U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL
YEAR ENDED AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______________ TO
______________
COMMISSION FILE NUMBER: 33-68570
BETTING, INC. (1)
(Exact name of registrant as specified in its
charter)
Missouri (2)
43-1239043
(State or jurisdiction of incorporation
(I.R.S.
Employer
or organization)
Identification
No.)
31310 Eaglehaven Center, Suite 10, Rancho Palos
Verdes, California 90275
(Address of principal
executive offices)
(Zip Code)
Registrant's telephone number: (310) 541-4393
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $0.01 Par Value; Class A
Warrants
Indicate by check mark whether the registrant (1)
has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) been subject to such filing
requirements for the past 90 days. Yes No X .
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ].
The aggregate market value of the voting stock held
by non-affiliates of the registrant as of August 31,
1998: Common Stock, par value $0.01 per share --
$1,785,000. As of August 31, 1998, the registrant
had 14,284,234 shares of common stock issued and
outstanding.
(1) Effective on June 4, 1999, the name was changed
to eConnect.
(2) Effective on June 1, 1999, the jurisdiction of
organization was changed to Nevada.
PART I.
ITEM 1. BUSINESS.
(a) Business Development
Betting, Inc., was organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-
TOP,
INC. On April 20, 1983, the Articles of
Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993,
the
Articles of Incorporation were amended to change the
name of the corporation to Leggoons, Inc. In
addition to changing the company's name, the May
28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the
par
value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons,
Inc.,
declared a 14-for-1 stock split. Unless otherwise
indicated, all share and per share data are
reflected
on a post split basis throughout this Form 10-KSB.
On June 12, 1996, Leggoons, Inc., transferred all of
its assets and liabilities to a third party
assignee,
under an "Assignment for the Benefit of Creditors"
(the "Assignment"). An Assignment is a business
liquidation device available as an alternative to
bankruptcy. The third party assignee, a Nebraska
corporation, also named Leggoons, Inc. (the
"Assignee"), will be required to properly, timely,
and orderly dispose of all remaining assets for the
benefit of creditors. Leggoons, Inc., continued to
maintain its' status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of
Sales,
Inc.(HPOS). HPOS is a privately held corporation
focused on the emergence of the Personal Encrypted
Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase
from home with real time cash transactions.
Management believes the proprietary technology and
the large demand for wagering opportunities in
today's marketplace will combine to generate
substantial sales for Leggoons, Inc., over the
medium
term.
Thomas S. Hughes, Chairman of HPOS, became Chairman
and President of Leggoons, Inc., on March 1, 1997.
He will focus on procedures, policies and state
approvals to begin home lottery, off track betting,
casino and sports ATM card and SMART card wagering.
A
search is presently being conducted to locate a
CEO/COO for the Company. The CEO/COO will assemble
a
team of professionals to develop the procedures and
policies of home ATM card and SMART card wagering.
This development process will include a close focus
on the political and the instant taxation of home
winnings issues associated with home ATM card and
SMART card wagering.
Thomas S. Hughes, Chairman of HPOS, will remain as
Chairman and President of the Leggoons, Inc.
Leggoons, Inc., intends to seek shareholder
ratification of its name change from Leggoons, Inc.
to Betting, Inc.
(b) Business of Issuer
Betting, Inc. (the "Company") is positioning itself
to facilitate same as cash ATM card or smart card
transactions that are originating from bank host
processing centers and are being sent to gaming
operators. These transactions are being effected
with electronic equipment that allows self service
pay per play and no actual communications between
the
player and the gaming operator. These types of
transactions will be originating from homes,
offices,
and public walk in locations. The Company will act
as the interface that will communicate data to the
gaming operators, receive back their acknowledgment
of the transaction and then pass on this gaming
acknowledgment to the bank host processing center
that has been standing by for this information and
has already completed the bank authorization of the
pay per play transaction.
The business model of the Company is to receive a
fee
per transaction paid to Betting, Inc. by the bank
host processing center at the moment of the
transaction. In general, this fee will be from
between 2% to 6% of the wager placed on a pay per
play or a $6 flat fee in the case of an account
being
opened.
The internet gaming industry is an industry that has
developed significantly in recent years. The
internet gaming industry as a whole is under
increasing governmental scrutiny as the industry
develops. It is possible that at some point in the
future there could be legislation against gambling
on
the internet or other similar methods.
Leggoons, Inc., was engaged in the design,
manufacture and distribution of apparel and related
accessories which are sold to better specialty and
department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork
Apparel and Snooggel. On January 19, 1996, Leggoons,
Inc., entered into a Licensing Agreement with Robert
Tamsky, a former director and employee of the
Leggoons, Inc. Pursuant to the terms of the
Licensing Agreement, the Leggoons, Inc., granted Mr.
Tamsky effective January 1, 1996, the right to use
the LEGGOONS trademark in connection with the
design,
production, marketing, sales and sublicensing of all
clothing, wearing apparel and accessories bearing
the
"LEGGOONS" symbol. This right will continue until
December 31, 1998, and may be extended thereafter
each year for an additional year. In consideration
for the license, Mr. Tamsky, according to the
Licensing Agreement, shall pay to the Leggoons, Inc.
a royalty of five percent of the net sales of
"LEGGOONS" products.
