been issued any shares in
eConnect2Trade.com but the parties intend to proceed with this
transaction.
Although a recent agreement of eConnect2Trade.com with
Empire Financial Holding Co., a broker/dealer, did not proceed,
it is the intention of the company to seek other contacts within
the brokerage industry.
(g) National Data Funding Corporation.
In the Form 10-KSB for the year ended December 31, 1999, it was
noted that in April 2000, the company entered into an agreement
with National Data Funding Corporation to provide eCashPad
distribution, encryption, and maintenance. However, since the
parties subsequently, entered into a Letter of Intent for the
company to acquire this firm, the referenced April 2000
agreement was never put into affect.
(h) REAL Solutions.
The company has entered into a letter of intent with Real
Solutions, Ltd. on March 9, 2000 to provide the IBM hardware
support in connection with the eFunds agreements. On April 13,
2000, the company entered into a formal Master Services
Agreement with Real Solutions in connection with this matter.
Under this agreement, the company will pay Real Solutions based
on a Statement of Work to be developed between the parties.
(i) Peters Entertainment.com, Inc.
On April 14, 2000, the company entered into an agreement with
Peters Entertainment.com, Inc., an independent motion picture
production affiliate of Time Warner Inc. Under this agreement,
there will be a 50/50 revenue-sharing arrangement to develop an
on-line media portal that would combine a consumer entertainment
environment with e-services designed to meet the needs of
production studios. The company will be acting as a consultant
to Peters Entertainment under this agreement.
PLAN OF OPERATION
Twelve Month Plan of Operation.
In the year 2000, the company will focus its attention on the
marketing and development of the PERFECT industry ("Personal
Encrypted Remote Financial Electronic Card Transactions"), with
specific focus on the "Bank Eyes Only" Internet aspect of the
PERFECT transaction.
"Bank Eyes Only" refers to a direct Internet connection between
the consumer's terminal and the company's bank card
authorization system by which the consumer will order an item
from an Internet merchant, but the credit card data or ATM data
will go directly to the company's server and then to the bank,
bypassing the merchant. Thus, this service will enable
customers to pay for Internet purchases, bill payments and other
types of transactions from home by physically swiping either
credit cards or ATM cards with PIN entry. These "Bank Eyes
Only," transactions can be processed over the Internet without
the cardholder account information being stored at the
merchant's web site, nor does the merchant have ready access to
the consumer's bank card information.
The company believes that "Bank Eyes Only" transaction
processing system will effectively address Internet consumers'
concerns regarding personal and financial information
security. The company will receive a projected flat fee of
$1.00 for each "Bank Eyes Only" transaction which will be paid
by the merchant, not the consumer.
The company has begun initial sign ups of web Merchants for this
service and based on responses, will now expend substantial
dollars for an aggressive sign up campaign to begin
simultaneously on several fronts. To launch the service of
Internet "Bank Eyes Only" transactions, the company has
implemented the following initiatives:
(a) Completion of testing of the eCashPads, the consumer "Bank
Eyes Only" device. The company expects a national roll-out of
eCashPads in the fourth quarter of 2000.
(b) Development of "bankeyesonly.com" web sites in the United
States, Dominican Republic, Ireland, Australia and Hong Kong.
These web sites will be used to register web merchants within
the above listed countries to be able to receive a "Bank Eyes
Only" transaction by an eCashPad. A consumer will be able to go
the company's website and with the use of his/her eCashPad will
be able to safely order merchandise on line.
(c) Aggressive recruiting of web merchants to the company
"Bank Eyes Only" network. Registration of "Bank Eyes Only" web
merchants will be pursued by a team specialists to be hired who
understand their specific industry such as phone or cable or
collections and who will fully develop the pertinent "Bank Eyes
Only" applications for that industry and who will develop
strategic alliances within their specific industry. In
addition, the company has structured a networking approach for
mass market consumer participation in finding "Bank Eyes Only"
merchants along with sales teams to sign on local web merchants.
(d) Using a revenue sharing plan from the flat fee, the company
will incentivize private labels of eCashPads with expected
advertising and marketing of these private label eCashPads by
the web merchants to their consumer base. For example, a
merchant might distribute eCashPads with its logo to its own
consumers.
(e) Establishment of strategic alliances with a substantial
partner in each country. The partner will then proceed to
develop the business of "Bank Eyes Only" transactions by usage
of the simple and proprietary eCashPad which has been developed
by the company.
(f) Establishment of the "International," which will be a four
country real time "Bank Eyes Only" with ATM card and PIN entry
game among the countries of the Dominican Republic, Ireland,
Australia, and Hong Kong, whereby consumers within those
countries will be able to use the eCashPad to effect same day
gaming with ATM card and PIN entry.
The company intends to spin off eGaming and its PowerClick
subsidiary as separate publicly traded companies.
Forward Looking Statements.
The foregoing Plan of Operation contains "forward looking
statements" within the meaning of Rule 175 under the Securities
Act of 1933, as amended, and Rule 3b-6 under the Securities Act
of 1934, as amended, including statements regarding, among other
items, the company's business strategies, continued growth in
the company's markets, projections, and anticipated trends in
the company's business and the industry in which it operates.
The words "believe," "expect," "anticipate," "intends,"
"forecast," "project," and similar expressions identify forward-
looking statements. These forward-looking statements are based
largely on the company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond
the company's control. The company cautions that these
statements are further qualified by important factors that could
cause actual results to differ materially from those in the
forward looking statements, including, among others, the
following: reduced or lack of increase in demand for the
company's products, competitive pricing pressures, changes in
the market price of ingredients used in the company's products
and the level of expenses incurred in the company's operations.
In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein
will in fact transpire or prove to be accurate. The company
disclaims any intent or obligation to update "forward looking
statements."
DESCRIPTION OF PROPERTY
At its executive offices in San Pedro, California, which the
company leases, it owns approximately $18,000 of miscellaneous
office furniture and equipment, including computers. In the
Dominican Republic, the company owns approximately $250,000 of
computer equipment and associated equipment for use in gaming
operations; this equipment has recently been transferred from
the former operations of 777WINS in Costa Rica to the Dominican
Republic.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two fiscal years, certain transactions which
occurred between the company and its officers and directors are
set forth below. With respect to each such transaction, the
company believes that the terms of each transaction were
approximately as favorable to the company as could have been
obtained from an unrelated third party:
(a) On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales,
Inc.("HPOS") (now know as Electronic Transactions & Technology -
"ET&T"). ET&T is a privately held corporation 70% owned by Mr.
Hughes, President of the company, which is focused on the
emergence of the Personal Encrypted Remote Financial Electronic
Card Transactions industry (although this agreement was entered
into prior to Mr. Hughes becoming affiliated with the company,
it is included here since certain of the conditions under that
agreement have not been completely fulfilled, as discussed
below). This technology will provide consumers with the option
to instantly pay bills or impulse purchase from home with real
time cash transactions with the usage of simple equipment such
as the eCashPad.
The assets included under this 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 as the total
consideration in exchange for licensing home ATM card and SMART
card wagering technology developed by HPOS. Of this amount,
2,755,000 shares were placed in escrow subject to cancellation
on February 10, 1998, in the event the bid price of the common
stock of the company is not at least $3.00 per share for any
twenty consecutive day period as reported on the NASD's
Electronic Bulletin Board or NASDAQ's Small Cap Market from the
date of the agreement through February 10, 1998.
As of the date of this registration statement, 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, 2001, subject
to certain conditions specified in the agreement. All
conditions set forth in the original agreement need to be met on
or before September 1, 2001.
The License Agreement also provides that in the event that the
bid price for the common stock of the 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. To date, the conditions of this provision have not been
met.
Under the terms of this license agreement, it was the
intention of the parties hereto that if and when any additional
shares of the common stock of Leggoons (now the company) are
issued to the public or any employees, HPOS' (now ET&T's)
ownership interest in the company shall be and remain no less
than 60% and that ownership interest of the current shareholders
of Leggoons (James Clinton) shall, at that time, be no less than
10%. ET&T has never sought to enforce this provision in this
license agreement. Between June 9, 1999 and November 24, 1999,
the company has issued a total of 1,850,000 shares to James
Clinton or his nominees based on the stated reason that
compliance with said 10% provision in such license agreement was
required. Shares issued under said provision of this license
agreement were not issued for consideration and therefore may
not have been properly issued in compliance with Missouri
Revised Statutes 351.160 (which governed the company prior to
its redomicile to the State of Nevada on June 1, 1999) and
Nevada Revised Statutes 78.211.
(b) On April 28, 1997, the company entered into a Host
Processing Agreement with 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.
ET&T is to charge the company a fee of $0.25 per transaction or
2.5% of the wager being sent by the company to gaming operators.
These transactions are to originate from globally placed company
equipment and/or company licensed operators.
(c) On March 27, 1998, the company entered into a License
Agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions. This
agreement states that ET&T licenses the following ET&T products
to the company for the exclusive global usage of wagering by
PERFECT originated ATM cards, credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that attaches
to phone lines and which calls the ET&T host processing center
with bank data.
The SLICK, defined as a stand alone keyboard terminal that
attaches to phone lines and call the ET&T host processing center
with bank data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone
that sends bank data by wireless transmission to the ET&T host
processing center.
The TV Pin Pad Remote, defined as a set top box and TV remote
that sends bank data by landline dial up transmission to the
ET&T host processing center.
Each ET&T product is exclusively licensed to the company on a
global basis for the application of PERFECT wagering at a
licensing fee of $2,000,000 each. The duration of the exclusive
license is 20 years. The licensing fee is to be paid by the
company at the rate of $30,000 per month; however, under the
terms of this License Agreement, this fee is not due and payable
until the technology for a particular product covered by the
license has been perfected and is ready for public use. As of
the date of this prospectus, only the PayMaster has been
perfected. This liability was satisfied in full in June 1999
through the issuance of common stock (as reflected in the Form
10-QSB for the quarter ended June 30, 1999). None of the other
products covered by the License Agreement had been perfected,
and, therefore, no licensing fee is required to be paid at this
time (when this does occur, a statement to that effect will be
placed in a future report filed by the company).
(d) The company and ET&T and Mr. Hughes entered into a
Promissory Note, dated December 1, 1999, to reflect the
principal sum of $2,836,411 owed by the latter two to the
company for various sums paid by the company to ET&T, as
follows: (a) the sum resulting from the credit to Mr. Hughes and
ET&T of the license fee owed by the company to ET&T, as set
forth above, and the charge to ET&T of 5,400,000 shares issued
to that firm in 1999 and the charge to Mr. Hughes of 4,000,000
shares issued to him in 1999; and (b) the oral assumption by the
company of payment of a promissory note in favor of Unipay, Inc.
whereby ET&T promised to pay the principal sum of $690,000 with
interest thereon at 8.5% accruing from April 26, 1999, the date
of this note (through December 31, 1999, the company had paid a
total of $93,800 towards this note). The amount set forth in
the Promissory Note is secured by the 9,400,000 shares of the
company owned by Mr. Hughes and ET&T as reflected in an
accompanying Security Agreement.
