UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: August 31, 1998
Commission file number: 33-68570
BETTING, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1239043
(State of incorporation) (IRS Employer Identification number)
31310 Eaglehaven Center, Suite 10
Rancho Palos Verdes, California 90275
(Address of principal executive offices and Zip Code)
(310) 541-4393
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Betting, Inc. Common Stock $.01 Par Value
Betting, Inc. Class A Warrants
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes No X
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in
definitive proxy or informational statements incorporated by reference
in Part III of this form 10-KSB or any amendment to this form 10-KSB.
[ ]
Revenues for the fiscal year ended August 31, 1998: $0
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the closing average bid and
asked price of the Common Stock on August 31, 1998, as reported on the
OTC Bulletin Board, was $1,785,000
Number of shares of common stock outstanding as of August
31,1998: 14,284,234
Documents Incorporated by Reference: Registrants Annual Report on Form
10-KSB filed in February 1999, Registrants Annual Report on Form 10-KSB
filed on January 17, 1997, Exhibits in Registrants Annual Report on
Form 10-K filed on December 14, 1995, and Exhibits in Registrants
Annual Report on Form 10-K filed on November 29, 1994, are incorporated
by reference to the exhibit index attached hereto. Exhibits in
Registrants Registration Statement on Form S-1 filed on October 28,
1993, are incorporated by reference to the exhibit index attached
hereto.
BETTING, INC.
Index to Annual Report
on Form 10-KSB
Part I
Page
Item 1- Description of Business
3-4
Item 2- Description of Property
4
Item 3- Legal Proceedings
4
Item 4- Submission of Matters to a
Vote of Security Holders
4
Part II
Item 5- Market for Common Equity and
Related Stockholder Matters
5
Item 6- Managements Discussion and
Analysis of Financial Condition
Results of Operations
6-9
Item 7- Financial Statements
9
Item 8- Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
9
Part III
Item 9- Directors, Executive Officers
and Compliance With Section 16(a) of
the Exchange Act
9
Item 10- Executive Compensation
9-10
Item 11- Security Ownership of
Certain Beneficial Owners and
Management
10-11
Item 12- Certain Relationships and
Related Transactions
11
Part IV
Item 13- Exhibits, Financial
Statement Schedules and Reports on
Form 8-K
12
PART I
Item 1. Description of Business
(a) Business Development
Betting, Inc., was organized under the laws of the State of
Missouri on September 1, 1981, as HANDY-TOP, INC. On April 20, 1983,
the Articles of Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993, the Articles of
Incorporation were amended to change the name of the corporation to
Leggoons, Inc. In addition to changing the companys name, the May
28,1993, amendment to the Articles of Incorporation increased the
number of authorized shares of common stock from 40,000 to 10,000,000
and decreased the par value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons, Inc., declared a 14-
for-1 stock split. Unless otherwise indicated, all share and per share
data are reflected on a post split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of its assets
and liabilities to a third party assignee, under an Assignment for the
Benefit of Creditors (the Assignment). An Assignment is a business
liquidation device available as an alternative to bankruptcy. The
third party assignee, a Nebraska corporation, also named Leggoons, Inc.
(the Assignee), will be required to properly, timely, and orderly
dispose of all remaining assets for the benefit of creditors.
Leggoons, Inc., continued to maintain its status as a shell
corporation.
On February 18, 1997, Leggoons, Inc. entered into an Agreement to
License Assets from Home Point of Sales, Inc.(HPOS). HPOS is a
privately held corporation focused on the emergence of the Personal
Encrypted Remote Financial Electronic Card Transactions industry. This
industry provides consumers with the option to instantly pay bills or
impulse purchase from home with real time cash transactions. Management
believes the proprietary technology and the large demand for wagering
opportunities in todays marketplace will combine to generate
substantial sales for Leggoons, Inc., over the medium term.
Thomas S. Hughes, Chairman of HPOS, became Chairman and President
of Leggoons, Inc., on March 1, 1997. He will focus on procedures,
policies and state approvals to begin home lottery, off track betting,
casino and sports ATM card and SMART card wagering. A search is
presently being conducted to locate a CEO/COO for the Company. The
CEO/COO will assemble a team of professionals to develop the procedures
and policies of home ATM card and SMART card wagering. This
development process will include a close focus on the political and the
instant taxation of home winnings issues associated with home ATM card
and SMART card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as Chairman and
President of the Leggoons, Inc. Leggoons, Inc., intends to seek
shareholder ratification of its name change from Leggoons, Inc. to
Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the Company) is positioning itself to facilitate
same as cash ATM card or smart card transactions that are originating
from bank host processing centers and are being sent to gaming
operators. These transactions are being effected with electronic
equipment that allows self service pay per play and no actual
communications between the player and the gaming operator. These types
of transactions will be originating from homes, offices, and public
walk in locations. The Company will act as the interface that will
communicate data to the gaming operators, receive back their
acknowledgment of the transaction and then pass on this gaming
acknowledgment to the bank host processing center that has been
standing by for this information and has already completed the bank
authorization of the pay per play transaction.