Also on January 19, 1996, the Leggoons, Inc.,
adopted
a formal plan to discontinue the designing, selling,
manufacturing and distribution of its apparel
products. As part of such plan, Leggoons, Inc.,
discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations
within twelve months of that date. On June 12,
1996,
Leggoons, Inc., transferred all of its assets and
liabilities to a third party assignee, under an
"Assignment for the Benefit of Creditors." Included
in the Assignment were the rights and obligations of
the Licensing Agreement.
Item 2. Description of Property.
Not Applicable
Item 3. Legal Proceedings.
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders.
Not Applicable
PART II.
Item 5. Market for Common Equity and Related
Stockholder Matters.
(a) Market Information
The Common Stock is traded in the over-the-counter
market and the range of closing bid prices shown
below is as reported by the OTC Bulletin Board. The
quotations shown reflect inter-dealer prices,
without
retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1998
High
Low
First Quarter
0.12
0
Second Quarter
0.08
0
Third Quarter
0.15
0.03
Fourth Quarter
0.20
0.06
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended August 31, 1997
High
Low
First Quarter
8
5.875
Second Quarter
8.125
7.625
Third Quarter
0.8125
0.0625
Fourth Quarter
0.5625
0.06
(b) Holders of Common Equity
As of August 31, 1998, the Company estimates there
were 400 beneficial shareholders of the Company's
Common Stock.
(c) Dividends
The Company has not declared or paid a cash dividend
to stockholders since it became a "C" corporation
on
November 18, 1993. The Board of Directors presently
intends to retain any earnings to finance Company
operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the
Company's earnings, capital requirements and other
factors.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Comparison of Fiscal 1998 and 1997
The loss for the year ended August 31, 1998, was
$196,968. The Company recognized $0 in revenue
while
preparing the setup of the Company to commence
operations as a facilitator of same as cash ATM card
or smart card transactions that are originating from
bank host processing centers and are being sent to
gaming operators. The loss was due to consulting
fees of $122,020 and general and administrative
expenses of $74,948.
During the period September 1, 1996, through
February
28, 1997, the Company was operating as Leggoons,
Inc.
(a public shell available for merger or
acquisition).
During this six month period the net loss from
continuing operations was $35,912. This loss was
due
to general and administrative expenses of $35,912.
The primary general and administrative expenses
incurred during the six month period ended February
28, 1997, were legal expenses related to the HPOS
license agreement, accounting fees for the audit of
Leggoons, Inc., financial statements as of and for
the year ended August 31, 1996, and stock expenses
required to maintain Leggoons, Inc., public shell
status. During the period March 1, 1997, through
August 31, 1997, the Company was maintaining
operations as Betting, Inc. During this six month
period the net loss from continuing operations was
$1,663,533. This loss was due to operating expenses
of $1,663,533. The operating expenses were
consulting fees of $565,740, research and
development
expenses of $450,331, software development costs of
$507,600 and general and administrative expense of
$139,862.
Liquidity and Capital Resources
During the period September 1, 1997, through August
31, 1998, the Company issued 6,441,000 shares of
common stock for services rendered and payments on
accounts payable and due to stockholder. For the
shares of common stock issued for services rendered
and payments on accounts payable during the period
September 1, 1997, through August 31, 1998, the
following valuation policies were used so that a
financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the
1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used
to
determine "fair market value" of the 2,322,000
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 2,750,000 shares, were valued at par
value,
$.01 per share. For the 2,750,000 shares of common
stock issued for which no performance was received a
stop has been placed on the stock certificates with
the Company's stock transfer agent.
The financial value of the common stock issued for
no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $153,160, has primarily been expensed
as $122,020 in consulting fees and $31,140 in
general
and administrative expenses during the year ended
August 31, 1998. Some of the common stock shares
issued were registered with the Securities and
Exchange Commission using Form S-8 Registration
Statements.
During the six month period from September 1, 1996,
through February 28, 1997, Leggoons, Inc., principal
stockholder, James S. Clinton, provided the
operating
capital needed to fund operations. During the six
month period from March 1, 1997, through August 31,
1997, operations were funded via advances from HPOS
and by issuing common stock for funds and services
rendered. During the period March 1, 1997, through
August 31, 1997, the Company issued 4,710,234 shares
of common stock for services rendered. For the
2,999,734 shares of common stock issued for services
rendered during the period March 1, 1997, through
May
31, 1997, the following valuation policies were used
so that a financial value could be assigned to the
stock issuance transactions: the closing "market"
stock price on the day of each common stock issuance
was used to determine "fair market value" of the
520,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used
to
determine "fair market value" of the 1,725,734
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 754,000 shares, were valued at par value,
$.01 per share. For the 1,710,500 shares of common
stock issued for services rendered during the period
June 1, 1997, through August 31, 1997, an average
closing stock price of $.20 was used to determine
"fair market value" of each share issued so that a
financial value could be assigned to the stock
issuance transactions..
The financial value of the common stock issued for
no
cash consideration is required to be expensed by the
Company. The "fair market value" of such common
stock issued, $1,297,805, has primarily been
expensed
as $304,240 in consulting fees, $445,128 in research
and development costs, $500,000 in software
development costs and $48,437 in general and
administrative expenses during the year ended August
31, 1997. Some of the common stock shares issued
were registered with the Securities and Exchange
Commission using Form S-8 Registration Statements.
The common shares of stock issued for noncash
consideration were, in some cases, given for past
services rendered to HPOS in developing its'
product.
The management of the Company is continuing its
search for additional private investors to provide
the funds needed to fund day to day operations. It
is also the goal of management to register and
complete additional public stock offerings of its
common stock.