(e) On August 2, 2000, the company issued 3,000,000 restricted
shares of common stock to ET&T in connection with certain
consulting services to be rendered by this firm to the company.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information.
On March 13, 2000, the SEC ordered a ten trading day
suspension in the trading of the company's common stock on the
Over the Counter Bulletin Board ("OTCBB"). This trading
suspension was taken in connection with an investigation of the
company by the SEC. The company's common stock resumed trading
on March 27, 2000; however, from that date to the present, the
company's common stock has been trading on the National
Quotation Bureau's Pink Sheets (symbol "ECNC") since the
company's common stock was delisted on that date from the OTCBB
due to the trading suspension.
In August, 2000, a market maker, on behalf of the company, filed
with the NASD Stock Market, Inc. an application for the
company's common stock to be relisted on the OTCBB. Together
with that application was a packet of information required by
Rule 15c2-11 promulgated under the Securities and Exchange Act
of 1934. That rule specifies that certain information and
documents must be in the records of a broker or dealer before
such person may publish any quotation for the company's common
stock. The packet sent to the NASD contains all such information
and related documents. The company intends to supplement that
packet on a regular basis as periodic reports are filed with the
SEC and as other updates may become necessary.
The NASD will review the company's application and issue
comments concerning items for which it needs clarification. The
NASD issued a comment letter on or about August 21, 2000,
requesting a copy of the March 13, 2000 order suspending trading
in the company's common stock, and the steps the company has
taken to cure the alleged deficiencies which were the basis of
that order. The company is in the process of preparing responses
for the NASD.
Under NASD Rule 6530, an NASD member (i.e. the market maker) is
permitted to quote a domestic equity security that is not listed
on NASDAQ or a registered national securities exchange in the
United States, by an issuer that is required to file reports
(e.g. quarterly and annual reports on Forms 10Q-SB and 10K-SB,
and periodic reports on Form 8-K) pursuant to Section 13 or
15(d) of the Act, and if the issuer is current in those
reporting obligations (subject to a thirty calendar day grace
period). The company believes that it meets these requirements,
and, upon completion of the application with the NASD, the
company's common stock will be accepted for quotation on the
OTCBB.
The range of closing prices shown below is as reported by these
markets. The quotations shown reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 2000
High Low
Quarter Ended June 30, 2000 1.75 0.37
Quarter Ended March 31, 2000 * 16.50 0.49
* The common stock did not trade from March 13, 2000 through
March 24, 2000 due to the trading suspension ordered by the
Securities and Exchange Commission
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1999
High Low
Quarter Ended December 31, 1999 0.40 0.06
Quarter Ended September 30, 1999 0.41 0.15
Quarter Ended June 30, 1999 0.83 0.38
Quarter Ended March 31, 1999 0.81 0.37
Per Share Common Stock Bid Prices
For the Transition Period Ended December 31, 1998 **
High Low
Four Months Ended December 31, 1998 0.69 0.05
** Due to a change in the fiscal year of the company from
August 31 to December 31
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High Low
Quarter Ended August 31, 1998 0.16 0.09
Quarter Ended May 31, 1998 0.14 0.03
Quarter Ended February 28, 1998 0.08 0.00
Quarter Ended November 30, 1997 0.10 0.03
Holders of Common Equity.
As of September 1, 2000, the company had 918 shareholders of
record of the company's common stock.
Dividend Information.
The company has not declared or paid a cash dividend to
stockholders since it was originally organized. The company did
pay a 5% stock dividend on September 20, 1999 to shareholders of
record as of close of business on September 14, 1999. The Board
of Directors presently intends to retain any earnings to finance
company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the company's earnings,
capital requirements and other factors.
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Thomas S. 1999 $79,215 0 0 0 0 0 0
Hughes, 1998 0 0 0 0 0 0 0
Chief 1997 0 0 0 $750,000 0 0 0
Executive
Off.
Jack M.Hall 1999 $21,000 0 0 0 0 0 0
Secretary 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Diane 1999 $79,075 0 0 $ 46,875 0 0 0
Hewitt 1998 0 0 0 0 0 0 0
Treasurer 1997 0 0 0 0 0 0 0
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
company in the event of retirement at normal retirement date as
there is no existing plan provided for or contributed to by the
company.
(b) On September 1, 2000, the company's Board of Directors
approved an Amended and Restated Stock Incentive Plan; this will
allow for stock options and restricted awards to be made to
employees and non-employees of the company. There have been no
options granted or stock awards made under this plan to date.
Other than this, there is no remuneration proposed to be paid in
the future directly or indirectly by the company to any officer
or director.
FINANCIAL STATEMENTS
eConnect
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
Current assets
Cash $ 164,143
Due from related parties 310,525
Total current assets 474,668
Fixed assets, net 484,690
Investment, net 2,101,011
Intangible assets, net 3,436,164
Purchased software 2,168,892
Deposit 250,000
Other assets 141,721
8,097,788
Total assets $9,057,146
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $2,261,000
Accrued liabilities 225,947
Due to related parties 3,845,630
Due to affiliate 578,989
Notes payable-stockholders 711,818
Note payable-current portion 544,971
Total current liabilities 8,168,355
Long-term liabilities
Note payable-long-term portion 734,727
Total liabilities 8,903,082
Stockholders' equity
Common stock; $.001parvalue;200,000,000
shares authorized, 177,103,813 shares
Issued and outstanding 177,104
Additional paid-in capital 63,278,319
Minority interest in consolidated subsidiary 15,625
Due from related party-secured by
Company's common stock (4,392,918)
Accumulated deficit (58,924,066)
Total stockholders' equity 154,064
Total liabilities and stockholders' equity $9,057,146
See Accompanying Notes to Financial Statements
eConnect
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30 2000 June 30 1999 June 30 2000 June 30 1999
Revenue
Sports
Books(excess
payouts over
wagers) $ (462,573) $ - $ (462,573) $ -
Operating
expenses
Sports
Books 118,350 - 118,350 -
Consulting 5,648,127 841,365 15,517,044 867,615
Public
Relations 436,223 - 5,669,003 -
Research
And
Development 243,057 498,254 2,153,366 502,354
General
And
Administra
Tive 2,392,073 488,167 4,343,900 547,097
Total
Operating
Expenses 8,837,830 1,827,786 27,801,663 1,917,066
Net loss
From
Operations (9,300,403) (1,827,786) (28,264,236) (1,917,066)
Other
Income
(expense)
Interest
Income 106,535 - 193,885 -
Loss on
Investment - - - (2,062,500)
Equity
losses of
investees - - (280,366) -
Total
Other
Income
(expense) 106,535 - (86,481) (2,062,500)
Net loss
Before
Provision
for income
taxes (9,193,868) (1,827,786) (28,350,717) (3,979,566)
Provision
for income
taxes - - - -
Net loss $(9,193,868) $(1,827,786) $(28,350,717) $(3,979,566)
Basic and
diluted loss
per common
share $(0.06) $(0.16) $(0.19) $(0.22)
Basic and
Diluted
Weighted
average
common shares
outstanding 166,744,917 11,181,234 151,417,577 18,233,711
See Accompanying Notes to Financial Statements
eConnect
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30
2000 1999
Cash flows from operating activities:
Net loss $(28,350,717) $(3,979,566)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 785,127 -
Common shares issued for expenses 21,702,625 2,910,138
Equity losses of investees 280,366 -
Changes in operating assets and
liabilities:
Decrease in stock subscription receivable 220,176 -
Increase in due from related party (60,525) -
Increase in due from related party -
secured by Company's common stock (1,412,036) -
Increase in deposits (250,000) -
Increase in other assets (141,721) -
Increase in accounts payable 1,735,730 135,210
Increase in accrued liabilities 135,267 -
Increase in due to related parties 609,762 (282,535)
Decrease in due to affiliate (34,021) -
Increase in minority interest in
consolidated subsidiary 15,625 -
Increase in notes payable - stockholders 361,818 -
Net cash used by operating activities (4,402,524) (1,216,753)
Cash flows from investing activities:
Purchase of fixed assets (512,802) (5,478)
Payments for investments (980,797) -
Payments for purchased software (2,168,892) -
Net cash used by investing activities (3,662,491) (5,478)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,124,000 636,000
Principal payments on long-term debt (844,302) (100,000)
Proceeds from issuance of common stock 6,823,288 861,587
Net cash provided by financing activities 8,102,986 1,397,587
Net increase in cash 37,971 175,356
Cash, beginning of period 126,172 8,862
Cash, end of period 164,143 184,218
Supplemental disclosure of cash flow:
Cash paid for interest - 97,500
Cash paid for income taxes - -
Schedule of non-cash investing and
financing activities:
Remaining consideration of the second
half acquisition of Top Sports, S.A.
recorded as Due to related parties 2,785,868 -
Remaining consideration of the
acquisition of PowerClick, Inc.
recorded as Due to related parties 450,000 -
8,000,000 common shares issued
related to the acquisition of PowerClick,
Inc. 1,300,000 -
666,667 common shares issued for
accounts payable 550,000 -
6,000,000 common shares issued for
officer bonus payable 4,800,000 -
203,865 common shares issued for
stock subscription payable 81,546 -
9,400,000 common shares issued in
exchange for due from related party
secured by Company's common stock - 2,598,750
See Accompanying Notes to Financial Statements
eConnect
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The financial statements should be read in
conjunction with the Form 10-KSB for the year ended December 31,
1999 of eConnect ("the Company").
The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected
for the full year. In the opinion of management, the
information contained herein reflects all adjustments necessary
to make the results of operations for the interim periods a fair
statement of such operation. All such adjustments are of a
normal recurring nature.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying financial
statements include the accounts of the Company's subsidiaries
Top Sports, S.A. (99.99% owned) and eConnect Caribbean, S.A.
(75% owned). All inter-company accounts have been eliminated
and the minority interest recorded. The Company's investment in
PowerClick, Inc. (50%) is not consolidated but reported on the
equity basis of accounting. See Note 3, "Acquisitions".
Revenue - Revenue (second quarter-April 1 - June 30, 2000) was
reported from the Company's wholly-owned subsidiary, Top-Sports,
S.A. which revenue is derived from non-internet gaming
operations located in Santo Domingo, Dominican Republic.
Revenue consists of the excess of the payouts in the amount of
$3,376,137 over wagers made in the amount of $2,913,564
resulting in a net gaming loss of $462,573.