The business model of the Company is to receive a fee per
transaction paid to Betting, Inc. by the bank host processing center at
the moment of the transaction. In general, this fee will be from
between 2% to 6% of the wager placed on a pay per play or a $6 flat fee
in the case of an account being opened.
The internet gaming industry is an industry that has developed
significantly in recent years. The internet gaming industry as a whole
is under increasing governmental scrutiny as the industry develops. It
is possible that at some point in the future there could be legislation
against gambling on the internet or other similar methods.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold to
better specialty and department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel and Snooggel. On
January 19, 1996, Leggoons, Inc., entered into a Licensing Agreement
with Robert Tamsky, a former director and employee of the Leggoons,
Inc. Pursuant to the terms of the Licensing Agreement, the Leggoons,
Inc., granted Mr. Tamsky effective January 1, 1996, the right to use
the LEGGOONS trademark in connection with the design, production,
marketing, sales and sublicensing of all clothing, wearing apparel and
accessories bearing the LEGGOONS symbol. This right will continue
until December 31, 1998, and may be extended thereafter each year for
an additional year. In consideration for the license, Mr. Tamsky,
according to the Licensing Agreement, shall pay to the Leggoons, Inc.
a royalty of five percent of the net sales of LEGGOONS products.
Also on January 19, 1996, the Leggoons, Inc., adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan, Leggoons,
Inc., discontinued production on April 30, 1996, and intended to either
sell or liquidate the operations within twelve months of that date. On
June 12, 1996, Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an Assignment for the
Benefit of Creditors. Included in the Assignment were the rights and
obligations of the Licensing Agreement.
Item 2. Description of Property
Not Applicable
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Common Stock is traded in the over-the-counter market and the
range of closing bid prices shown below is as reported by the OTC
Bulletin Board. The quotations shown reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
First Quarter
1/8
1/32
Second Quarter
1/16
1/32
Third Quarter
1/8
1/16
Fourth Quarter
3/16
1/16
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High
Low
First Quarter
3/8
1/8
Second Quarter
1/2
1/8
Third Quarter
15/16
1/16
Fourth Quarter
9/16
1/16
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there were 400
beneficial shareholders of the Companys Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend to
stockholders since it became a C corporation on November 18, 1993.
The Board of Directors presently intends to retain any earnings to
finance Company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash dividends in
the future will depend upon the Companys earnings, capital
requirements and other factors.
Item 6. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Results of Continuing Operations
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was $196,968. The
Company recognized $0 in revenue while preparing the setup of the
Company to commence operations as a facilitator of same as cash ATM
card or smart card transactions that are originating from bank host
processing centers and are being sent to gaming operators. The loss
was due to consulting fees of $122,020 and general and administrative
expenses of $74,948.
During the period September 1, 1996, through February 28, 1997,
the Company was operating as Leggoons, Inc. (a public shell available
for merger or acquisition). During this six month period the net loss
from continuing operations was $35,912. This loss was due to general
and administrative expenses of $35,912. The primary general and
administrative expenses incurred during the six month period ended
February 28, 1997, were legal expenses related to the HPOS license
agreement, accounting fees for the audit of Leggoons, Inc., financial
statements as of and for the year ended August 31, 1996, and stock
expenses required to maintain Leggoons, Inc., public shell status.
During the period March 1, 1997, through August 31, 1997, the Company
was maintaining operations as Betting, Inc. During this six month
period the net loss from continuing operations was $1,663,533. This
loss was due to operating expenses of $1,663,533. The operating
expenses were consulting fees of $565,740, research and development
expenses of $450,331, software development costs of $507,600 and
general and administrative expenses of $139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August 31, 1998, the
Company issued 6,441,000 shares of common stock for services rendered
and payments on accounts payable and due to stockholder. For the
shares of common stock issued for services rendered and payments on
accounts payable during the period September 1, 1997, through August
31, 1998, the following valuation policies were used so that a
financial value could be assigned to the stock issuance transactions:
the closing market stock price on the day of each common stock issuance
was used to determine fair market value of the 1,369,000 unrestricted
common shares issued; the closing market stock price on the day of each
common stock issuance less a 50% discount was used to determine fair
market value of the 2,322,000 restricted common shares issued. Common
shares that were issued and for which no performance was received,
2,750,000 shares, were valued at par value, $.01 per share. For the
2,750,000 shares of common stock issued for which no performance was
received a stop has been placed on the stock certificates with the
Companys stock transfer agent.
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The fair
market value of such common stock issued, $153,160, has primarily been
expensed as $122,020 in consulting fees and $31,140 in general and
administrative expenses during the year ended August 31, 1998. Some of
the common stock shares issued were registered with the Securities and
Exchange Commission using Form S-8 Registration Statements.
During the six month period from September 1, 1996, through
February 28, 1997, Leggoons, Inc., principal stockholder, James S.
Clinton, provided the operating capital needed to fund operations.