The Company has an accumulated deficit of
$5,467,602.
The Company's losses from operations and inability
to
generate sufficient cash flow from normal operations
to meet its obligations as they come due raise
substantial doubt about the Company's ability to
continue as a going concern. The Company's ability
to continue in existence is dependent upon future
developments, including obtaining financing and
achieving a level of profitable operations
sufficient
to enable it to meet its obligations as they become
due.
Plan of Operations
The plan of the Company is to establish partners in
countries including, but not limited to, the United
Kingdom, China, Mexico, Australia and South Africa
with the stated goal being the establishment of the
wagering gate between the bank hosts in that country
and the gaming operators. The second phase will be
the connection between the various countrys' Company
wagering gates so that same day per play between
countries will be possible.
Establishing the wagering gate presence involves the
linking of Betting, Inc. to both the gaming
operators
and the bank hosts. In effect, the Company will be
a
data host processing center whose business is the
passing of messages back and forth between the bank
hosts and the gaming operators.
The Company is currently satisfying its cash
requirements by issuing Betting, Inc. common stock
for services rendered. The Company intends to issue
Betting, Inc. common stock at some point in the
future to satisfy a $237,000 obligation to the
designer and developer of the Merchant Response
Software used with the Company's hardware products.
The $237,000 obligation is included in accounts
payable at August 31, 1998.
On May 22, 1996, Leggoons, Inc., entered into an
Addendum to the Stock Purchase Agreement it
initially
entered into on September 5, 1995, with Infinitron
Investments International, Inc. of Vancouver B.C.
("Infinitron"). Pursuant thereto 100% of the shares
of common stock of Infinitron would be exchanged for
approximately 4,797,500 shares of common stock of
Leggoons, Inc., which would represent approximately
95% of the post-split Leggoons, Inc., outstanding
common stock. The Addendum provided, among other
things, that Leggoons, Inc., would use its best
efforts to obtain SEC clearance of its proxy
statement by July 22, 1996, and Infinitron will use
its best efforts to fully cooperate with Leggoons,
Inc., in obtaining such clearance.
On July 3, 1996, counsel for Infinitron informed
Leggoons, Inc., that Infinitron does not intend to
proceed with the transactions contemplated by the
Stock Acquisition Agreement. Counsel for
Infinitron
stated that the basis for that action was that he
noted "a number of irregularities in the
relationships and dealings among the principals of
Leggoons and Infinitron, " however he did not
provide
any specifics relating to that allegation.
Leggoons,
Inc., believes these claims to be baseless and
without merit.
Settlement negotiations have been completed,
including verbal approval by Infinitron and
Leggoons,
Inc., of the settlement documents. Generally, under
the terms of the settlement, Leggoons, Inc.
shareholders are to receive 186,721 shares of
Infinitron common stock, which represents
approximately 3% of Infinitron's outstanding shares
of common stock on August 5, 1996. The 186,721
shares of common stock of Infinitron will be held
for
the benefit of the Leggoons, Inc., stockholders as
their "loss of the bargain" under the proposed
merger.
As of March 31, 1999, the settlement agreement has
not been executed by all parties. If, and when,
this
settlement agreement is executed the Company will be
able to determine how any proceeds of the settlement
agreement affect its plan of operations for the next
twelve months. There can be no assurance that a
settlement agreement will be executed and the
shareholders will receive any proceeds.
Year 2000 Issue
Most companies have computer systems that use two
digits to identify a year in the date field (e.g.
"99" for 1999). These systems must be modified to
handle turn-of-the century calculations. If not
corrected, systems failures or miscalculations could
occur, potentially causing disruptions of
operations,
including, among other things, the inability to
process transactions or engage in other normal
business activities. This creates potential risk
for
all companies, even if their own computer systems
are
Year 2000 compliant.
The Company is in the process of developing an
ongoing program of communication with suppliers and
vendors to determine the extent to which those
companies are addressing Year 2000 compliance
issues.
There can be no assurance that the Company will be
able to develop a contingency plan that will
adequately address issues that may arise in the Year
2000.
In 1999, a contingency plan will be developed in the
event key or critical suppliers or vendors are
unable
to meet the Year 2000 compliance. The timeframe for
completing or documenting contingency plans has not
been finalized.
The Company's Year 2000 plans are based on
management's best estimates. Based on currently
available information, management does not believe
that the Year 2000 issues will have a material
adverse impact on the Company's financial condition
or results of operations; however, because of the
uncertainties in this area, no assurances can be
given in this regard.
Item 7. Financial Statements.
Financial statements as of and for the year
ended August 31, 1998, and for the year ended
August 31, 1997 are presented in a separate section
of this report following Part IV.
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
Not Applicable
PART III.
Item 9. Directors, Executive Officers and
Compliance
With Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers
Thomas S. Hughes, President/Director.
Mr. Hughes, Age 52, has been President of the
Company
since March 1997. From 1993 to the present, he has
also served as the President of Electronic
Transactions & Technologies ("ET&T"), a privately
held Nevada corporation which developed terminals
for
wireless home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, founded and is currently President
of Hall Developments, a real estate development
company he founded in 1991, which employs a staff of
10 people. Mr. Hall spends approximately 20 hours
per week searching out strategic alliances for the
Company.
Diane Hewitt, Treasurer/Director.
Ms. Hewitt, age 51, has been an interior designer
since 1991. Currently she owns and manages her own
firm, D. Diane Hewitt Designs. This firm's
expertise
is churches and employs a staff of five people. Ms.