The Company acquired control of Top-Sports, S.A. as of April
1,2000, consequently the above revenue is included in the
Company's consolidated operations. The Company did not have a
controlling interest during the first quarter (January 1 - March
31, 2000), consequently, Top-Sports, S.A. operating results for
this period was reported on the equity basis of accounting,
which was a loss of $200,669.
Amortization - Goodwill representing the excess of the purchase
price over the equity of the ownership percentage in the
Company's subsidiaries and the costs of the intangible assets
are amortized over a three-year period. Because the Company has
not begun its e-commerce operations and installation is in
process, no amortization has been recorded on the purchased
software. See Note 4 "Purchased Software".
3. ACQUISITIONS
PowerClick, Inc. - In February 2000, the Company acquired 50% of
the outstanding capital stock of PowerClick, Inc. ("the
investee") in consideration of $1,200,000 cash (of which
$450,000 is still due and payable) and 8,000,000 shares of the
Company's common stock valued at $1,300,000 for an aggregate 50%
investment of $2,500,000, which is principally comprised of
goodwill. To date, a loss of $79,697 (first quarter March
31,2000) and six months goodwill amortization of $319,292 have
been recorded for a net carrying value at June 30,2000 of
$2,101,011. During the second quarter, 5,200,000 shares of
common stock valued at $1,950,000 were given to PowerClick, Inc.
stockholders for consulting services and expensed in the
accompanying "Consolidated Statement of Operations".
Due to a dispute between the parties and unavailability of
necessary accounting records, PowerClick, Inc. did not report
its second quarter earnings/losses (April 1 - June 30, 2000) to
the Company's management. However, the Company's management
does not believe that such amounts, if reported, would have a
material impact to these consolidated financial statements.
Consequently, the above carrying value of $2,101,011 has not
been adjusted for the 50% share of PowerClick, Inc.'s second
quarter's earnings/losses.
Currently, the parties and their respective counsels are
attempting to resolve the dispute.
Top Sports, S.A. - The Company completed the second half of its
Top Sports, S.A. acquisition effective April 1, 2000 by
acquiring 4,997 shares of the remaining 5,000 capital shares
outstanding. Of the 10,000 shares outstanding, the Company owns
9,994 shares. Dominican Republic Law, where Top Sports, S.A. is
located, requires that there be seven stockholders.
The above 4,997 shares of Top-Sports, S.A. was acquired for
2,800,000 shares of the Company's common stock valued at
$3,450,000. The goodwill resulting from the acquisition of Top-
Sports, S.A. $2,860,527 is included in intangible assets.
eConnect Caribbean, S.A. - eConnect Caribbean, S.A. was
organized under the laws of the Dominican Republic and serves as
the Company's Latin American headquarters for all e-commerce
transactions. The Company owns 75% of the outstanding capital
shares with the remaining 25% owned by the company's managing
director. eConnect Caribbean is in the start-up phase, no
revenue has been recorded and start-up costs of $71,114 have
been expensed.
4. PURCHASED SOFTWARE
Purchased software represents the Connex Software System used in
processing e-commerce transactions. The system will be installed
in the Dominican Republic (currently in process), Ireland, Hong
Kong and Australia. The licensor, E-Funds, (located in
Milwaukee, Wisconsin) and the Company have worked out a payment
plan to pay $680,000 down and $1,752,000 over three years for an
aggregate $2,432,000.
The accompanying consolidated balance sheet liability has
imputed interest at 15.031% for a present value of $2,124,000
(including the $680,000 down payment) assigning a value of
$531,000 to each of the above four geographic areas plus $44,892
in professional service fees (installation costs billed and in
process). The balance is due in monthly installments of
$58,400 through February 2002 and monthly installments of
$29,200 from March 2002 through February 2003. Under the terms
of the license agreement the Company has a no term limitation to
use the Connex Software System, however, title to the software
remains with the licensor.
As of June 30, 2000, principal payments on the note payable are
as follows:
Six months ending December 31, 2000 $ 262,314
12 months ending December 31, 2001 587,234
12 months ending December 31, 2002 372,829
Period ending February 4, 2003 57,321
1,279,698
Less: amounts due within one year 544,971
Note payable - long-term portion $ 734,727
5. DEPOSIT
In connection with a "Letter of Intent", a non-binding agreement
with National Data Funding Corporation (NDFC), the Company has
deposited (non-refundable) $250,000. "The Letter of Intent"
requires the Company to pay the stockholders of NDFC
$10,000,000, 10,000,000 shares of the Company's common stock in
exchange for 100% ownership, and contribute to NDFC $1,000,000
and 1,000,000 shares of the Company's common stock for working
capital.
Pursuant to the "Letter of Intent", the Company is required to
"spin off" NDFC as a publicly traded company in which the
Company will retain a 25% ownership. The "Letter of Intent"
dated June 2, 2000 expires September 1, 2000.
6. DUE TO RELATED PARTIES
As of June 30, 2000, due to related parties totaled $3,845,630
consisting of $3,395,630 due to the former sole stockholder of
Top Sports, S.A. and $450,000 due to the stockholders of
PowerClick, Inc. as discussed in Note 3, bearing no interest and
due on demand. The due to related party balance of $3,395,630
is comprised of $609,762 payable in cash and the remaining
$2,785,868 payable in 2,800,000 shares of the Company's common
stock.
7. NOTES PAYABLE - STOCKHOLDERS
Notes payable - stockholders are comprised of five notes
aggregating $711,818 ($600,000 in cash; $111,818 in 242,500
shares of the Company's common stock). The notes dated in May
and June 2000 are due no later than six months from the notes'
dates, bearing a simple interest rate of 10% per month on the
cash balance.
8. GOING CONCERN
The Company incurred a net loss of approximately $28,000,000 for
the six months ended June 30, 2000. The Company's current
liabilities exceed its current assets by approximately
$7,700,000 as of June 30, 2000. These factors create an
uncertainty about the Company's ability to continue as a going
concern. The Company's management has developed a plan, which
includes completing the development of technology products to
generate future revenues. The Company will also seek additional
sources of capital through the issuance of debt equity
financing, but there can be no assurance that the Company will
be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of
the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
L.L. Bradford & Company, LLC
Certified Public Accountants & Consultants
2901 El Camino Avenue, Suite 105
Las Vegas, Nevada 89102
(702) 735-5030 facsimile (702) 735-4854
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
eConnect
San Pedro, California
We have audited the accompanying consolidated balance sheet of
eConnect as of December 31, 1999, and the related statements of
operations, stockholders' deficit, and cash flows for the year
ended December 31, 1999 and for the transition period ended
December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated
financial statements of eConnect for the year ended August 31,
1998, were audited by another auditor whose report dated April
7, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the December 31, 1999 and December 31, 1998
consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
eConnect as of December 31, 1999, and the results of its
operations and its cash flows for the year and transition period
then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 11 to the consolidated financial
statements, the Company has suffered losses from operations,
current liabilities exceed current assets and has a net
stockholders' deficiency, all of which raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 11.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ L.L. Bradford & Company, LLC
L.L. Bradford & Company, LLC
March 24, 2000
(except for Note 12, as to
which the date is April 17, 2000)
Las Vegas, Nevada
eCONNECT
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
Current assets
Cash $ 126,172
Stock subscriptions receivable 220,176
Due from related party 250,000
Total current assets 596,348
Other assets
Investments, net 93,883
Goodwill, net 208,333
Other intangibles, net 755,675
1,057,891
Total assets 1,654,239
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Officer bonus payable 4,800,000
Accounts payable 1,075,270
Accrued liabilities 90,680
Due to related party 613,010
Stockholder loan payable 350,000
Total current liabilities 6,928,960
Total liabilities 6,928,960
Commitments and contingencies -
Stockholders' deficit
Common stock; $.001 par value;
200,000,000 shares authorized, 110,601,173
shares issued and outstanding 110,601
Additional paid-in capital 28,087,363
Due from related party - secured by
Company's common stock (2,980,882)
Stock subscription payable 81,546
Accumulated deficit (30,573,349)
Total stockholders' deficit (5,274,721)
Total liabilities and stockholders' deficit 1,654,239
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Transition Year
Ended Period Ended
December 31 Ended August 31
1999 December 31 1998
1998
Revenue $ 40,000 $ - $ -
Operating expenses
Consulting 7,664,088 768,050 122,020
Officers compensation 5,026,165 - -
Research and development 3,490,411 - -
General and administrative 2,886,080 8,088 74,948
Total operating expenses 19,066,744 776,138 196,968
Net loss from operations (19,026,744) (776,138) (196,968)
Other income (expense)
Interest income 144,471 - -
Loss on investments (4,391,120) - -
Total other income (expense) (4,246,649) - -
Net loss before provision for
income taxes (23,273,393) (776,138) (196,968)
Provision for income taxes - - -
Net loss (23,273,393) (776,138) (196,968)
Basic and diluted loss per
common share (0.63) (0.05) (0.02)
Basic and diluted weighted
average common shares
outstanding 36,868,312 14,346,554 10,994,465
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock
Number Add'l Due Stock Accum Total
Of Paid From sub ulated Stock
Shares in Related scrip Deficit holders
Amount capital Party tion Deficit
Secured payable
by
Companys
Common
Stock
Balance
September 1
1997 7,843,234 7,843 4,926,124 - - (5,270,634) (336,667)
Common
shares
issued for
services 5,341,000 5,341 147,819 - - - 153,160
Common
shares
issued for
payment on
due to
related
party 750,000 750 34,385 - - - 35,135
Common
shares
issued for
payment on
accounts
payable 350,000 350 20,650 - - - 21,000
Net loss - - - - - (196,968) (196,968)
Balance
August 31
1998 14,284,234 14,284 5,128,978 - - (5,467,602) (324,340)
Common
shares
issued for
services 161,000 161 7,889 - - - 8,050
Common
shares
issued for
cash 30,000 30 11,970 - - - 12,000
Net loss - - - - - (776,138) (776,138)
Balance
December 31
1998 14,475,234 14,475 5,148,837 - - (6,243,740)(1,080,428)
Stockholder
Loan 9,400,000 9,400 2,827,011 (2,980,882) - - (144,471)
Stock
subscription
payable - - - - 81,546 - 81,546
Common
shares
issued for
services 37,299,736 37,300 10,205,932 - - - 10,243,232
Common
shares
issued for
interest 3,410,613 3,411 640,349 - - - 643,760
Common
shares
issued for
stock
subscription
receivable 716,966 717 219,459 - - - 220,176
Common
shares
issued for
principal
payments on
long-term
debt 1,589,387 1,589 298,411 - - - 300,000
Common
shares
issued for
cash 16,428,136 16,428 2,804,209 - - - 2,820,637
Common
shares
issued for
acquisition
of
Isla Escondida
S.A. 18,710,000 18,710 3,533,091 - - - 3,551,801
Common
shares
issued for
acquisition
www.theArt
Auction.com 2,165,000 2,165 961,804 - - - 963,969
Common
shares
issued for
joint
venture 1,650,000 1,650 323,700 - - - 325,350
Common
shares
issued for
acquisition
of Top
Sports,
S.A. 1,000,000 1,000 72,100 - - - 73,100
Common
shares
issued for
stock
dividend 3,756,101 3,756 1,052,460 - -(1,056,216) -
Net loss - - - - -23,273,393)(23,273,393)
Balance
December 31
1999 110,601,173 110,601 28,087,363 (2,980,882) 81,546(30,573,349)(5,274,721)
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Transition Year
Ended Period Ended Ended
December 31 December 31 August 31
1999 1998 1998
Cash flows from operating