During the six month period from March 1, 1997, through August 31,
1997, operations were funded via advances from HPOS and by issuing
common stock for funds and services rendered. During the period March
1, 1997, through August 31, 1997, the Company issued 4,710,234 shares
of common stock for services rendered. For the 2,999,734 shares of
common stock issued for services rendered during the period March 1,
1997, through May 31, 1997, the following valuation policies were used
so that a financial value could be assigned to the stock issuance
transactions: the closing market stock price on the day of each common
stock issuance was used to determine fair market value of the 520,000
unrestricted common shares issued; the closing market stock price on
the day of each common stock issuance less a 50% discount was used to
determine fair market value of the 1,725,734 restricted common shares
issued. Common shares that were issued and for which no performance was
received, 754,000 shares, were valued at par value, $.01 per share.
For the 1,710,500 shares of common stock issued for services rendered
during the period June 1, 1997, through August 31, 1997, an average
closing stock price of $.20 was used to determine fair market value of
each share issued so that a financial value could be assigned to the
stock issuance transactions..
The financial value of the common stock issued for no cash
consideration is required to be expensed by the Company. The fair
market value of such common stock issued, $1,297,805, has primarily
been expensed as $304,240 in consulting fees, $445,128 in research and
development costs, $500,000 in software development costs and $48,437
in general and administrative expenses during the year ended August 31,
1997. Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
The common shares of stock issued for noncash consideration were,
in some cases, given for past services rendered to HPOS in developing
its product.
The management of the Company is continuing its search for
additional private investors to provide the funds needed to fund day to
day operations. It is also the goal of management to register and
complete additional public stock offerings of its common stock.
The Company has an accumulated deficit of $5,467,602. The
Companys losses from operations and inability to generate sufficient
cash flow from normal operations to meet its obligations as they come
due raise substantial doubt about the Companys ability to continue as
a going concern. The Companys ability to continue in existence is
dependent upon future developments, including obtaining financing and
achieving a level of profitable operations sufficient to enable it to
meet its obligations as they become due.
Plan of Operations
The plan of the Company is to establish partners in countries
including, but not limited to, the United Kingdom, China, Mexico,
Australia and South Africa with the stated goal being the establishment
of the wagering gate between the bank hosts in that country and the
gaming operators. The second phase will be the connection between the
various countrys Company wagering gates so that same day per play
between countries will be possible.
Establishing the wagering gate presence involves the linking of
Betting, Inc. to both the gaming operators and the bank hosts. In
effect, the Company will be a data host processing center whose
business is the passing of messages back and forth between the bank
hosts and the gaming operators.
The Company is currently satisfying its cash requirements by
issuing Betting, Inc. common stock for services rendered. The Company
intends to issue Betting, Inc. common stock at some point in the future
to satisfy a $237,000 obligation to the designer and developer of the
Merchant Response Software used with the Companys hardware products.
The $237,000 obligation is included in accounts payable at August 31,
1998.
On May 22, 1996, Leggoons, Inc., entered into an Addendum to the
Stock Purchase Agreement it initially entered into on September 5,
1995, with Infinitron Investments International, Inc. of Vancouver B.C.
(Infinitron). Pursuant thereto 100% of the shares of common stock of
Infinitron would be exchanged for approximately 4,797,500 shares of
common stock of Leggoons, Inc., which would represent approximately 95%
of the post-split Leggoons, Inc., outstanding common stock. The
Addendum provided, among other things, that Leggoons, Inc., would use
its best efforts to obtain SEC clearance of its proxy statement by July
22, 1996, and Infinitron will use its best efforts to fully cooperate
with Leggoons, Inc., in obtaining such clearance.
On July 3, 1996, counsel for Infinitron informed Leggoons, Inc.,
that Infinitron does not intend to proceed with the transactions
contemplated by the Stock Acquisition Agreement. Counsel for
Infinitron stated that the basis for that action was that he noted
a number of irregularities in the relationships and dealings among the
principals of Leggoons and Infinitron, however he did not provide any
specifics relating to that allegation. Leggoons, Inc., believes these
claims to be baseless and without merit.
Settlement negotiations have been completed, including verbal
approval by Infinitron and Leggoons, Inc., of the settlement documents.
Generally, under the terms of the settlement, Leggoons, Inc.
shareholders are to receive 186,721 shares of Infinitron common stock,
which represents approximately 3% of Infinitrons outstanding shares of
common stock on August 5, 1996. The 186,721 shares of common stock of
Infinitron will be held for the benefit of the Leggoons, Inc.,
stockholders as their loss of the bargain under the proposed merger.
As of March 31, 1999, the settlement agreement has not been
executed by all parties. If, and when, this settlement agreement is
executed the Company will be able to determine how any proceeds of the
settlement agreement affect its plan of operations for the next twelve
months. There can be no assurance that a settlement agreement will be
executed and the shareholders will receive any proceeds.
Year 2000 Issue
Most companies have computer systems that use two digits to
identify a year in the date field (e.g. 99 for 1999). These systems
must be modified to handle turn-of-the century calculations. If not
corrected, systems failures or miscalculations could occur, potentially
causing disruptions of operations, including, among other things, the
inability to process transactions or engage in other normal business
activities. This creates potential risk for all companies, even if
their own computer systems are Year 2000 compliant.
The Company is in the process of developing an ongoing program of
communication with suppliers and vendors to determine the extent to
which those companies are addressing Year 2000 compliance issues.
There can be no assurance that the Company will be able to develop a
contingency plan that will adequately address issues that may arise in
the Year 2000.