Hewitt currently devotes approximately 25 hours per
week in working with the Company's image development
and consulting with the Company's advertising firm.
(b) Compliance with Section 16(a) of the Exchange
Act
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, certain officers
and persons holding 10% or more of the Company's
common stock to file reports regarding their
ownership and regarding their acquisitions and
dispositions of the Company's common stock with the
Securities and Exchange Commission. The Company is
unaware that any required reports were not timely
filed.
Item 10. Executive Compensation.
The following table sets forth information
concerning
compensation paid by BETTING, INC. for services
rendered during fiscal year 1998, 1997, and 1996 for
the Chief Executive Officer and for each of the
Company's other executive officers whose annual
salary and bonus exceeds $100,000.
Summary Compensation Table
Name
and
Princi
pal
Positi
on
Year
Sala
ry
($)
Bonu
s
($)
Othe
r
($)
Stoc
k
($)
SARs(#
) ($)
Optio
ns/
($)
Compensat
ion
Thomas
Hughes
1998
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
- -0-
Thomas
Hughes
/
1997
- -0-
- -0-
- -0-
375,
000
- -0-
- -0-
- -0-
James
S.
Clinto
n,
Presid
ent
and
Chief
Execu-
tive
Office
r
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 Company's
Common Stock by each person who is known by the
Company to own beneficially more than 5% of the
issued and outstanding shares of the Company's
Common
Stock.
Name and Address of
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.
Langston's common stock shares. The option price is
$100,000, the option may not be exercised prior to
November 23, 1996, and expires on July 24, 1997.
Mr.
Walters, in turn, has assigned the right to purchase
130,750 of such shares to the Claude E. Clinton
Family Trust for which Mr. Clinton, an officer and
director of Leggoons, Inc., acts as Trustee (Mr.
Clinton is not the beneficiary of the trust but has
the right to vote the shares) in consideration of
$50,000 cash and a loan to Mr. Walters in the amount
of $50,000. The option was exercised by Mr.
Walters.
However, the shares are not included in the total
shares for James S. Clinton due to the additional
shares being issued after August 31, 1998.
The following table shows, as of August 31, 1998,
certain information with respect to BETTING, INC.
Common Stock beneficially owned by directors and
executive officers of the Company. Unless otherwise
noted, all shares are owned directly or indirectly
with sole voting and investment power.
Name and Address of
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 past two fiscal years, certain
transactions which occurred between the Company and
its officers and directors are set forth below.
With
respect to each such transaction, the Company
believes that the terms of each transaction were
approximately as favorable to the Company as could
have been obtained from an unrelated third party:
(1) The Company utilized cash accounts maintained
by
ET&T to fund day to day operations of the Company
over the period of March 1998 through September
1998.
At August 31, 1998, the net result of these
transactions is a payable to ET&T of $18,969.
(2) The Company issued 1,000,000 shares of
restricted common stock to Thomas S. Hughes during
May 1997 in exchange for service rendered to the
Company. The Company did not receive any cash
consideration for this common stock issuance and has
treated this as an expense to the Company of
$375,000.
(3) On February 18, 1997, Leggoons, Inc. entered
into an Agreement to License Assets from Home Point
of Sales, Inc.("HPOS") (now known as ET&T) (this
agreement is incorporated by reference at Exhibit
10.1 to this Form SB-2). ET&T is a privately held
corporation 70% owned by Thomas S. Hughes, President
of the Company, which is focused on the emergence of
the Personal Encrypted Remote Financial Electronic
Card Transactions industry (although this agreement
was entered into prior to Mr. Hughes becoming
affiliated with the Company, it is included here
since certain of the conditions under that agreement
have not been completely fulfilled, as discussed
below).
The assets included under this agreement are the
following: (a) The name "Betting, Inc.", as
trademarked by HPOS; (b) The Wagering Gate (receive
incoming data transfer commands from the Host Center
and other competitive Host Centers who have received
ATM and SMART card wagering payment from off site
home or office locations and then who command the
Wagering GATE to alert the recipient gaming
companies
that they have been paid and to respond back with an
acknowledgement of such payment; and, the general
promotion and education of home ATM and SMART card
wagering over the Internet through the HPOS Secure
Computer Keyboard or over the telephone through the
HPOS stand alone Infinity unit); (c) the specific
application of Wagering with an ATM card or SMART
card with the Secure Computer Keyboard (any other
uses of the Secure Computer Keyboard, such as Bill
Pay or Impulse Purchase that are not Wagering
transactions, are not included); (d) the HPOS
developed Merchant Response Software for the
specific
application only of transacting Off Site ATM and
Smart card Wagering through the Wagering Gate; and
(e) HPOS' interest in the use of and revenue from
the
HPOS Personal Encrypted Remote Financial Electronic
Card transaction relating to the Wagering Business
in
all HPOS partner countries.
Under terms of this licensing agreement, the Company
is to issue 2,900,000 shares of restricted common
stock to HPOS in exchange for licensing home ATM
card
and SMART card wagering technology developed by
HPOS.
Of this amount, 2,755,000 shares were placed in
escrow subject to cancellation on February 10, 1998,
in the event the bid price of the common stock of
the
Company is not at least $3.00 per share for any
twenty consecutive day period as reported on the
NASD's Electronic Bulletin Board or NASDAQ's Small
Cap Market from the date of the agreement through
February 10, 1998 (this escrow agreement is
incorporated by reference at Exhibit 10.2 to the
Form
SB-2).