activities:
Net loss (23,273,393) (776,138) (196,968)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Amortization 207,019 - -
Common shares issued for
interest expense 643,760 - -
Common shares issued for
services 10,243,232 8,050 153,160
Loss on investments 4,391,120 - -
Changes in operating assets
and liabilities:
Increase in due from related
party (250,000) - -
Increase in due from related
party - secured by Company's
common stock (757,481) - -
Increase in officer bonus
payable 4,800,000 - -
Increase (decrease) in
accounts payable (62,251) 759,750 21,793
Increase in accrued
Liabilities 45,111 24,169 3,001
Increase in due to related
party 613,010 - -
Increase (decrease) in
stockholder loan payable 350,000 (18,969) 18,969
Net cash used by
operating activities (3,049,873) (3,138) (45)
Cash flows from investing
activities:
Payments for investment (35,000) - -
Net cash used by
investing activities (35,000) - -
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt 500,000 - -
Principal payments on long-
term debt (200,000) - -
Proceeds from issuance of
common stock 2,820,637 12,000 -
Proceeds from issuance of
stock subscription payable 81,546 - -
Net cash provided by
financing activities 3,202,183 12,000 -
Net increase (decrease) in cash 117,310 8,862 (45)
Cash, beginning of period 8,862 - 45
Cash, end of period 126,172 8,862 -
Schedule of non-cash investing
and financing activities:
18,710,000 common shares
issued for the acquisition of
Isla Escondida, S.A. 3,551,801 - -
2,165,000 common shares
issued for the acquisition
of www.theArtAuction.com 963,969 - -
1,650,000 common shares
issued for joint venture 325,350 - -
1,000,000 common shares
issued for the acquisition
of a 50% interest in Top
Sports, S.A. 73,100 - -
9,400,000 common shares
issued in exchange for
due from related party -
secured by Company's
common stock 2,836,411 - -
716,966 common shares issued
in exchange for
stock subscription receivable 220,176 - -
3,756,101 common shares
issued for a 5% stock
dividend 1,056,216 - -
1,589,397 common shares
issued for principal
payments on long-term debt 300,000 - -
Acquisition of investment in
exchange for due from related
party - secured by Company's
common stock 706,810 - -
5,341,000 common shares
issued for payment on
due to related party - - 35,135
350,000 common shares issued
for payment on accounts payable - - 21,000
See Accompanying Notes to Financial Statement
eConnect
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description of business - eConnect (the "Company") currently has
two divisions. The first division is primarily comprised of on-
line gaming. Presently, the on-line gaming division has not
commenced operations but plans to do so in the near future
through an off-shore company. The second division is comprised
of technology developments for ATM cards with PIN access or
smart card payments (same-as-cash payments whereby the merchant
can reverse the transaction) using the Personal Encrypted Remote
Financial Electronic Card Transactions ("PERFECT").
History - eConnect (formerly Betting, Inc.) was originally
incorporated in the State of Missouri on September 1, 1981 under
the name of Handy-Top, Inc. The Company underwent several name
changes until May 1993, when it changed its name to Leggoons,
Inc. As Leggoons, Inc., the Company was engaged in the design,
manufacturing and distribution of apparel and related
accessories. In June 1996, Leggoons, Inc. transferred all of
its assets to a third party assignee under an " Assignment for
the Benefit of Creditors" ("Assignment"). An Assignment is a
business liquidation device available as an alternate to
bankruptcy. As such, Leggoons, Inc. continued as a shell
corporation with no business operations.
In February 1997, the Company entered into an agreement to
license assets from Electronic Transaction Technology ("ET&T"),
formerly known as Home Point of Sales, Inc., for the purpose of
licensing certain technology for the development of PERFECT.
ET&T is a privately held corporation with a majority interest
owned by Thomas S. Hughes, President of the Company. This
technology developed by ET&T would provide consumers with the
option to instantly pay bills or make purchases from home with
real-time cash transactions. In March 1997, Thomas S. Hughes,
Chairman of ET&T, was elected the Chairman and President of the
Company and concurrently changed the Company's name to Betting,
Inc.
In May 1999, an Agreement and Plan of Merger was consummated
between the Company and Betting, Inc., a non-operating privately
held Nevada corporation ("Betting-Nevada"), whereby no shares
were issued between companies. Effective in June 1999, the
Articles of Merger were filed with the Nevada Secretary of
State, which formally resulted in the re-domicile of the Company
from the State of Missouri to the State of Nevada. Under
generally accepted accounting principles, the merger with
Betting-Nevada is considered to be a reorganization in
substance, rather than a business combination since Betting-
Nevada had no assets, liabilities or operations, and the Company
has since re-domiciled in the State of Nevada through Betting-
Nevada. Accordingly, the accounting for the merger has been
recorded at historical cost in a manner similar to a pooling of
interests ("as-if pooling of interest accounting"), and no
goodwill was recorded.
In June 1999, a Certificate of Amendment to the Articles of
Incorporation changed the name of the Company to eConnect and
increased the number of authorized common shares to 100,000,000.
On August 23, 1999, a Certificate of Amendment to the Articles
of Incorporation was filed with the Nevada Secretary of State
further increasing the number of authorized common shares to
200,000,000.
Business combination and investments - The business combination
has been accounted for under the purchase method of accounting,
therefore the Company includes the results of operations of the
acquired business from the date of acquisition. Net assets of
the company acquired are recorded at fair value as of the date
of acquisition. The excess of the acquired business' purchase
price over the fair value of its tangible and identifiable
intangible assets is then included in goodwill in the
accompanying consolidated balance sheet.
Investments in affiliated entities in which the Company has the
ability to exercise significant influence, but not control, and
generally is an ownership interest of the investee's voting
stock between 20% and 50%, are accounted for under the equity
method of accounting. Accordingly, under the equity method of
accounting, the Company's share of the investee's earnings or
losses are included in the consolidated statements of
operations. The Company records its investments accounted for
under the equity-method as "Investments" on the consolidated
balance sheet and its share of the investee's earnings or losses
in "Equity earnings or losses of investees" on the consolidated
statement of operations. The portion of the Company's
investment in an investee that exceeds its claim of the net
assets of the investee, if any, is treated as goodwill and
amortized over a period of three years.
Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its
subsidiary. All significant intercompany balances and
transactions have been eliminated.
Definition of fiscal year - In June 1999, the Company changed
its fiscal year-end from August 31 to December 31. Accordingly,
the Company reported a transition period, which began September
1, 1998 and ended on December 31, 1998 (referred to herein as
the "transition period").
Reclassification - Certain prior year balances have been
reclassified to conform to the current year presentation.
Use of estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Goodwill and intangible assets - Goodwill represents the excess
of an acquired business' purchase price over the fair value of
its assets, which is recorded for business acquisitions
accounted for under the purchase method. Goodwill is presented
net of related accumulated amortization and is being amortized
over the estimated useful life.
The Company periodically evaluates whether events and
circumstances have occurred that may warrant revision of the
estimated useful life of goodwill and intangible assets or
whether the remaining balance of goodwill and intangible assets
should be evaluated for possible impairment. The Company uses
an estimate of the related undiscounted cash flows over the
remaining life of the goodwill and intangible assets in
measuring their recoverability.
Fair value of financial instruments - The carrying amounts for
the Company's cash, stock subscriptions receivable, due to/from
related party, officer bonus payable, accounts payable, accrued
liabilities, stockholder loan payable and stock subscription
payable approximate fair value due to the short-term maturity of
these instruments.
Earnings (loss) per share - Basic earnings (loss) per share
excludes any dilutive effects of options, warrants and
convertible securities. Basic earnings (loss) per share is
computed using the weighted-average number of outstanding common
shares during the applicable period. Diluted earnings per share
is computed using the weighted average number of common and
common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation
if their effect is antidilutive.
Income taxes - The Company accounts for its income taxes in
accordance with Statement of Financial Accounting Standards No.
109, which requires recognition of deferred tax assets and
liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
As of December 31, 1999, the Company has available net operating
loss carryovers of approximately $30 million that will expire in
various periods through 2019. Such losses may not be fully
deductible due to the significant amounts of non-cash service
costs and the change in ownership rules under Section 382 of the
Internal Revenue Code. The Company has established a valuation
allowance for the full tax benefit of the operating loss
carryovers due to the uncertainty regarding realization.
Comprehensive income (loss) - The Company has no components of
other comprehensive income. Accordingly, net loss equals
comprehensive loss for all periods.
Advertising costs - The Company recognizes advertising expenses
in accordance with Statement of Position 93-7 "Reporting on
Advertising Costs." Accordingly, the Company expenses the costs
of producing advertisements at the time production occurs, and
expenses the costs of communicating advertisements in the period
in which the advertising space or airtime is used. Internet
advertising expenses are recognized based on the terms of the
individual agreements, generally over the greater of the number
of impressions delivered over the total number of contracted
impressions, or a straight-line basis over the term of the
contract. Advertising costs of approximately $50,000 were
incurred for the year ended December 31, 1999. No advertising
costs were incurred for the transition period ended December 31,
1998 or the year ended August 31, 1998.
Research and development costs - Research and development costs
are charged to expense when incurred. Costs incurred to
internally develop software, including costs incurred during all
phases of development, are charged to expense as incurred.
Stock-based compensation - The Company accounts for stock-based
employee compensation arrangements in accordance with provisions
of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of Statements of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based
on the difference, if any, on the date of the grant, between the
fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the Emerging Issues Task
Force ("EITF") Issue No. 96-18.
New accounting pronouncements - In November 1999, the EITF
commenced discussions on EITF No. 99-17, "Accounting for
Advertising Barter Transactions." The EITF provides guidance on
the recognition of Internet barter advertising revenues and
expenses under various circumstances. The EITF reached a
conclusion that revenues and expenses from advertising barter
transactions should be recognized at the fair value of the
advertising surrendered or received only when an entity has a
historical practice of receiving or paying cash for similar
advertising transactions. The Company does not expect that the
adoption of EITF No. 99-17 will have a material impact on its
consolidated financial statements.