In 1999, a contingency plan will be developed in the event key or
critical suppliers or vendors are unable to meet the Year 2000
compliance. The timeframe for completing or documenting contingency
plans has not been finalized.
The Companys Year 2000 plans are based on managements best
estimates. Based on currently available information, management does
not believe that the Year 2000 issues will have a material adverse
impact on the Companys financial condition or results of operations;
however, because of the uncertainties in this area, no assurances can
be given in this regard.
Item 7. Financial Statements
Financial statements as of and for the year ended August 31,
1998, and for the year ended August 31, 1997 are presented in a
separate section of this report following Part IV.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not Applicable
PART III
Item 9. Directors, Executive Officers and Compliance With Section
16(a) of the Exchange Act
(a) Directors and Executive Officers
Thomas S. Hughes, 50, Chief Executive Officer,
President and Director of the Company since 1997. Founder of
Electronic Transactions and Technologies (formerly HPOS).
Jack M. Hall, 67, Director of the Company since 1997
D. Diane Hewitt, 50, Director of the Company since 1997.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys directors, certain officers and persons holding 10% or more
of the Companys common stock to file reports regarding their ownership
and regarding their acquisitions and dispositions of the Companys
common stock with the Securities and Exchange Commission. The Company
is unaware that any required reports were not timely filed.
Item 10. Executive Compensation
The following table sets forth information concerning
compensation paid by BETTING, INC. for services rendered during fiscal
year 1998, 1997, and 1996 for the Chief Executive Officer and for each
of the Companys other executive officers whose annual salary and bonus
exceeds $100,000.
Summary Compensation Table
Name and
Principal
Position
Year
Salary
($)
Bonus
($)
Other
($)
Stock
($)
SARs
(#)
($)
Options/
($)
Comp
ensa
tion
Thomas
Hughes
1998
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
Thomas
Hughes/
1997
- -0-
- -0-
- -0-
375,000
- -0-
- -0-
- -0-
James S.
Clinton,
President
and
Chief
Execu-
tive
Officer
1996
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
Perquisites and other personal benefits are omitted because they do not
exceed either $50,000 or 10% of the total of annual salary and bonus for
the named executive officer.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of August 31, 1998, the
beneficial ownership of the Companys Common Stock by each person who is
known by the Company to own beneficially more than 5% of the issued and
outstanding shares of the Companys Common Stock.
Name and Address of
Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Percent of Class
James S. Clinton
30 Ginger Cove Road
Valley, NE 68064
1,417,0001
18.0%
Thomas S. Hughes
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
1,000,000
12.7%
1On January 24, 1996, Mr. Larry Langston entered into an Option
Agreement with Steven Walters, a former officer and director of
Leggoons, Inc., which grants Mr. Walters an option to purchase 261,500
of Mr. Langstons common stock shares. The option price is $100,000,
the option may not be exercised prior to November 23, 1996, and expires
on July 24, 1997. Mr. Walters, in turn, has assigned the right to
purchase 130,750 of such shares to the Claude E. Clinton Family Trust
for which Mr. Clinton, an officer and director of Leggoons, Inc., acts
as Trustee (Mr. Clinton is not the beneficiary of the trust but has the
right to vote the shares) in consideration of $50,000 cash and a loan
to Mr. Walters in the amount of $50,000. The option was exercised by
Mr. Walters. However, the shares are not included in the total shares
for James S. Clinton due to the additional shares being issued after
August 31, 1998.
The following table shows, as of August 31, 1998, certain information
with respect to BETTING, INC. Common Stock beneficially owned by
directors and executive officers of the Company. Unless otherwise noted,
all shares are owned directly or indirectly with sole voting and
investment power.
Name and Address of
Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Percent of Class
Thomas S. Hughes
31310 Eaglehaven
Circle
Rancho Palos Verdes,
CA 90275
1,000,000
12.7%
All officers and
directors as a group
(1 individual)
1,000,000
12.7%
1Shares reported include shares owned by spouses of officers and
directors. No options to acquire any BETTING, INC. common stock are owned
by any officer or director.
Item 12. Certain Relationships and Related Transactions
During the years ended August 31, 1998 and 1997, the salient
details of 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.
The Company utilized cash accounts maintained by HPOS to fund day
to day operations of the Company. Thomas S. Hughes is the Chairman of
both the Company and HPOS. At August 31, 1998, the net result of these
transactions is a payable to HPOS of $18,969.
The Company issued 750,000 shares of restricted common stock to
James S. Clinton as full payment for an amount due to stockholder of
$35,135.
The Company issued 1,000,000 shares of restricted common stock to
Thomas S. Hughes during May 1997. The Company did not receive any cash
consideration for this common stock issuance and has treated this as an
expense to the Company of $375,000.
The Company utilized cash accounts maintained by HPOS to fund day
to day operations of the Company. Thomas S. Hughes is the Chairman of
both the Company and HPOS. At August 31, 1997, the net result of these
transactions is a receivable from HPOS of $38,071. At August 31, 1997,
the $38,071 has been expensed by the Company as licensing fees that are
due to HPOS.