As of the date of this Form 10-KSB, the terms of the
Licensing Agreement have not been met by the
Company.
However, the Company has entered into amendment(s)
of the original agreement that provide for an
extension of the cancellation deadline from February
10, 1998, to September 1, 1999, subject to certain
conditions specified in the agreement. All
conditions set forth in the original agreement need
to be met on or before September 1, 1999.
The License Agreement also provides that in the
event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, then HPOS shall have the
option to purchase up to 13,822,000 additional
shares
of the Company common stock at an exercise price of
$.30 per share.
(4) On April 28, 1997, the Company entered into
a Host Processing Agreement with ET&T for the
purpose
of having ET&T act as the bank host processing for
all Company transactions that are sent by terminals
that read credit cards or ATM cards (this agreement
is incorporated by reference at Exhibit 10.3 to this
Form SB-2). ET&T is to charge the Betting, Inc. a
fee of $0.25 per transaction or 2.5% of the wager
being sent by Betting, Inc. to gaming operators.
These transactions are to originate from globally
placed Betting, Inc. equipment and/or Betting, Inc.
licensed operators.
(5) On March 27, 1998, the Company entered into a
License Agreement with ET&T for the purpose of
licensing additional technology for processing
electronic banking transactions (this agreement is
incorporated by reference at Exhibit 10.4 to this
Form SB-2). This licensing supplements the
technology licensed under the Agreement date
February
18, 1997. This agreement states that ET&T licenses
the following ET&T products to Betting, Inc. for the
exclusive global usage of wagering by PERFECT
originated ATM cards, credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal
that
attaches to phone lines and which calls the ET&T
host
processing center with bank data.
The SLICK, defined as a stand alone keyboard
terminal
that attaches to phone lines and call the ET&T host
processing center with bank data that has bypassed
the Internet.
The PocketPay, defined as a pocket sized terminal
and
telephone that sends bank data by wireless
transmission to the ET&T host processing center.
The TV Pin Pad Remote, defined as a set top box and
TV remote that sends bank data by landline dial up
transmission to the ET&T host processing center.
Each ET&T product is exclusively licensed to
Betting,
Inc. on a global basis for the application of
PERFECT
wagering at a licensing fee of $2,000,000 each. The
duration of the exclusive license is 20 years. The
licensing fee is to be paid by the Company at the
rate of $30,000 per month; however, under the terms
of this License Agreement, this fee is not due and
payable until the technology for a particular
product
covered by the license has been perfected and is
ready for public use. As of the date of this Form
10-KSB, none of the products covered by the License
Agreement had been perfected, and, therefore, no
licensing fee is required to be paid at this time
(when this does occur, a statement to that effect
will be placed in a future report filed by the
Company).
PART IV.
ITEM 13. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Index to Financial Statements and Schedules
Page
Report of Independent Accountants
16
Balance Sheets of the Company as
of August 31, 1998 and August 31, 1997
17
Statements of Operations for the year ended
August 31, 1998, the year ended August 31,
1997, and the year ended August 31, 1996 .. . . . 18
Statement of Shareholders' Equity (Deficiency)
for the year ended June 30, 1998, the year
ended June 30, 1997, and the year ended
June 30, 1996 19
Statements of Cash Flows for the year ended
June 30, 1998, the year ended June 30, 1997,
and the year ended June 30, 1996 . 20
Notes to Financial Statements 21
(b) Reports on Form 8-K. There are no reports on
Form 8-K filed during the last quarter of the fiscal
year covered by this report.
(c) Exhibits included or incorporated by reference
herein: See Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
eConnect (formerly known as Betting, Inc.)
Dated: August 6, 1999
By: /s/ Thomas S, Hughes
Thomas S. Hughes, President
Pursuant to the requirements of the Securities Act
of
1933, this registration statement has been signed by
the following persons in the capacities and on the
date indicated:
Signature
Title
Date
/s/ Thomas S.
Hughes
Thomas S. Hughes
President, Chief
Executive Officer,
Director
August 6, 1999
/s/ Jack M. Hall
Jack M. Hall
Director
August 6, 1999
/s/ Diane Hewitt
Diane Hewitt
Director
August 6, 1999
George Brenner
CERTIFIED PUBLIC ACCOUNTANT
9300
WILSHIRE BOULEVARD, SUITE 490
BEVERLY
HILLS CALIFORNIA 90212
AUDITOR'S REPORT
Board of Directors
Betting, Inc.
Rancho Palos Verdes
I have audited the accompanying balance sheet of
Betting, Inc. as of August 31, 1998 and the related
statements of operations, changes in stockholders'
equity, (deficit), and cash flows for the years
ended
August 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management.
My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally
accepted auditing standards. Those standards require
that I plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatements. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement
presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Betting, Inc. as of August 31,
1998, and the results of its operations and its cash
flows for the years ended August 31, 1998 and 1997,
in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as
a
going concern. As more fully described in Note 8A
("Continued Existence") to the financial statements,
the Company's recurring losses from operations and
inability to generate sufficient cash flow from
normal operations raise substantial doubt about its
ability to continue as a going concern. Management's
plans in regard to these matters are also described
in Note 8A. The financial statements do not include
any adjustments to reflect the possible future
effects on the recoverability and classification of
assets or the amounts and classification of
liabilities that may result from the possible
inability of the Company to continue as a going
concern.