2. BUSINESS COMBINATION
The Company initiated an acquisition of Isla Escondida, S.A.
during 1999. This acquisition was recorded using the purchase
method of accounting under APB No. 16. The results of
operations for the acquired company have been included in the
financial results of the Company from the date of such
transaction forward.
In accordance with APB No. 16, all identifiable assets were
assigned a portion of the cost of the acquired company (purchase
price) on the basis of their respective fair values. Intangible
assets were identified and valued by considering the Company's
intended use of the acquired assets and analysis of data
concerning products, technologies, markets, historical
performance, and underlying assumptions of future performance.
The economic environment in which the Company and the acquired
company operate were also considered in the valuation analysis.
In August 1999, the Company completed its acquisition of Isla
Escondida, S.A. (hereafter "777WINS"), a Costa Rica Corporation
with the ability to provide on-line gaming through its website
portal www.777WINS.com. In connection with the acquisition, the
Company issued 18,710,000 shares of the Company's common stock.
Substantially all of the purchase price, approximately
$3,552,000, was allocated to goodwill. Goodwill is being
amortized on a straight-line basis over the estimated useful
life of three years. As of December 31, 1999, the Company
evaluated the balance and useful life of goodwill related to
777WINS and determined that approximately $3,302,000 had no
future benefit and, accordingly, recorded a loss on investment
for the same amount. For the year ended December 31, 1999,
amortization expense related to this investment approximated
$42,000.
3. INVESTMENTS
In December 1999, the Company acquired 50% of the outstanding
capital stock of Top Sports, S.A. ("the Investee") in exchange
for $35,000 and 1,000,000 shares of the Company's common stock.
The Company has accounted for its 50% ownership interest in the
Investee under the equity-method. As of December 31, 1999, the
investment in the Investee exceeded the Company's share of the
underlying net assets by approximately $85,300. The excess of
the underlying net assets in the Investee is being amortized on
a straight-line basis over the estimated useful life of three
years. For the year ended December 31, 1999, amortization
expense related to this investment approximated $14,000.
In September 1999, the Company entered into a joint venture with
certain parties to develop an on-line investment trading
website. In connection with the joint venture, the Company
issued 1,650,000 shares of the Company's common stock. As of
December 31, 1999, the Company's management has evaluated and
determined that this investment has no future value and was
written off as a loss on investment for approximately $325,000.
4. STOCK SUBSCRIPTION RECEIVABLE
The Company entered into a Regulation D Common Stock Private
Equity Line Subscription Agreement ("Subscription Agreement").
The Subscription Agreement entitles the Company to draw funds up
to $5,000,000 through the issuance of the Company's common stock
for an amount equal to 80% of the market value at the time of
each draw, which is subject to certain terms and conditions.
The Company is assessed a placement fee, as provided within the
Subscription Agreement, for funds drawn, which is equal to 8% of
each draw. As of December 31, 1999, the Company has drawn
$933,000 of the available $5,000,000. The related placement fee
totaling $74,640 has been recorded as additional paid-in capital
since this fee relates to the issuance of the Company's common
stock. In conjunction with this Subscription Agreement, the
Company issued an additional 716,966 shares of the Company's
common stock as of December 31, 1999. However, the funds
related to this additional issuance of the Company's common
stock totaling $220,176 was not fully received by the Company
until February 2000. Accordingly, the Company has recorded a
stock subscription receivable totaling $220,176 as of December
31, 1999.
5. OTHER INTANGIBLES
In February 1997, the Company entered into an agreement for the
exclusive 20-year license of certain assets of ET&T. In
satisfaction of the agreement terms, the Company reduced the
balance due from related party - secured by the Company's common
stock by approximately $707,000 based upon the fair value of
this license. The Company has estimated the fair value based
upon the amount of research and development costs incurred by
ET&T. As such, the Company has recorded such costs related to
this agreement as other intangibles. This other intangible is
being amortized on a straight-line basis over three years based
upon management's estimated useful life of such asset.
Amortization expense for the year ended December 31, 1999,
approximated $118,000.
In September 1999, the Company acquired www.theArtAuction.com
from PowerClick, Inc., a domain name and website portal, to
provide on-line art auctions. In connection with the
acquisition, the Company issued 2,165,000 shares of the
Company's common stock to PowerClick, Inc. Substantially all of
the purchase price, approximately $964,000, was allocated to
other intangibles. This other intangible is being amortized on
a straight-line basis over an estimated useful life of three
years. As of December 31, 1999, the Company's management has
evaluated and determined that approximately $764,000 of this
investment has no future benefit, accordingly, the Company
recorded a loss on investment for the same amount. Amortization
expense for the year ended December 31, 1999, approximated
$33,000.
6. OFFICER BONUS PAYABLE
As of December 31, 1999, the Company declared a bonus to the
Chief Executive Officer of the Company valued at $4,800,000,
which is based upon 6,000,000 shares of the Company's common
stock issued in January 2000.
7. STOCKHOLDERS' DEFICIT
Stock dividend - On September 20, 1999, the Company issued a 5%
stock dividend totaling 3,756,101 shares of the Company's common
stock to stockholders of record on September 14, 1999.
Stock option activity - The following table summarizes the
Company's stock option activity:
Number Weighted
of Average
Shares Exercise Price
Balance, September 1, 1998 - $ -
Options granted and assumed - -
Options canceled - -
Options exercised - -
Balance, December 31, 1998 - -
Options granted and assumed 15,770,000 0.40
Options canceled - -
Options exercised - -
Balance, December 31, 1999 15,770,000 0.40
The following table summarizes information about options
outstanding and exercisable at December 31, 1999:
Shares Underlying Shares Underlying
Options Outstanding Options Exercisable
Range Shares Weighted Weighted Shares Weighted
Of Exercise Underlying Average Average Under Average
Prices Options Remaining Exercise Lying Exercise
Outstanding Contractual Price Options Price
Life Exercis
able
$0.20-$1.00 15,770,000 1.0 years $ 0.40 15,770,000 $ 0.40
Pro forma disclosure - SFAS No. 123 requires companies that
follow APB No. 25 to provide a pro forma disclosure of the
impact of applying the fair value method of SFAS No. 123.
Accordingly, had compensation cost been recognized based on the
fair value at the date of grant for options granted in 1999, the
pro forma amounts of the Company's net loss and net loss per
share for the year ended December 31, 1999 would have been as
follows:
December 31,1999
Net loss - as reported $(23,273,393)
Net loss - pro forma $(24,198,493)
Basic and diluted loss per share
- as reported $ (0.63)
Basic and diluted loss per share
- pro forma $ (0.66)
The fair value for each option granted was estimated at the date
of grant using the Black-Scholes option pricing model, assuming
no expected dividends and the following weighted average
assumptions:
December 31,1999
Average risk-free interest rates 6.50%
Average expected life (in years) 1
Volatility 80%
The weighted average fair value of options granted with exercise
prices at the current fair value of the underlying stock during
1999 was $877,600. During 1999, some options were granted with
exercise prices that were below the current fair value of the
underlying stock. The weighted average fair value of options
granted with exercise prices below the current fair value of the
underlying stock during 1999 was $47,500. Compensation expense
that is recognized in providing pro forma disclosures might not
be representative of the effects on pro forma earnings for
future years because SFAS No. 123 does not apply to stock option
grants made prior to 1995.
8. RELATED PARTY TRANSACTIONS
Due from related party - As of December 31, 1999, the Company
loaned $250,000 to an officer and stockholder of the Company.
The balance is non-interest bearing and is due on demand. The
Company received repayment of this amount in January 2000.
Due to related party - During 1999, the Company assumed a note
payable from ET&T with an outstanding balance at December 31,
1999 of $613,010 in exchange for the due from related party -
secured by the Company's common stock in the same amount. The
balance is non-interest bearing and is due on demand.
Stockholder loan payable - As of December 31, 1999, a
stockholder made loans to the Company of $350,000. This
outstanding balance is comprised of $250,000, which is non-
interest bearing and due on demand; and $100,000, which bears a
simple interest rate of 15% and is due on demand.
Due from related party - secured by Company's common stock - As
of December 31, 1999, the Company made loans of $2,980,882
(including accrued interest receivable of $144,471) to ET&T and
Thomas Hughes (an officer and director of the Company). The
balance is secured by approximately 9,400,000 shares of the
Company's common stock, which is owned by ET&T and Thomas
Hughes, bearing an interest rate of 10% and is due on demand.
9. COMMITMENTS AND CONTINGENCIES
Legal proceedings - From March 14, 2000 through the date of this
report, multiple legal proceedings were filed asserting the
Company and Thomas S. Hughes (an officer and director of the
Company), as well as the directors of the Company (in certain
actions), have violated Section 10(b) of the Exchange Act (false
or misleading statements and omissions which deceived stock
purchasers) and also Section 20(a) of the Exchange Act
(liability as a "controlling person" with respect to a primary
violation of securities laws). The principal allegations
concern various material misrepresentations and omissions which
allegedly made the Company's public statements, on and after
November 18, 1999, false and misleading; and artificially
inflated the market for the Company's common stock. The answers
or other responses of defendants to the initial complaints are
not yet due; therefore, management is unable to express an
opinion as to the probable outcome of these litigation matters.
The Company intends to defend itself in these litigation matters
vigorously.
On March 23, 2000, the Securities and Exchange Commission
("SEC") filed a complaint alleging the Company and Thomas S.
Hughes had violated Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934 (the anti-fraud provisions of
that act). The Complaint also seeks civil penalties against the
Company and Thomas S. Hughes and any additional relief within
the jurisdiction of the Court. The SEC has alleged that the
Company and Thomas S. Hughes disseminated certain press releases
that contained material misstatements. On April 6, 2000, the
Company consented to the entry of a Permanent Injunction. The
court has yet to determine whether disgorgement, civil penalties
or other relief should be assessed against the Company.
While the results of these matters cannot be predicted with
certainty, the Company's management believes that losses, if
any, resulting from the ultimate resolution of these matters
will not have a material adverse effect on the Company's
consolidated results of operations, cash flows or financial
position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the years
in which they are resolved.
10. OTHER MATTER
On March 12, 1999, the Securities and Exchange Commission
("SEC") filed a complaint alleging the Company had failed to
make available to the investing public current and accurate
information about its financial condition and results of
operations through the filing of periodic reports with the SEC
as required by the Securities Exchange Act of 1934. The SEC
sought to compel the Company to file the delinquent periodic
reports and enjoin the Company from further violations of the
Exchange Act of 1934. The Company consented to the entry of a
Final Judgment granting the relief sought by the SEC.