The Company issued 286,234 shares of common stock valued at
$41,864 to former associates of Thomas S. Hughes at a company called
Betts, Inc.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Index to Financial Statements and Schedules
See index to financial statements and supporting schedules on page 13
of this annual report on Form 10-KSB.
(b) Reports on Form 8-K
None
(c) Index to Exhibits
Any exhibits filed with the Securities and Exchange Commission will be
supplied upon written request of Thomas S. Hughes, Betting, Inc., 31310
Eaglehaven Circle, Rancho Palos Verdes, CA 90275. A charge will be
made to cover copying costs. See Exhibit Index below.
Number Exhibit Description
3.1 Leggoons, Inc. Articles of Incorporation and Amendments,
incorporated by reference to Exhibit 3.1 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by reference to
Exhibit 3.2 of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993. Leggoons, Inc. Agreement to License
Assets
4 Class A Warrant Agreement, incorporated by reference to Exhibit
4.2 of Leggoons, Inc. Registration Statement on Form S-1 filed on
October 28, 1993.
10.1 Assignment for Benefit of Creditors, incorporated by reference to
Exhibit 10.1 of Leggoons, Inc., Form 8-K filed on June 27, 1996.
10.2 Leggons, Inc. Agreement to License of Assets
BETTING, INC.
(Formerly Leggoons, Inc.)
Independent Auditors Report
Financial Statements
Balance Sheet
Statements of Operations
Statements of Stockholders Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
GEORGE BRENNER, C.P.A.
9300 WILSHIRE BOULEVARD, SUITE 490
BEVERLY HILLS CALIFORNIA 90212
AUDITORS REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of Betting, Inc. as of
August 31, 1998 and the related statements of operations, changes in
stockholders equity, (deficit), and cash flows for the years ended
August 31, 1998 and 1997. These financial statements are the
responsibility of the Companys management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that
my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Betting,
Inc. as of August 31, 1998, and the results of its operations and its
cash flows for the years ended August 31, 1998 and 1997, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described
in Note 8A (Continued Existence) to the financial statements, the
Companys recurring losses from operations and inability to generate
sufficient cash flow from normal operations raise substantial doubt
about its ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 8A. The financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
As discussed in Note 8B (Common Stock Issued in Excess of
Authorized Shares) the Company is attempting to convert excess shares
of common shares issued to preferred shares. The effect, if any, of
this uncertainty on the future operations of the Company cannot
presently be determined.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
April 7, 1999
Beverly Hills, California
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEET
August 31, 1998
ASSETS
Current Assets:
Cash
$0
Total current assets
0
Total Assets
$0
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable
$283,971
Due to related party
18,969
Commissions payable
21,400
Total current liabilities
324,340
Contingencies (Note 8)
Stockholders Equity (Deficit):
Common stock, $.01 par value,
authorized 10,000,000 shares;
issued and outstanding, 14,284,234
(Note 8b)
142,842
Preferred stock, $.01 par value,
authorized 5,000,000 shares;
issued and outstanding - none
(Note 8b)
Additional paid-in capital
5,000,420
Accumulated deficit
(5,467,602)
Total stockholders equity
(deficit)
(324,340)
Total Liabilities and Stockholders
Equity (Deficit)
$0
See accompanying notes to financial statements and accompanying
auditors report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended
August 31, 1998
Year Ended August 31, 1997
Revenue
$0
$0
Operating Expenses (Note
4)
Consulting Fees
122,020
565,740
General and
Administrative Expenses
74,948
175,774
Research and Development
Expenses
0
450,331
Software Development
Costs
0
507,600
Total Operating Expenses
(196,968)
(1,699,445)
Net Loss (Note 1)
$(196,968)$
(1,699,445)
Net Loss per Common
Share
$(.02)
$(.41)
Weighted Average Common
Shares Outstanding
10,994,465
4,106,620
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Number of
common
shares
Par
value
Preferred
stock
Additional
paid-in
capital
Accumulated
deficit
Stockhold
ers
equity
(deficit)
Balance
at August
31, 1996
2,787,000
27,870
0
3,522,792
(3,571,189)
(20,527)
Issuance
of
346,000
shares of
Common
stock at
$.25 per
share
(Cash
Transacti
on)
346,000
3,460
0
82,040
0
85,500
Issuance
of
2,999,734
shares of
Common
stock (1)
(Non-Cash
Transacti
ons)
2,999,734
29,997
0
925,708
0
955,705
Issuance
of
1,710,500
shares of
Common
stock at
$.20 per
share
(Non-Cash
Transacti
ons)
1,710,500
17,105
0
324,995
0
342,100
Net loss
0
0
0
0
(1,699,445)
(1,699,44
5)
Balance
at August
31, 1997
7,843,234
$78,432
$0
$4,855,535
($5,270,634)
($336,667
)
Issuance
of
6,441,000
shares of
Common
stock at
various $
per share
[1] (Non-
Cash
Transacti
ons)
6,441,000
64,410
0
144,885
0
209,295
Net loss
0
0
0
0
(196,968)
(196,968)
Balance
at August
31, 1998
14,284,23
4
$142,84
2
$0
$5,000,420
($5,467,602)
($324,340
)
(1) S-8 common shares valued at market value on day of issuance;
Restricted common shares valued at market value on day of issuance less
50% discount; Common shares for which no performance was received
valued at par value of $.01 per common share.