As discussed in Note 8B ("Common Stock Issued in
Excess of Authorized Shares") the Company is
attempting to convert excess shares of common shares
issued to preferred shares. The effect, if any, of
this uncertainty on the future operations of the
Company cannot presently be determined.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
April 7, 1999
Beverly Hills, California
BETTING, INC.
(formerly Leggoons, Inc.)
BALANCE SHEETS
August 31, 1998
ASSETS
Current Assets:
Cash
$0
Total current assets
0
Total Assets
$0
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable
$283,971
Due to related party
18,969
Commissions payable
21,400
Total current liabilities
324,340
Contingencies (Note 8)
Stockholders' Equity
(Deficit):
Common stock, $.01 par value,
authorized 10,000,000 shares;
issued and outstanding,
14,284,234 (Note 8b)
142,842
Preferred stock, $.01 par
value, authorized 5,000,000
shares; issued and
outstanding - none (Note 8b)
Additional paid-in capital
5,000,420
Accumulated deficit
(5,467,602)
Total stockholders' equity
(deficit)
(324,340)
Total Liabilities and
Stockholders' Equity
(Deficit)
$0
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF OPERATIONS
Year Ended
August 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
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Number
of
common
shares
Par
value
Preferre
d stock
Additiona
l paid-in
capital
Accumulate
d deficit
Stockholders
' equity
(deficit)
Balance at August
31, 1996
2,787,0
00
27,870
0
3,522,792
(3,571,189
)
(20,527)
Issuance of
346,000 shares of
Common stock at
$.25 per share
(Cash Transaction)
346,000
3,460
0
82,040
0
85,500
Issuance of
2,999,734 shares
of Common stock
(1) (Non-Cash
Transactions)
2,999,7
34
29,997
0
925,708
0
955,705
Issuance of
1,710,500 shares
of Common stock at
$.20 per share
(Non-Cash
Transactions)
1,710,5
00
17,105
0
324,995
0
342,100
Net loss
0
0
0
0
(1,699,445
)
(1,699,445)
Balance at August
31, 1997
7,843,2
34
$78,432
$0
$4,855,53
5
($5,270,63
4)
($336,667)
Issuance of
6,441,000 shares
of Common stock
at various $ per
share [1] (Non-
Cash Transactions)
6,441,0
00
64,410
0
144,885
0
209,295
Net loss
0
0
0
0
(196,968)
(196,968)
Balance at August
31, 1998
14,284,
234
$142,842
$0
$5,000,42
0
($5,467,60
2)
($324,340)
(1) S-8 common shares valued at market value on day
of issuance; Restricted common shares valued at
market value on day of issuance less 50% discount;
Common shares for which no performance was received
valued at par value of $.01 per common share.
See accompanying notes to financial statements and
accompanying auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended August
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 auditor's report
BETTING, INC.
(formerly Leggoons, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended August 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION
Betting, Inc. (the "Company") is positioning itself
to facilitate same as cash ATM card or smart card
transactions that are originating from bank host
processing centers and are being sent to gaming
operators. These transactions are being effected
with electronic equipment that allows self service
pay per play and no actual communications between
the
player and the gaming operator. These type of
transactions will be originating from homes,
offices,
and public walk in locations. The Company will act
as the interface that will communicate data to the
gaming operators, receive back their acknowledgment
of the transaction and then pass on this gaming
acknowledgment to the bank host processing center
that has been standing by for this information and
has already completed the bank authorization of the
pay per play transaction. The business model of the
Company is to receive a fee per transaction paid to
Betting, Inc. by the bank host processing center at
the moment of the transaction. In general, this fee
will be from between 2% to 6% of the wager placed on
a pay per play or a $6 flat fee in the case of an
account being opened. The Company has many
characteristics commonly associated with a
development stage company. A development stage
company devotes substantially all of its efforts to
establishing a new business and its planned
principal
operations either (a) have not commenced or (b) have
commenced, but have not produced any significant
revenue. However, due to the company's previously
established operation as a public shell, a
development stage company presentation is not
appropriate for these financial statements.
Leggoons, Inc., was engaged in the design,
manufacture and distribution of apparel and related
accessories which were sold to better specialty and
department stores nationwide under the brands:
Leggoons, CPO by Leggoons, John Lennon Artwork
Apparel and Snooggel. On January 19, 1996, Leggoons,
Inc., adopted a formal plan to discontinue the
designing, selling, manufacturing and distribution
of
its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30,
1996, and intended to either sell or liquidate the
operations within twelve months of that date. On
June 12, 1996, Leggoons, Inc., transferred all of
its
assets and liabilities to a third party assignee,
under an "Assignment for Benefit of Creditors." An
Assignment is a business liquidation device
available
as an alternative to bankruptcy. The third party
assignee, a Nebraska corporation named Leggoons,
Inc.
II, is required to properly, timely and orderly
dispose of all remaining assets for the benefit of
creditors. Leggoons, Inc., continued to maintain
its
status as a shell corporation.
On February 18, 1997, Leggoons, Inc., entered into
an
Agreement to License Assets from Home Point of
Sales,
Inc.(HPOS). HPOS is a privately held corporation
focused on the emergence of the Personal Encrypted
Remote Financial Electronic Card Transactions
industry. This industry provides consumers with the
option to instantly pay bills or impulse purchase
from home with real time cash transactions.
Management believes the proprietary technology and
the large demand for wagering opportunities in
today's marketplace will combine to generate
substantial sales for Leggoons, Inc., over the
medium
term.