11. GOING CONCERN
The Company incurred a net loss of approximately $23,000,000 for
the year ended December 31, 1999. The Company's liabilities
exceed its assets by approximately $5,300,000, and current
liabilities exceed its current assets by approximately
$6,300,000 as of December 31, 1999. These factors create an
uncertainty about the Company's ability to continue as a going
concern. The Company's management has developed a plan to
complete the development of technology products to generate
future revenues and elect new directors to the board. The
Company will also seek additional sources of capital through the
issuance of debt equity financing, but there can be no assurance
that the Company will be successful in accomplishing its
objectives.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of
the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
12. SUBSEQUENT EVENTS
During January 2000 through the date of this report, the Company
advanced approximately $966,000 to ET&T. These amounts advanced
have been secured by ET&T and Thomas Hughes' (an officer and
director of the Company) common stock in the Company (see Note
8), which bear an interest rate of 10% and is due on demand.
On February 9, 2000, the Company consummated an acquisition
agreement with PowerClick, Inc. whereby the Company acquired 50%
of the outstanding capital stock of PowerClick, Inc. in
consideration of $1,500,000 and 6,000,000 shares of the
Company's common stock, options to purchase 2,000,000 shares of
the Company's common stock with a price of $0.40 per share, and
an option to purchase an additional 4,000,000 shares of the
Company's common stock with a price of $0.40 per share
exercisable no sooner than April 1, 2000, but no later than
April 30, 2000. This acquisition has been accounted for under
the equity method of accounting.
On March 13, 2000, the SEC suspended trading of the Company's
common stock from the Over the Counter Bulletin Board ("OTCBB")
in connection with an investigation of the Company. The
Company's common stock resumed trading on March 27, 2000;
however, from that date to the date of this report, the
Company's common stock has been trading on the National
Quotation Bureau's Pink Sheets since the Company's common stock
was delisted on that date from the OTCBB due to the trading
suspension. Subsequent to the filing of the Form 10-KSB with
the SEC, the Company intends to file a 15c2-11 through a market
maker in order to apply for relisting on the OTCBB.
On March 13, 2000, the Company advanced approximately $200,000
to a director of the Company. The balance is non-interest
bearing and is due on demand.
On March 22, 2000, the Company consummated an amended and
restated employment agreement with an individual and his firm to
act as outside counsel for the Company. On April 14, 2000, the
Company terminated this individual and his firm as outside
counsel. Based upon the amended and restated employment
agreement, the remaining compensation for the term of this
agreement will be due immediately upon the termination of this
individual and his firm as outside counsel if terminated for
reasons other than good cause. In addition, any common stock
and stock warrants granted through the term of this agreement
will be considered due in the event of termination for reasons
other than good cause. Accordingly, the termination of this
individual and his firm, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $600,000 for the remaining portion of unpaid
compensation for the first, second and third years of this
agreement. Furthermore, the termination may have accelerated
the vesting of the granted common stock and stock warrants
consisting of 400,000 common shares and 400,000 warrants
exercisable at $1.00 per share. The Company's management
believes that the termination of this individual and his firm
was in good cause and intends to defend itself in this matter
vigorously.
On March 21, 2000, the Company consummated an amended employment
agreement with an individual for the position of President and
Chief Operating Officer for the Company. On April 17, 2000, the
Company terminated this individual as President and Chief
Operating Officer of the Company. Based upon the amended
employment agreement, the remaining salary for the term of this
agreement, will be due within 30 days upon the termination of
this individual if terminated for reasons other than good cause.
In addition, through the date of termination, all of the granted
stock options and warrants will vest and be exercisable for
their entire term. Accordingly, the termination of this
individual, for reasons other than good cause, may potentially
expose the Company to incur a liability of approximately
$1,260,000 for the remaining portion of unpaid salary for the
first, second, third, and fourth years of this agreement.
Furthermore, the termination may have accelerated the vesting of
the granted stock options and warrants consisting of 1,000,000
warrants exercisable at $1.00 per share, 6,000,000 stock options
exercisable at $0.40 per share, and 1,500,000 stock options
exercisable at the lowest average daily trading price of the
Company's common stock within the first 90 days of the
executive's employment. The Company's management believes that
the termination of this individual was in good cause and intends
to defend itself in this matter vigorously.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) On August 1, 1998, the company engaged the services of
George Brenner, C.P.A. of Beverly Hills, California, to provide
an audit of the company's financial statements for the fiscal
years ended August 31, 1997 and 1998. The former 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.
(b) Effective on July 19, 1999, the independent accountant who
was previously engaged as the principal accountant to audit the
registrant's financial statements, resigned. This accountant's
report on the financial statements for the past two years was
modified as to uncertainty that the company will continue as a
going concern. The decision to change accountants was approved
by the Board of Directors.
(c) Effective on July 22, 1999, the firm of Farber & Hass was
engaged to serve as the new principal accountant to audit the
company's financial statements. During the company's two most
recent fiscal years, and the subsequent interim period prior to
engaging that accountant, neither the company (nor someone on
its behalf) consulted the newly engaged accountant regarding any
matter.
(d) Effective on March 8, 2000, the independent accountants who
were previously engaged as the principal accountants to audit
the company's financial statements were dismissed. These
accountants did not issue any financial statements for the
company. The decision to change accountants was approved by the
Board of Directors.
(e) Effective on March 8, 2000, the firm of L.L. Bradford &
Company was engaged to serve as the new principal accountants to
audit the company's financial statements. During the company's
two most recent fiscal years, and the subsequent interim period
prior to engaging those accountants, neither the company (nor
someone on its behalf) consulted the newly engaged accountants
regarding any matter.
During the company's two most recent fiscal years and any
subsequent interim period preceding such changes, there have
been no disagreements with former accountants on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, there
were no "reportable events" as described in Item
304(a)(1)(iv)(B)1 through 3 of Regulation S-B that occurred
within the company's two most recent fiscal years and the
subsequent interim period preceding such changes.
AVAILABLE INFORMATION
The company has filed with the U.S. Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules filed
with the registration statement. Certain items are omitted in
accordance with the rules and regulations of the Commission.
For further information with respect to the company and the
common stock offered by this prospectus, reference is made to
the registration statement and the exhibits and schedules filed
with the registration statement. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or
other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects
by such reference.
A copy of the registration statement, and the exhibits
and schedules filed with it, may be inspected without charge at
the public reference facilities maintained by the Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the Commission's regional offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048, and copies of all or any part of the
registration statement may be obtained from such offices upon
the payment of the fees prescribed by the Commission. The
public may obtain information on the operation of the public
reference room by calling the Commission at 1 (800) SEC-0330.
The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the
Commission, including the company. The address of the site is
http://www.sec.gov. The registration statement, including all
its exhibits and any amendments, has been filed electronically
with the Commission.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in the propsectus under
the heading "Disclosure of Commission Position on
Indemnification for Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in
connection with the issuance and distribution of the securities
being registered hereunder, all of which are being paid by the
Company*:
Securities and Exchange Commission registration fee $ 3,222
Transfer agent's fees 1,000
Printing and engraving expenses 1,000
Legal fees and expenses 100,000
Accounting fees and expenses 5,000
State blue sky fees 6,511
Total $116,733*
* All fees, except the Securities and Exchange Commission
registration fee and the blue sky fees, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Sales of Unregistered Securities.
(a) The company made the following sales of unregistered
securities during the three year period on or before December
31, 1999:
(1) During the period of September 28, 1998 through July 16,
1999, the company sold a total of 1,058,622 shares of common
stock to 76 individuals, at an average price of $0.40 per share.
In conjunction with some of these sales, the company give to
these individuals for no additional charge warrants to purchase
common stock of the company at $0.40 per share.
(2) During the period of April 7, 1999 through November 24,
1999, the company issued a total of 4,484,500 shares of common
stock to 14 individuals and firms in exchange for consulting and
other services to the company.
(3) In addition to the above sales, the company issued
restricted shares in the following amounts in connection with
the following acquisitions: (a) 2,500,000 shares in connection
with the Letter of Intent between the company and Rogel
Technologies; (b) 5,200,000 shares in connection with the
acquisition of Isla Escondida, S.A. (owner of the 777WINS.com
website); (c) 1,165,000 shares in connection with the
acquisition of the TheArtauction.com website from PowerClick;
and (d) 1,000,000 shares in connection with the acquisition of a
50% interest in TopSports, S.A.
(4) The company and Alpha Venture Capital, Inc. entered into a
common stock purchase agreement, dated September 28, 1999.
Under the terms of this agreement, Alpha Venture Capital, Inc.
has been issued warrants to purchase up to 1,000,000 free
trading shares of common stock (exercisable at a price equal to
80% of the closing bid price of the common stock on the
effective date of the Purchase Agreement from said date until a
date which is five years thereafter) and up to 500,000 free
trading shares of common stock in connection with drawdowns
under the purchase agreement (exercisable at the closing bid
price on the date of each draw from the effective date of the
purchase agreement until a date which is five years thereafter).
(b) The company made the following sales of unregistered
securities after December 31, 1999:
(1) Between February 2, 2000 and February 29, 2000, the company
sold a total of 3,069,011 shares of common stock to 79
individuals at a price of $0.40 per share, for an aggregate
consideration of $1,227,604.
(2) In February 2000, the company issued 10,500,000 warrants,
exercisable at $0.40 per share until January 31, 2005, to
Boardwalk Associates, Inc. in connection with a consulting
agreement between the parties, dated January 26, 2000.
(3) During the period of January 1, 2000 through March 6, 2000,
the company issued a total of 9,320,167 shares of common stock
to 17 individuals and firms in exchange for consulting and other
services performed for the company (including 6,000,000 shares
issued to Ryan Kavanaugh in connection with a consulting
agreement with the company.
(4) During April 2000, the company issued 6,000,000 of its
common stock to for the acquisition of PowerClick valued at
$975,000. The company also issued 250,000 shares of its common
stock to an individual for research and development valued at
$156,250. An additional 2,500,000 shares of its common stock
were issued to two individuals for finder's fees valued at a
total of $781,250.
(5) On June 15, 2000, the company issued 3,000,000 shares of
common stock to an individual valued at $600,000, of which, a
portion was for consulting services valued at $100,000 and the
company received $500,000 cash for the remainder.
(6) On June 27, 2000, the company issued 200,000 shares of its
common stock to two individuals for consulting services valued
at $59,400.
(7) On August 2, 2000, the company sold a total of 577,500
shares of common stock to 16 individuals at $0.40 per share, for
a total consideration of $231,000.
(8) On July 21, 2000 and August 2, 2000, the company issued a
total of 4,250,000 shares of common stock to three individuals
and one company for consulting services for the company.
No commissions or fees were paid in connection with these sales
(a commission of 8% of the amount of each draw under the common
stock purchase agreement has been paid to Alpha Venture Capital,
Inc., but this commission was not paid in connection with
issuance of warrants to this firm). All of the above sales were
undertaken pursuant to a claim of exemption from registration
under Rule 506 of Regulation D under Section 4(2) of the
Securities Act of 1933.