See accompanying notes to financial statements and accompanying
auditors report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended August
31, 1998
Year Ended August
31, 1997
Operating Activities
Continuing operations:
Net loss (Note 7)
$(43,808)
$(401,640)
Changes in assets and
liabilities:
Accounts payable
21,793
270,839
Commissions payable
3,001
18,399
Cash Used in Operating
Activities
(19,014)
(112,402)
Financing Activities
Continuing operations:
Proceeds from
additional borrowings
from stockholder
18,969
26,947
Proceeds from issuance
of common stock
0
85,500
Cash Provided by
Financing Activities
18,969
112,447
Net Increase
(Decrease) in Cash
(45)
45
Cash at Beginning of
Year
45
0
Cash at End of Year
$0
$45
Supplemental Disclosures:
The Company paid $0 and $0 for interest for the years ended August 31,
1998 and 1997, respectively. The following summarizes noncash investing
and financing transactions:
Year Ended August 31,
1998
Issuance of 5,341,000 shares of
common stock for services rendered
$153,160
Issuance of 750,000 shares of
common stock for payment on due to
stockholder
35,135
Issuance of 350,000 shares of
common stock for payment on
accounts payable
21,000
Year Ended August 31,
1997
Issuance of 4,710,234 shares of
common stock for services rendered
$1,297,805
See accompanying notes to financial statements and accompanying
auditors report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Betting, Inc. (the Company) is positioning itself to facilitate same as
cash ATM card or smart card transactions that are originating from bank
host processing centers and are being sent to gaming operators. These
transactions are being effected with electronic equipment that allows
self service pay per play and no actual communications between the
player and the gaming operator. These type of transactions will be
originating from homes, offices, and public walk in locations. The
Company will act as the interface that will communicate data to the
gaming operators, receive back their acknowledgment of the transaction
and then pass on this gaming acknowledgment to the bank host processing
center that has been standing by for this information and has already
completed the bank authorization of the pay per play transaction. The
business model of the Company is to receive a fee per transaction paid
to Betting, Inc. by the bank host processing center at the moment of
the transaction. In general, this fee will be from between 2% to 6% of
the wager placed on a pay per play or a $6 flat fee in the case of an
account being opened. The Company has many characteristics commonly
associated with a development stage company. A development stage
company devotes substantially all of its efforts to establishing a new
business and its planned principal operations either (a) have not
commenced or (b) have commenced, but have not produced any significant
revenue. However, due to the companys previously established operation
as a public shell, a development stage company presentation is not
appropriate for these financial statements.
Leggoons, Inc., was engaged in the design, manufacture and distribution
of apparel and related accessories which were sold to better specialty
and department stores nationwide under the brands: Leggoons, CPO by
Leggoons, John Lennon Artwork Apparel and Snooggel. On January 19,
1996, Leggoons, Inc., adopted a formal plan to discontinue the
designing, selling, manufacturing and distribution of its apparel
products. As part of such plan, Leggoons, Inc., discontinued
production on April 30, 1996, and intended to either sell or liquidate
the operations within twelve months of that date. On June 12, 1996,
Leggoons, Inc., transferred all of its assets and liabilities to a
third party assignee, under an Assignment for Benefit of Creditors. An
Assignment is a business liquidation device available as an alternative
to bankruptcy. The third party assignee, a Nebraska corporation named
Leggoons, Inc. II, is required to properly, timely and orderly dispose
of all remaining assets for the benefit of creditors. Leggoons, Inc.,
continued to maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc., entered into an Agreement to
License Assets from Home Point of Sales, Inc.(HPOS). HPOS is a
privately held corporation focused on the emergence of the Personal
Encrypted Remote Financial Electronic Card Transactions industry. This
industry provides consumers with the option to instantly pay bills or
impulse purchase from home with real time cash transactions. Management
believes the proprietary technology and the large demand for wagering
opportunities in todays marketplace will combine to generate
substantial sales for Leggoons, Inc., over the medium term.
Under terms of the Licensing Agreement, the Company will issue
2,900,000 shares of restricted common stock to HPOS in exchange for
licensing home ATM card and SMART card wagering technology developed by
HPOS. Of this amount, 2,755,000 shares will be placed in escrow and
are subject to cancellation on February 10, 1998, in the event the bid
price of the common stock of the Company is not at least $3.00 per
share for any twenty consecutive day period as reported on the NASDs
Electronic Bulletin Board or NASDAQs Small Cap Market from the date of
the agreement through February 10, 1998.
As of the date of these financial statements the terms of the Licensing
Agreement have not been met by the Company. However, the Company has
entered into amendment(s) of the original agreement that provide for an
extension of the cancellation deadline from February 10, 1998, to
September 1, 1999, subject to certain conditions specified in the
agreement. As of the date of these financial statements, none of the
conditions have been met. All conditions set forth in the original
agreement need to be met on or before September 1, 1999.