Under terms of the Licensing Agreement, the Company
will issue 2,900,000 shares of restricted common
stock to HPOS in exchange for licensing home ATM
card
and SMART card wagering technology developed by
HPOS.
Of this amount, 2,755,000 shares will be placed in
escrow and are subject to cancellation on February
10, 1998, in the event the bid price of the common
stock of the Company is not at least $3.00 per share
for any twenty consecutive day period as reported on
the NASD's Electronic Bulletin Board or NASDAQ's
Small Cap Market from the date of the agreement
through February 10, 1998.
As of the date of these financial statements the
terms of the Licensing Agreement have not been met
by
the Company. However, the Company has entered into
amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to
certain conditions specified in the agreement. As
of
the date of these financial statements, none of the
conditions have been met. All conditions set forth
in the original agreement need to be met on or
before
September 1, 1999.
The License Agreement also provides that in the
event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, then HPOS shall have the
option to purchase up to 13,822,000 additional
shares
of the Company common stock at an exercise price of
$.30 per share.
Thomas S. Hughes, Chairman of HPOS, became Chairman
and President of Leggoons on March 1, 1997. He will
focus on procedures, policies and State approvals to
begin home lottery, off track betting, casino and
sports ATM card and SMART card wagering. The
Company
intends to seek shareholder approval of its name
change from Leggoons, Inc. to Betting, Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon
consummation of a transaction
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand,
demand deposits, and short-term investments with
original maturities of three months or less.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to
expense
when incurred. Costs incurred to internally develop
software, including costs incurred during all phases
of development, are charged to expense as incurred.
STOCKHOLDERS' EQUITY
The following valuation policies were used so that a
financial value can be assigned to stock issuance
transactions: the closing "market" stock price on
the
day of each common stock issuance was used to
determine "fair market value" of unrestricted common
shares issued; the closing "market" stock price on
the day of each common stock issuance less a 50%
discount was used to determine "fair market value"
of
restricted common shares issued. Common shares that
were issued and for which no performance was
received
were valued at par value, $.01 per share.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed
using the weighted average number of common and
common equivalent shares outstanding during the
period. Shares issuable pursuant to outstanding
stock warrants have been excluded from the
computation as the effect is antidilutive. Fully
diluted net loss per share for all periods presented
is not materially different from primary loss per
share.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for temporary
differences between the bases of assets and
liabilities for financial statement and income tax
purposes. If it is more likely than not that all or
some portion of a deferred tax asset will not be
realized, a valuation allowance is recorded. (See
Note 2)
USE OF ESTIMATES
The preparation of financial statements in
conformity
with generally accepted accounting principles
requires management to make estimates and
assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenue and expenses
during the reporting period. Actual results could
differ from those estimates.
(2) INCOME TAXES
Betting, Inc., has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at August
31, 1998, that were generated by Leggoons, Inc. The
unused net operating losses expire in various
amounts
from 2009 to 2012. However, due to change of
ownership rules of section 382 of the Internal
Revenue Code some or all of these NOL carryforwards
may be unavailable to offset any future income of
Betting, Inc. The Company generated losses of
approximately $1,658,000 during the six month period
ended August 31, 1997, and losses of approximately
$197,000 during the year ended August 31, 1998.
These losses, totaling $4,655,000 may not qualify as
federal and state NOL carryforwards due to the
possible nondeductibility of the noncash service
costs incurred and the change of ownership rules of
section 382 of the Internal Revenue Code. The
Company provides an allowance for the entire amount
of any deferred tax assets that are applicable to
the
NOL.
(3) COMMON STOCK WARRANTS
The Company had outstanding warrants to purchase
approximately 900,000 shares of common stock. The
warrants were exercisable at $3.75 per share and
expired on November 18, 1997.
(4) STOCKHOLDERS' EQUITY (DEFICIT)
During the period September 1, 1997, through August
31, 1998, the Company issued 6,441,000 shares of
common stock for services rendered and payments on
accounts payable. For the shares of common stock
issued for services rendered during the period
September 1, 1997, through August 31, 1998, the
following valuation policies were used so that a
financial value could be assigned to the stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the
1,369,000 unrestricted common shares issued; the
closing "market" stock price on the day of each
common stock issuance less a 50% discount was used
to
determine "fair market value" of the 2,322,000
restricted common shares issued. Common shares that
were issued and for which no performance was
received, 2,750,000 shares, were valued at par
value,
$.01 per share. For the 2,750,000 shares of common
stock issued for which no performance was received a
stop has been placed on the stock certificates with
the Company's stock transfer agent.
For the period September 1, 1997, through August 31,
1998, the financial value of the common stock issued
for no cash consideration is required to be expensed
by the Company. The "fair market value" of such
common stock issued, $153,160, has primarily been
expensed as $122,020 in consulting fees and $31,140
in general and administrative expenses during the
year ended August 31, 1998. Some of the common
stock
shares issued were registered with the Securities
and
Exchange Commission using Form S-8 Registration
Statements.
During the period March 1, 1997, through August 31,
1997, the Company issued 4,710,234 shares of common
stock for services rendered. For the 2,999,734
shares of common stock issued for services rendered
during the period March 1, 1997, through May 31,
1997, the following valuation policies were used so
that a financial value could be assigned to the
stock
issuance transactions: the closing "market" stock
price on the day of each common stock issuance was
used to determine "fair market value" of the 520,000
unrestricted common shares issued; the closing
"market" stock price on the day of each common stock
issuance less a 50% discount was used to determine
"fair market value" of the 1,725,734 restricted
common shares issued. Common shares that were issued
and for which no performance was received, 754,000
shares, were valued at par value, $.01 per share.