(e) Use of Proceeds.
The company filed a Form SB-2 with the SEC on June 1, 1999.
This offering was used exclusively for consulting and other
services provided to the company and for settling litigation
involving a debenture and certain warrants between the company
and CALP II, LP, as reported in a Form 8-K filed with the SEC on
January 18, 2000. Therefore, no cash proceeds were raised from
this offering.
On August 20, 1999, the company filed a Form SB-2 with the
SEC under Rule 415 (self offering) to register an aggregate
amount of 61,000,000 shares of common stock (aggregate offering
price of $11,590,000 under Rule 457(c)). This offering was used
primarily for consulting services and acquisitions by the
company, and commenced on the effective date of this
registration statement (September 7, 1999). However, 20,000,000
shares of common stock under this offering are to be used for
the sale of shares under a common stock purchase agreement (as
discussed above) (through a post-effective amendment to this
Form SB-2 filed and effective on September 29, 1999 - File No.
333-79739).
The total amount of shares sold under this offering to date is
43,816,661. Out of the amount sold to date, the company issued
the following:
21,000,042 shares in connection with various acquisitions and
consulting services for the company.
11,956,526 shares in connection with the common stock purchase
agreement with Alpha Venture Capital, Inc. (to date, the company
has sold a total of $3,804,000 in shares under this agreement,
leaving a balance to be sold of $1,196,000 out of the total
commitment of $5,000,000)
10,103,468 shares upon the exercise of warrants at $0.40 per
share issued for consulting services for the company, for a
total consideration of $4,041,459.
756,625 shares for the repayment of loans made to the company
totaling $302,650.
The expenses involved with this offering to date have been
approximately $421,000 (which includes an 8% commission payable
on the sales made under the common stock purchase agreement
[totals $304,320). The net cash proceeds from this offering
(gross proceeds of $7,845,459 less offering expenses) of
approximately $7,424,459 have been used for working capital for
the company.
ITEM 27. EXHIBITS
The exhibits required by Item 601 of Regulation S-B, and an
index thereto, are attached.
ITEM 28. UNDERTAKINGS
The undersigned company hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding
the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation From the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the U.S.
Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(d) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of San Pedro, State of California, on September 12,2000.
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President/CEO
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form SB-2 registration
statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that
such attorney-in-fact may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Thomas S. Hughes President/Chief Officer/Director September 12, 2000
Thomas S. Hughes
/s/ Jack M. Hall Secretary/Director September 12, 2000
Jack M. Hall
/s/ Diane Hewitt Treasurer (Principal Financial September 12, 2000
Diane Hewitt and Accounting Officer)/Director
/s/ Laurence Donoghue Director September 12, 2000
Laurence Donoghue
EXHIBIT INDEX
Exhibit Description
No.
2 Agreement and Plan of Merger, dated June 1, 1999
(incorporated by reference to Exhibit 2 of the Form 10-KSB filed
on May 9, 2000).
3.1 Articles of Incorporation of the company (incorporated by
reference to Exhibit 3.1 of the Registration Statement on Form
SB-2/A filed on July 22, 1999).
3.2 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2/A filed on July 22, 1999).
3.3 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.3 of the Registration
Statement on Form SB-2/A filed on September 3, 1999).
3.4 Bylaws of the company (incorporated by reference to Exhibit
3.3 of the Registration Statement on Form SB-2/A filed on July
22, 1999).
4.1 Class A Warrant Agreement (incorporated by reference to
Exhibit 4.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993).
4.2 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated April 26, 1999 (incorporated by reference to
Exhibit 4.1 of the Form S-8 filed on May 14, 1999).
4.3 Consulting and Service Agreement between the company and
James Wexler, dated May 20, 1998 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on May 14, 1999).
4.4 Consulting Agreement between the company and Rogel
Patawaran, dated March 18, 1998 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on May 14, 1999).
4.5 Consulting Agreement between the company and David Ninci,
dated February 22, 1999 (incorporated by reference to Exhibit
4.4 of the Form S-8 filed on May 14, 1999).
4.6 Consulting Agreement between the company and Harry Hargens,
dated January 17, 1999 (incorporated by reference to Exhibit 4.5
of the Form S-8 filed on May 14, 1999).
4.7 Consulting Agreement between the company and Charlene
Charles, dated March 10, 1999 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on May 14, 1999).
4.8 Internet Consulting Services Agreement between the company
and Steve Goodman, dated May 3, 1999 (incorporated by reference
to Exhibit 4.2 of the Form S-8 filed on July 2, 1999).
4.9 Consulting Agreement between the company and Rogel
Patawaran, dated June 8, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on July 2, 1999).
4.10 Consulting and Service Agreement between the company and
Edward Wexler, dated May 20, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on July 2, 1999).
4.11 Consultant Agreement between the company and Richard
Epstein, dated June 3, 1999 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on July 2, 1999).
4.12 Consultant Agreement between the company and Ezzat Jallad,
dated March 10, 1999 (incorporated by reference to Exhibit 4.6
of the Form S-8 filed on July 2, 1999).
4.13 Consultant Agreement between the company and Shar
Offenberg, dated June 20, 1998 (incorporated by reference to
Exhibit 4.7 of the Form S-8 filed on July 2, 1999).
4.14 Consultant Agreement between the company and Richard
Parnes, dated May 10, 1999 (incorporated by reference to Exhibit
4.8 of the Form S-8 filed on July 2, 1999).
4.15 Consulting Contract between the company and Robert Bragg,
dated August 19, 1999 (incorporated by reference to Exhibit 4.2
of the Form S-8 filed on August 31, 1999).
4.16 Consultant Agreement between the company and Dominique
Einhorn, dated August 9, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on August 31, 1999).
4.17 Consultant Agreement between the company and Richard
Epstein, dated August 16, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on August 31, 1999).
4.18 Consultant Agreement between the company and Jane Hauser,
dated August 16, 1999 (incorporated by reference to Exhibit 4.5
of the Form S-8 filed on August 31, 1999).
4.19 Form of Debenture issued by the company to CALP II, LP,
dated June 9, 1999 (incorporated by reference to Exhibit 4.3 of
the Registration Statement on Form SB-2/A filed on July 22, 1999).
4.20 Registration Rights Agreement between the company and CALP
II, LP, dated June 9, 1999 (incorporated by reference to Exhibit
4.2 of the Registration Statement on Form SB-2/A filed on July
22, 1999).
4.21 Form of Warrant issued by the company to CALP II, LP, dated
June 9, 1999 (incorporated by reference to Exhibit 4.4 of the
Registration Statement on Form SB-2/A filed on July 22, 1999).
4.22 Common Stock Purchase Agreement between the company and
Alpha Venture Capital, Inc., dated September 28, 1999
(incorporated by reference to Exhibit 4.2 of the Registration
Statement on Form SB-2 POS filed on September 29, 1999).
4.23 Registration Rights Agreement between the company and Alpha
Venture Capital, Inc., dated September 28, 1999 (incorporated by
reference to Exhibit 4.3 of the Registration Statement on Form
SB-2 POS filed on September 29, 1999).
4.24 Warrant issued by the company to Alpha Venture Capital,
Inc., dated September 28, 1999 (incorporated by reference to
Exhibit 4.4 of the Registration Statement on Form SB-2 POS filed
on September 29, 1999).
4.25 Amended and Restated Retainer Stock Plan for Non-Employee
Directors and Consultants, dated February 1, 2000 (incorporated
by reference to Exhibit 4.1 of the Form S-8 filed on February
10, 2000).
4.26 Consulting Services Agreement between the company and
Laurel-Jayne Yapel Manzanares, dated February 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed
on February 10, 2000).
4.27 Consulting Services Agreement between the company and
Marcine Aniz Uhler, dated February 1, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on February 10,
2000).
4.28 Consulting Services Agreement between the company and
William Lane, dated February 7, 2000 (incorporated by reference
to Exhibit 4.4 of the Form S-8 filed on February 10, 2000).
4.29 Consulting Services Agreement between the company and Earl
Gilbrech, dated February 7, 2000 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on February 10, 2000).
4.30 Consulting Services Agreement between the company and
Dominique Einhorn, dated February 7, 2000 (incorporated by
reference to Exhibit 4.6 of the Form S-8 filed on February 10,
2000).
4.31 Consulting Services Agreement between the company and
Edward James Wexler, dated February 7, 2000 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on February 10,
2000).
4.32 Consulting Agreement between the company and R. Scott
Hatfield, dated March 6, 2000 (see below).
4.33 Consulting Services Agreement between the company and Chris
Jensen, dated April 24, 2000 (see below).
4.34 Consulting Agreement between the company and Robert Graham,
dated May 11, 2000 (see below).
4.35 Consulting Agreement between the company and Richard
Epstein, dated May 20, 2000 (see below).
4.36 Consulting Agreement between the company and Richard
Epstein, dated June 2, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.37 Consulting Services Agreement between the company and Rogel
Patawaran, dated June 2, 2000 (incorporated by reference to
Exhibit 10.2 of the Form S-8 filed on July 10, 2000).
4.38 Consulting Agreement between the company and Elle Travis,
dated June 2, 2000 (incorporated by reference to Exhibit 10.3 of
the Form S-8 filed on July 10, 2000).
4.39 Consulting Agreement between the company and Charles
Yourshaw, dated June 5, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.40 Consulting Agreement between the company and Nick Gorenc,
dated June 5, 2000 (incorporated by reference to Exhibit 10.2 of
the Form S-8 filed on July 10, 2000).
4.41 Consulting Agreement between the company and Louis
Sabatasso, dated June 10, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.42 Consulting Agreement between the company and Laurie Belger,
dated June 10, 2000 (incorporated by reference to Exhibit 10.2
of the Form S-8 filed on July 10, 2000).
4.43 Amended and Restated Stock Incentive Plan, dated September
1, 2000 (incorporated by reference to Exhibit 4.1 of the
Form S-8 filed on September 12, 2000).
4.44 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 2) dated September 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed
on September 12, 2000).
4.45 Consulting Services Agreement between the company and Richard
Epstein, dated September 6, 2000 (incorporated by reference to
Exhibit 4.3 of the From S-8 filed on September 12, 2000).
4.46 Consulting Services Agreement between the company and Chris
Jensen, dated September 6, 2000 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on September 12, 2000).
10.1 Agreement to License Assets between the company and Home
Point of Sales, Inc., dated February 18, 1997 (incorporated by
reference to Exhibit 10.16 to the Form 8-K filed on February 25,
1997).
10.2 Escrow Agreement between the company, Home Point of Sales,
Inc, and First National Bank of Omaha, dated February 18, 1997
(incorporated by reference to Exhibit 10.17 to the Form 8-K
filed on February 25, 1997).