See accompanying auditors report
The License Agreement also provides that in the event that the bid
price for the common stock of the Company is more than $3.00 per share
for any twenty consecutive day period, then HPOS shall have the option
to purchase up to 13,822,000 additional shares of the Company common
stock at an exercise price of $.30 per share.
Thomas S. Hughes, Chairman of HPOS, became Chairman and President of
Leggoons on March 1, 1997. He will focus on procedures, policies and
State approvals to begin home lottery, off track betting, casino and
sports ATM card and SMART card wagering. The Company intends to seek
shareholder approval of its name change from Leggoons, Inc. to Betting,
Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon consummation of a
transaction
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand deposits, and
short-term investments with original maturities of three months or
less.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense when incurred.
Costs incurred to internally develop software, including costs
incurred during all phases of development, are charged to expense as
incurred.
STOCKHOLDERS EQUITY
The following valuation policies were used so that a financial value
can be assigned to stock issuance transactions: the closing market
stock price on the day of each common stock issuance was used to
determine fair market value of unrestricted common shares issued; the
closing market stock price on the day of each common stock issuance
less a 50% discount was used to determine fair market value of
restricted common shares issued. Common shares that were issued and
for which no performance was received were valued at par value, $.01
per share.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the weighted
average number of common and common equivalent shares outstanding
during the period. Shares issuable pursuant to outstanding stock
warrants have been excluded from the computation as the effect is
antidilutive. Fully diluted net loss per share for all periods
presented is not materially different from primary loss per share.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for temporary differences between
the bases of assets and liabilities for financial statement and income
tax purposes. If it is more likely than not that all or some portion
of a deferred tax asset will not be realized, a valuation allowance is
recorded. (See Note 2)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
See accompanying auditors report
(2) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL) carryforwards of
approximately $2,800,000 at August 31, 1998, that were generated by
Leggoons, Inc. The unused net operating losses expire in various
amounts from 2009 to 2012. However, due to change of ownership rules
of section 382 of the Internal Revenue Code some or all of these NOL
carryforwards may be unavailable to offset any future income of
Betting, Inc. The Company generated losses of approximately $1,658,000
during the six month period ended August 31, 1997, and losses of
approximately $197,000 during the year ended August 31, 1998. These
losses, totaling $4,655,000 may not qualify as federal and state NOL
carryforwards due to the possible nondeductibility of the noncash
service costs incurred and the change of ownership rules of section 382
of the Internal Revenue Code. The Company provides an allowance for
the entire amount of any deferred tax assets that are applicable to the
NOL.
(3) COMMON STOCK WARRANTS
The Company had outstanding warrants to purchase approximately 900,000
shares of common stock. The warrants were exercisable at $3.75 per
share and expired on November 18, 1997.
(4) STOCKHOLDERS EQUITY (DEFICIT)
During the period September 1, 1997, through August 31, 1998, the
Company issued 6,441,000 shares of common stock for services rendered
and payments on accounts payable. For the shares of common stock
issued for services rendered during the period September 1, 1997,
through August 31, 1998, the following valuation policies were used so
that a financial value could be assigned to the stock issuance
transactions: the closing market stock price on the day of each common
stock issuance was used to determine fair market value of the 1,369,000
unrestricted common shares issued; the closing market stock price on
the day of each common stock issuance less a 50% discount was used to
determine fair market value of the 2,322,000 restricted common shares
issued. Common shares that were issued and for which no performance was
received, 2,750,000 shares, were valued at par value, $.01 per share.
For the 2,750,000 shares of common stock issued for which no
performance was received a stop has been placed on the stock
certificates with the Companys stock transfer agent.
For the period September 1, 1997, through August 31, 1998, the
financial value of the common stock issued for no cash consideration is
required to be expensed by the Company. The fair market value of such
common stock issued, $153,160, has primarily been expensed as $122,020
in consulting fees and $31,140 in general and administrative expenses
during the year ended August 31, 1998. Some of the common stock shares
issued were registered with the Securities and Exchange Commission
using Form S-8 Registration Statements.
During the period March 1, 1997, through August 31, 1997, the Company
issued 4,710,234 shares of common stock for services rendered. For the
2,999,734 shares of common stock issued for services rendered during
the period March 1, 1997, through May 31, 1997, the following valuation
policies were used so that a financial value could be assigned to the
stock issuance transactions: the closing market stock price on the day
of each common stock issuance was used to determine fair market value
of the 520,000 unrestricted common shares issued; the closing market
stock price on the day of each common stock issuance less a 50%
discount was used to determine fair market value of the 1,725,734
restricted common shares issued. Common shares that were issued and for
which no performance was received, 754,000 shares, were valued at par
value, $.01 per share. For the 1,710,500 shares of common stock issued
for services rendered during the period June 1, 1997, through August
31, 1997, an average closing stock price of $.20 was used to determine
fair market value of each share issued so that a financial value could
be assigned to the stock issuance transactions.
For the period September 1, 1996, through August 31, 1997, the
financial value of the common stock issued for no cash consideration is
required to be expensed by the Company. The fair market value of such
common stock issued, $1,297,805, has primarily been expensed as
$304,240 in consulting fees, $445,128 in research and development
costs, $500,000 in software development costs and $48,437 in general
and administrative expenses during the year ended August 31, 1997.