For the 1,710,500 shares of common stock issued for
services rendered during the period June 1, 1997,
through August 31, 1997, an average closing stock
price of $.20 was used to determine "fair market
value" of each share issued so that a financial
value
could be assigned to the stock issuance
transactions.
For the period September 1, 1996, through August 31,
1997, the financial value of the common stock issued
for no cash consideration is required to be expensed
by the Company. The "fair market value" of such
common stock issued, $1,297,805, has primarily been
expensed as $304,240 in consulting fees, $445,128 in
research and development costs, $500,000 in software
development costs and $48,437 in general and
administrative expenses during the year ended August
31, 1997. Some of the common stock shares issued
were registered with the Securities and Exchange
Commission using Form S-8 Registration Statements.
(5) RELATED PARTY TRANSACTIONS
COMMON STOCK ISSUED
The Company issued 1,000,000 shares of restricted
common stock to Thomas S. Hughes during the year
ended August 31, 1997. The Company did not receive
any cash consideration for this common stock
issuance
and was valued at $375,000. See Note (4).
The Company issued 286,234 shares of restricted
common stock to former associates of Thomas S.
Hughes
at a company called Betts, Inc. The restricted
common shares were valued at $41,864.
TRANSACTIONS WITH HPOS
The Company utilized cash accounts maintained by
HPOS
to fund day to day operations of the Company.
Thomas
S. Hughes is the Chairman of both the Company and
HPOS. At August 31, 1998, the net result of these
transactions is a payable to HPOS of $18,969.
DUE TO STOCKHOLDER
The Company had a due to stockholder payable to
James
S. Clinton, former Chairman of Leggoons, Inc., in
the
amount of $35,135 for advances made to Leggoons,
Inc., prior to March 1, 1997. This was paid in full
by the issuance of 750,000 shares of restricted
common stock during the year ended August 31, 1998.
(6) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In the fourth quarter of 1998 and 1997, the Company
recorded adjustments that increased its net loss by
approximately $27,500 and$1,558,000, respectively.
These adjustments were primarily related to the
issuance of common stock for no cash consideration.
(7) CASH FLOW AND INCOME STATEMENT RECONCILIATION
The following reconciles noncash financing
transactions for the years ended August 31, 1998 and
August 31, 1997:
1998
1997
Net loss from Continuing Operations
$43,808
401,640
Issuance of common stock for Consulting
Fees and General and Administrative
Expenses
153,160
1,297,805
Income Statement Net Loss
$196,968
$1,699,44
5
(8) CONTINGENCIES
(A) CONTINUED EXISTENCE
The Company's financial statements are presented on
the going concern basis, which contemplates the
realization of assets and satisfaction of
liabilities
in the normal course of business. As shown in the
accompanying financial statements, the Company has
shown a significant loss from operations and has
negative working capital and a stockholders'
deficit.
This raises substantial doubt about the Company's
ability to continue.
The Company's continued existence is dependent upon
its ability to resolve its liquidity problems,
principally by obtaining additional debt financing
and equity capital and ultimately upon achieving
profitability. While pursuing additional debt and
equity funding, the Company must continue to operate
on limited cash flow. Management is committed to
developing the product and continues to receive
small
amounts of funding from private investors. It is
the
goal of management to receive additional funding
from
an additional public offering of its common stock
within twelve months.
There is no assurance that the Company can achieve
the profitability and positive liquidity discussed
above. The financial statements do not include any
adjustments to reflect the possible future effects
on
the recoverability and classification of assets or
the amounts and classification of liabilities that
may result from the possible inability of the
Company
to continue as a going concern.
(B) COMMON STOCK ISSUED IN EXCESS OF AUTHORIZED
SHARES
During the year ended August 31, 1998, the Company
issued a total of 6,441,000 shares of common stock.
This has resulted in the total issued common shares
exceeding the 10,000,000 common shares authorized by
4,284,234 common shares. Most of these shares were
to have been preferred stock. Due to an error that
was discovered after the close of the year, however,
all of the shares were issued as common shares,
resulting in the Company issuing more common shares
than its articles of incorporation authorize. The
Company is in the process of "recalling" these
certificates totaling 4,550,000 shares and replacing
them with preferred certificates. The net result
will not be significantly different. Holders of
preferred shares will have a priority over common
stockholders with respect to dividends and
liquidation rights, but no dividends are required or
anticipated. The preferred stockholders will have
voting rights equal to those of the common
stockholders. The stockholders' equity (deficit)
section of the balance sheet then would be restated
as follows to take into account the preferred stock:
August 31,
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.
EXHIBIT INDEX
Number
Exhibit Description
3.1 Leggoons, Inc. Articles of Incorporation and
Amendments, incorporated by reference to Exhibit 3.1
of Leggoons, Inc. Registration Statement on Form S-1
filed on October 28, 1993.
3.2 Leggoons, Inc. Bylaws Amended, incorporated by
reference to Exhibit 3.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
4 Class A Warrant Agreement, incorporated by
reference to Exhibit 4.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
10.1 Agreement to License Assets (incorporated by
reference to Exhibit 10.16 to the Form 8-K filed on
February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to
Exhibit 10.17 to the Form 8-K filed on February 25,
1997).
10.3 ET&T Host Processing Agreement (see below).
10.4 ET&T Licensing Agreement (see below).
27 Financial Data Schedule