10.3 Host Processing Agreement between the company and
Electronic Transactions & Technologies, dated April 28, 1997
(incorporated by reference to Exhibit 10.3 of the Form 10-KSB/A
for the fiscal year ended on August 31, 1998).
10.4 Licensing Agreement between the company and Electronic
Transactions & Technologies, dated March 27, 1998 (incorporated
by reference to Exhibit 10.4 of the Form 10-KSB/A for the fiscal
year ended on August 31, 1998).
10.5 Promissory Note between Electronic Transactions &
Technologies and Unipay, Inc., dated April 26, 1999
(incorporated by reference to Exhibit 10.5 of the Form 10-KSB
filed on May 9, 2000).
10.6 Joint Venture Agreement between the company and First
Entertainment Holding Corp., dated April 29, 1999 (incorporated
by reference to Exhibit 10.6 of the Form 10-KSB filed on May 9,
2000).
10.7 Letter of Commitment between the company and Rogel
Technologies, dated May 6, 1999 (incorporated by reference to
Exhibit 2 to the Form 8-K filed on November 15, 1999).
10.8 Acquisition Agreement between the company and eBet.com,
Inc., dated August 12, 1999 (incorporated by reference to
Exhibit 2 to the Form 8-K/A filed on November 15, 1999).
10.9 Consulting Agreement between the company and eMarkit,
Incorporated, dated August 16, 1999 (incorporated by reference
to Exhibit 10.9 of the Form 10-KSB filed on May 9, 2000).
10.10 Stock Exchange Agreement between the company, La
Empresa Ranco Plasticos Limitada, Michael Lanes, and Jamie
Ligator, dated August 31, 1999 (incorporated by reference to
Exhibit 2.1 to the Form 8-K filed on November 16, 1999).
10.11 Agreement and Plan of Acquisition between the company
and PowerClick, Inc., dated September 9, 1999 (incorporated by
reference to Exhibit 10.11 of the Form 10-KSB filed on May 9,
2000).
10.12 Consulting Agreement between the company and
International Investor Relations Group, Inc., dated September
24, 1999 (incorporated by reference to Exhibit 10.12 of the Form
10-KSB filed on May 9, 2000).
10.13 Agreement between the company and Kanakaris
Communications, dated October 21, 1999 (incorporated by
reference to Exhibit 10.13 of the Form 10-KSB filed on May 9,
2000).
10.14 Letter of Commitment between the company and Rogel
Technologies, dated October 23, 1999 (incorporated by reference
to Exhibit 10.14 of the Form 10-KSB filed on May 9, 2000).
10.15 Capital Contribution Agreement between the company and
SafeTPay.com, dated November 5, 1999 (incorporated by reference
to Exhibit 10.15 of the Form 10-KSB filed on May 9, 2000).
10.16 Agreement between the company and Rogel Technologies,
dated November 23, 1999 (incorporated by reference to Exhibit
10.16 of the Form 10-KSB filed on May 9, 2000).
10.17 Contract of Partnership between the company and Top
Sports, S.A., dated November 20, 1999 (incorporated by reference
to Exhibit 10.17 of the Form 10-KSB filed on May 9, 2000).
10.18 Agreement between the company and Alliance Equities,
dated November 29, 1999 (incorporated by reference to Exhibit
10.18 of the Form 10-KSB filed on May 9, 2000).
10.19 Secured Promissory Note issued to the company by
Electronic Transactions & Technologies and Thomas S. Hughes,
dated December 1, 1999 (incorporated by reference to Exhibit
10.19 of the Form 10-KSB filed on May 9, 2000).
10.20 Security Agreement between the company, Electronic
Transactions & Technologies, and Thomas S. Hughes, dated
December 1, 1999 (incorporated by reference to Exhibit 10.20 of
the Form 10-KSB filed on May 9, 2000).
10.21 Business Cooperation Agreement between the company and
Top Sports, S.A., dated December 9, 1999 (incorporated by
reference to Exhibit 10.21 of the Form 10-KSB filed on May 9,
2000).
10.22 Consulting Agreement between the company and Michael
Leste, dated December 10, 1999 (incorporated by reference to
Exhibit 10.22 of the Form 10-KSB filed on May 9, 2000).
10.23 Consulting Agreement between the company and Michael
Kofoed, dated December 10, 1999 (incorporated by reference to
Exhibit 10.23 of the Form 10-KSB filed on May 9, 2000).
10.24 Agreement between the company and Top Sports S.A.,
dated December 16, 1999 (incorporated by reference to Exhibit
10.24 of the Form 10-KSB filed on May 9, 2000).
10.25 Agreement between the company and eMarkit,
Incorporated, dated December 29, 1999 (incorporated by reference
to Exhibit 10.25 of the Form 10-KSB filed on May 9, 2000).
10.26 Shares Sales Contract between the company and Paul
Egan, dated January 1, 2000 (see below).
10.27 Fee Agreement between the company and Red Iguana
Trading Company, Inc., dated January 2, 2000 (incorporated by
reference to Exhibit 10.26 of the Form 10-QSB filed on May 30,
2000).
10.28 Assignment of eSportsbet between the company and
PowerClick, Inc., dated January 7, 2000 (incorporated by
reference to Exhibit 10.27 of the Form 10-QSB filed on May 30,
2000).
10.29 Letter of Intent of Negotiation and Information
Exchange between eConnect2Trade.com, Incorporated, and Empire
Financial Holdings, Incorporated, dated January 21, 2000
(incorporated by reference to Exhibit 10.28 of the Form 10-QSB
filed on May 30, 2000).
10.30 Manufacturing Agreement between the company and Asia
Pacific Micro, Inc., dated January 21, 2000 (incorporated by
reference to Exhibit 10.29 of the Form 10-QSB filed on May 30,
2000).
10.31 Consulting Services Agreement between the company and
Boardwalk Associates, Inc., dated January 26, 2000 (incorporated
by reference to Exhibit 10.30 of the Form 10-QSB filed on May
30, 2000).
10.32 Consulting Services Agreement between the company and
Coldwater Capital L.L.C., dated January 26, 2000 (incorporated
by reference to Exhibit 10.31 of the Form 10-QSB filed on May
30, 2000).
10.33 Consultant Agreement between the company and Harvey M.
Burstein, dated February 2, 2000 (incorporated by reference to
Exhibit 10.32 of the Form 10-QSB filed on May 30, 2000).
10.34 Consultant Agreement between the company and Terrie
Pham, dated February 2, 2000 (incorporated by reference to
Exhibit 10.33 of the Form 10-QSB filed on May 30, 2000).
10.35 Software License, Development, and Maintenance
Agreement (Dominican Republic) between the company and eFunds
Corporation, dated February 3, 2000 (incorporated by reference
to Exhibit 10.34 of the Form 10-QSB filed on May 30, 2000).
10.36 Agreement between the company and Burbank Coach Works,
dated February 3, 2000 (incorporated by reference to Exhibit
10.35 of the Form 10-QSB filed on May 30, 2000).
10.37 Software License, Development, and Maintenance
Agreement (Ireland) between the company and eFunds Corporation,
dated February 4, 2000 (incorporated by reference to Exhibit
10.36 of the Form 10-QSB filed on May 30, 2000).
10.38 Acquisition Agreement between the company and
PowerClick, Inc., dated February 9, 2000 (incorporated by
reference to Exhibit 10.37 of the Form 10-QSB filed on May 30,
2000).
10.39 Loan Agreement between the company and Richard
Epstein, dated February 15, 2000 (incorporated by reference to
Exhibit 10.38 of the Form 10-QSB filed on May 30, 2000).
10.40 PocketPay Joint Venture Agreement between the company
and Pilot Island Publishing, Inc., dated March 1, 2000
(incorporated by reference to Exhibit 10.39 of the Form 10-QSB
filed on May 30, 2000).
10.41 Letter of Intent between the company and Real
Solutions, Ltd., dated March 9, 2000 (incorporated by reference
to Exhibit 10.40 of the Form 10-QSB filed on May 30, 2000).
10.42 Consulting Agreement between the company and Ryan
Kavanaugh, dated March 10, 2000 (incorporated by reference to
Exhibit 10.41 of the Form 10-QSB filed on May 30, 2000).
10.43 Amended Employment Agreement between the company and
Stephen E. Pazian, dated March 21, 2000 (incorporated by
reference to Exhibit 10.42 of the Form 10-QSB filed on May 30,
2000).
10.44 Amended and Restated Employment Agreement between the
company and Stanley C. Morris, dated March 22, 2000
(incorporated by reference to Exhibit 10.43 of the Form 10-QSB
filed on May 30, 2000).
10.45 China-Singapore-Hong Kong-Macao Joint Venture
Agreement between the company, and Raymond Kessler and Li-Wang
Kessler, dated March 27, 2000 (incorporated by reference to
Exhibit 10.44 of the Form 10-QSB filed on May 30, 2000).
10.46 Amended and Restated Secured Promissory Note issued to
the company by Electronic Transactions & Technologies and Thomas
S. Hughes, dated March 31, 2000 (incorporated by reference to
Exhibit 10.45 of the Form 10-QSB filed on May 30, 2000).
10.47 Amended and Restated Security Agreement between the
company, Electronic Transactions & Technologies, and Thomas S.
Hughes, dated March 31, 2000 (incorporated by reference to
Exhibit 10.46 of the Form 10-QSB filed on May 30, 2000).
10.48 Master Service Agreement between the company and REAL
Solutions, Ltd., dated April 13, 2000 (see below).
10.49 Consulting and Services Agreement between the company
and Peters Entertainment.com, Inc., dated April 14, 2000 (see
below).
10.50 Letter of Intent between the company and National Data
Funding Corporation, dated May 22, 2000 (incorporated by
reference to Exhibit 10.47 of the Form 10-QSB filed on August
21, 2000)
10.51 Agreement between the company and Top Sports, S.A.,
dated June 20, 2000 (incorporated by reference to Exhibit 10.49
of the Form 10-QSB filed on August 21, 2000)
21 Subsidiaries of the Registrant (see below).
27 Financial Data Schedules (see below).
99.1 Patents: dated August 9, 1994, May 19, 1998, and September
15, 1998 (incorporated by reference to Exhibit 99.1 of the Form
10-KSB filed on May 9, 2000).
99.2 Trademarks: filed March 31, 1997, February 16, 1999, May 6,
1999, May 24, 1999, June 3, 1999, June 4, 1999, August 12, 1999,
and September 28, 1999 (incorporated by reference to Exhibit
99.2 of the Form 10-KSB filed on May 9, 2000).
Trademark filed on March 15, 2000 (incorporated by reference to
Exhibit 99.3 of the Form 10-QSB filed on May 30, 2000).