Some of the common stock shares issued were registered with the
Securities and Exchange Commission using Form S-8 Registration
Statements.
See accompanying auditors report
(5) RELATED PARTY TRANSACTIONS
COMMON STOCK ISSUED
The Company issued 1,000,000 shares of restricted common stock to
Thomas S. Hughes during the year ended August 31, 1997. The Company
did not receive any cash consideration for this common stock issuance
and was valued at $375,000. See Note (4).
The Company issued 286,234 shares of restricted common stock to former
associates of Thomas S. Hughes at a company called Betts, Inc. The
restricted common shares were valued at $41,864.
TRANSACTIONS WITH HPOS
The Company utilized cash accounts maintained by HPOS to fund day to
day operations of the Company. Thomas S. Hughes is the Chairman of
both the Company and HPOS. At August 31, 1998, the net result of these
transactions is a payable to HPOS of $18,969.
DUE TO STOCKHOLDER
The Company had a due to stockholder payable to James S. Clinton,
former Chairman of Leggoons, Inc., in the amount of $35,135 for
advances made to Leggoons, Inc., prior to March 1, 1997. This was paid
in full by the issuance of 750,000 shares of restricted common stock
during the year ended August 31, 1998.
(6) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1998 and 1997, the Company recorded
adjustments that increased its net loss by approximately $27,500
and$1,558,000, respectively. These adjustments were primarily related
to the issuance of common stock for no cash consideration.
(7) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing transactions for the years
ended August 31, 1998 and August 31, 1997:
1998
1997
Net loss from Continuing Operations
$43,808
401,640
Issuance of common stock for Consulting
Fees and General and Administrative
Expenses
153,160
1,297,805
Income Statement Net Loss
$196,968
$1,699,445
(8) CONTINGENCIES
(A) CONTINUED EXISTENCE
The Companys financial statements are presented on the going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the
accompanying financial statements, the Company has shown a significant
loss from operations and has negative working capital and a
stockholders deficit. This raises substantial doubt about the Companys
ability to continue.
The Companys continued existence is dependent upon its ability to
resolve its liquidity problems, principally by obtaining additional
debt financing and equity capital and ultimately upon achieving
profitability. While pursuing additional debt and equity funding, the
Company must continue to operate on limited cash flow. Management is
committed to developing the product and continues to receive small
amounts of funding from private investors. It is the goal of
management to receive additional funding from an additional public
offering of its common stock within twelve months.
There is no assurance that the Company can achieve the profitability
and positive liquidity discussed above. The financial statements do
not include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
(B) COMMON STOCK ISSUED IN EXCESS OF AUTHORIZED SHARES
During the year ended August 31, 1998, the Company issued a total of
6,441,000 shares of common stock. This has resulted in the total
issued common shares exceeding the 10,000,000 common shares authorized
by 4,284,234 common shares. Most of these shares were to have been
preferred stock. Due to an error that was discovered after the close
of the year, however, all of the shares were issued as common shares,
resulting in the Company issuing more common shares than its articles
of incorporation authorize. The Company is in the process of recalling
these certificates totaling 4,550,000 shares and replacing them with
preferred certificates. The net result will not be significantly
different. Holders of preferred shares will have a priority over
common stockholders with respect to dividends and liquidation rights,
but no dividends are required or anticipated. The preferred
stockholders will have voting rights equal to those of the common
stockholders. The stockholders equity (deficit) section of the balance
sheet then would be restated as follows to take into account the
preferred stock:
August 31, 1998
Proforma Adjustment
Restated
August 31,
1998
Stockholders
Equity (Deficit):
Common stock, $.01
par value,
authorized
10,000,000 shares;
issued and
outstanding,
9,734,234
$142,842
$(45,500)
$97,342
Preferred stock,
$.01 par value,
authorized
5,000,000 shares;
issued and
outstanding -
4,550,000
0
45,500
45,500
Additional paid-in
capital
5,000,420
0
5,000,420
Accumulated
deficit
(5,467,602)
0
(5,467,602)
Total stockholders
equity (deficit)
$(324,340)
$0
$(324,340)
(9) SUBSEQUENT EVENTS (UNAUDITED)
CONSENT DECREE ENTERED WITH SECURITIES AND EXCHANGE COMMISSION
The Company has not, to the date of this report, filed necessary
quarterly or annual reports with the United States Securities and
Exchange Commission (the SEC) since May 31, 1998. This constitutes a
violation by the Company of a provision of the Securities Exchange Act
of 1934, as amended. The Company entered into a consent decree with
the SEC by which the Company agreed to file all necessary reports by
April 9, 1999, and agreed to file all required reports with the SEC on
a timely basis in the future.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2
and authorized this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorize, in the City of Las Vegas,
State of Nevada, on April 5, 1999.
BETTING, INC.
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments, including post-effective
amendments, to this Form SB-2 Registration Statement, and to file the
same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting such
attorney-in-fact the full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about
the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated:
Signature
Title
Date
/s/ Thomas S. Hughes
Thomas S. Hughes
President, Chief
Executive Officer,
Director
April 5, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
April 5, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
April 5, 1999